You don’t need to read the financial news to know that the economy isn’t doing well right now. Chances are, you know just by the foreclosure signs, businesses shutting down, and jobs being cut. But even if these hard times have hit you, it’s important to keep managing your student loans. And ASA is here to help! Why Is It Important to Deal with Your Student Loans? You have a lot on your plate right now—and probably a bunch of other expenses. Why are student loans such a big deal? Not paying your student loans on time causes you to enter delinquency and, if you don’t make any loan payments for 270 days (9 months), to default on your loans. When you default, your entire loan balance is due at once, and the following negative consequences may happen:
– Up to 15% of your wages may be garnished (taken out of your paycheck) to repay your debt.
– Your entire federal tax refund may be seized to repay your defaulted student loans. Some state tax refunds may be seized as well.
– Your credit report will be immediately and very negatively affected.
– An employer may withdraw a job offer based on your poor credit report.
– You could be turned down for a mortgage, car loan, apartment lease, credit card application, or other credit due to your defaulted loans.
– You will be ineligible for additional federal financial aid until you make 6 qualifying, on-time payments.
Make Your Payments More Manageable Now that we’ve cleared up why paying your students loans is so important, let’s talk about how to pay them—especially when money gets tight. Did you know that you can choose one of several monthly payment plans for your federal student loans? When you need to lower your monthly loan bills, consider one of repayment options below.
–Graduated repayment lets you start out making smaller payments for up to the first 4 years, then move up to larger payments over time. You will eventually pay more interest on your loans using this plan.
–Extended repayment works for borrowers with larger loans. It spreads out payments over 25 years, so monthly payments are low. You will pay more interest on your loans when you use this plan.
–Income-Sensitive repayment let you pick a monthly payment equal to any amount between 4% and 25% of your monthly income before taxes. You may be able to use this option for up to 5 years, and it may extend your repayment term to up to 15 years. You will pay more interest on your loans when you choose this plan.
–Consolidation allows you to combine many of your loans into 1 single, new loan with 1 monthly bill, lower your payments, and extend the timeline of your loan. You will pay more interest on your loans when you consolidate.
To change your repayment plan or just double-check which one you’re currently using, call your lender or servicer (the company to whom you send that check every month!).
When You Can’t Pay Your Loan Bill: Take Action! You’ve read the list of consequences for delinquency and default, so you know that simply stopping paying your loans isn’t a viable option. But what do you do if you’ve hit a rough patch and you just don’t think you can pay your loans for a while? You need to call your lender or servicer (again, that’s the company to whom you send the loan payment) right away. Tell them you’re having trouble, and ask them for help. Chances are, after you’ve discussed repayment plans, you’ll move on to talking about deferment and forbearance. Deferment is when your lender or servicer allows you to temporarily stop paying your loans. Under certain circumstances, which have been defined by law, being granted a deferment is a borrower’s right. Forbearance also allows you to temporarily stop paying your loans, but your lender or servicer grants you forbearance based on its discretion, usually in cases of illness or unemployment. Your loans continue to build up interest during forbearance, and therefore you end up paying more over the long run.
Keep in mind that you should continue making loan payments until you receive confirmation in writing from your lender or servicer that you have been granted a deferment or forbearance! ASA Is Here to Help
Remember, ASA is here to help you successfully repay your loans. In my next blog, I’ll talk about some simple steps you can take to cut expenses, control your consumer debt, and navigate the holidays without busting your budget. In the meantime, check out our borrower site for more tips and tools. Because you can stay on track during these tough times!
Posted by Michael Ryan on November 27, 2008 at 03:43 PM EST
As a point of clarification, the interest RATE does not increase with the selection of any available repayment option; it’s simply a function of extending the time the debt is outstanding. As with any form of borrowing, the sooner the loan is repaid, the less overall interest will be paid by the borrower. Paying your loans on the original schedule, or even faster, will always be less expensive than postponing or stretching out payments. That’s great if you can do it, but the point is not everyone can do so, and it’s helpful to have options to work through periods of difficulty which require lower payments. Even if that means paying more interest, choosing a repayment option that enables you to effectively manage your debt is always better than defaulting. You always have the option to make up ground later: when you are able to do so, paying more than the scheduled payment will reduce your loan balance quicker, which will reduce your total interest cost.
It’s also worth mentioning that some borrowers may be able to benefit from a new Income Based Repayment option will become available in July, 2009. It caps monthly payments (and adjusts them each year) based on a percentage of the borrower's discretionary income, taking into account the borrower's family size and amount borrowed, and it forgives any loan amount still unpaid after 25 years of payments.
If you’d like to discuss specific options for your situation, please feel free to contact an ASA Repayment Specialist at 866.493.5563 or specialist@amsa.com.
Posted by Mike Ryan on December 05, 2008 at 11:28 AM EST
Notice how ALL repayment options result in "you will increase your interest payment". Regardless of your financial status and changes.... you will pay far and away MORE than you borrowed and possilby for the rest of your life. What happens if your forced to retire and your student loan payment is larger than your medicare subsidy because I'll be paying off somewhere between 4 and 6 times what I borrowed?
Posted by achein on November 26, 2008 at 12:49 PM EST
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Michael T. Ryan is Vice President of Borrower Services for American Student Assistance, a position he has held since joining ASA in February, 2003. Mr. Ryan heads ASA’s Borrower Services Division, which is responsible for all aspects of the management and delivery of service to borrowers in ASA’s education loan portfolio, including all default prevention and recovery efforts.
In his 20-plus year career in higher education financing, Mr. Ryan has held key management positions at the Massachusetts Educational Financing Authority (MEFA), and Key Education Resources (formerly Knight Tuition Payment Plans). As MEFA’s Associate Director for Programs and Operations, Mr. Ryan facilitated MEFA’s entry as a Federal Family Education Loan Program (FFELP) provider. He also played an instrumental role in the introduction of the U. Fund, (MEFA’s Section 529 College Investing Plan), managed MEFA’s U. Plan (Prepaid Tuition Program), and was responsible for the operation of MEFA’s loan programs.
While at Knight and Key, Mr. Ryan held progressively responsible management positions, from Account Manager to Senior Vice President.
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