Better Credit…Better Options
Student loans are an installment account that has been taken out by a borrower to pay for school and/or school related expenses. There are private student loans available, but the majority of student loans are federal student loans in which the borrower signs a promissory note to pay the loan back. There are subsidized student loans and unsubsidized student loans and interest does not accrue while the student is in school on subsidized student loans.
Student loans can’t be discharged in bankruptcy unless they create an “undue hardship” on the borrower. Being that student loans are a federal debt they are governed much different than many unsecured debts, collections, and even many other secured debts as well. However, being that student loans are federal debts there are many ways that they will work with you depending on your current circumstances. In certain circumstances you may be able to file for deferment or forbearance of your student loan in order to postpone or reduce your federal loan payments to avoid defaulting.
There are also income-based repayment plans as well available for those that qualify. There are many different issues that arise with consumers about student loans and the way they are showing up on credit reports however. Many consumers may have filed for a deferment or forbearance on their student loan, but for some reason their credit report shows they have defaulted. Some consumers may have not been approved for the deferment or forbearance and thought they were and accidently defaulted on their student loan or didn’t realize when their payment was due after they left school.
Due to many students leaving when they get out of school if they do not provide and updated address or a forwarding address they may not receive their student loan bills which could cause them to default on their student loan. In some cases there might have been multiple student loans taken out by one individual and possibly at different times with different account services which can make it very complicated for consumers on which accounts they are supposed to pay and when and also many think they are paying their student loans, but may not realize that they are not paying one or more that are separate which could cause them to default. We have witnessed many different situations in which student loans were either defaulted on or are just reporting completely inaccurately on consumer’s credit reports.
If you are currently in default on one or more student loans the first thing you need to make sure you do is find a way to get current or working something out with the loan servicer. If you are in default on your student loan it can have very damaging impacts on your credit score and as well collection efforts may result which could include them taking the money from your tax returns as well to pay those student loans. In addition, if you are in default on a federal loan such as a student loan you are not able to obtain a federally backed mortgage until you are current as well. One of the biggest frustrations and the most common questions we get from consumers are about student loans on credit reports and the amount of inaccuracies and errors that are reporting on their credit. If you are currently experiencing issues on your credit report with your student loans it is a good idea to give us a call for a free credit analysis.
We have seen many consumers spend hours and hours trying to get these errors rectified on their credit report and be unsuccessful due to the reasons the errors are there in the first place. We would be happy to provide you with information on your options for your student loan and to make sure you are current. Once you are current for certain periods of time there are internal policies that many times the lender reporting the late payments will agree to remove once payments are made on time for a certain period of time usually 6-12 months. If there are errors we would want to evaluate your credit report to find out where these errors might be resulting from and come up with a plan of action to help you fix your credit situation.
If you are currently experiencing any credit reporting issues with your student loans give us a call for a free in depth credit analysis at 1-888-799-7267
Deferment is an agreement to defer or delay the repayment of principal and interest on your student loan. The government may choose to pay the interest on your student loan during the deferment period depending on your loan type. If you are going to school part time, are unemployed or not full-time employed, during the study period of an approved graduate fellowship program or for an approved rehabilitation training program for the disabled, during a period of economic hardship, during active duty military service during a war, national emergency, or military operation, and some other circumstances it is possible that you could qualify for a deferment. To apply for deferment contact your federal student loan servicer(s).
If you are unable to qualify for deferment, but you can’t afford your student loan payments, you can apply with your loan servicer and they may grant you forbearance. If you are granted forbearance then you can make smaller payments or may not have to make payments for up to 12 months, but interest will continue to accrue on your student loan. A discretionary forbearance is when your lending decides whether to grant you forbearance due to illness or financial hardship. In mandatory forbearance the lender is required to grant you forbearance if you meet certain criteria such as: if the total payments of all of your student loans are equal to or greater than 20% of your total monthly income (some conditions apply), if you are serving in a national service position where you received a national service award, if you are performing a teaching service that would meet the criteria of teacher loan forgiveness, if you are member of the National Guard and you were activated by a Governor, but not eligible for military deferment, if you are in a medical or dental residency or internship program (specific requirements), or you may qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program. Many times you will have to provide documentation for forbearance; if you are looking to apply then contact your loan servicer. If you are unable to qualify for deferment or forbearance you still may be able to qualify for a reduced payment plan through your loan servicer.
Teacher Loan Forgiveness– is a program designed to encourage individuals to continue or get into the teaching profession. There are requirements on time of services and type of services and limitations of up to $17,500 in forgiveness of student loans.
Income Based Repayment Plan
If you have at least a partial financial hardship you may qualify for an Income-Based Repayment Plan (IBR) on your student loans. The payment amount in an IBR may increase or decrease annually depending on your income and family size, however once you are under the plan you would be allowed to continue to make payments under the plan even if you become no longer under a partial financial hardship. These plans are typically made over 25 years and would never be more than the 10-year standard repayment amount. The amount you pay in an IBR is typically 15% of your discretionary income.
Discretionary Income– is and adjusted gross income minus the poverty guidelines for the size of the family
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