Below is an interesting question and answer session regarding private student loans. Read below for some great advice from Steve Rhodes, the Get Out of Debt Guy!
Question:
Dear Steve,
So I have private loans and a few federal loans my month payment currently is for all my loans is about $1000. My employer has been helpful by letting me work OT to make this happen. Currently working 12 hours of OT a week. But that is about to end, they are working on eliminating OT for all employees. So that will drop my money to allow me to pay only $779. The problem is about the $1000 is all the lender told me I could get my payment lowered. I would not pay any less to my federal because they seem more important but my private loans will take a hit.
I am looking for direction, I got no help from the lender, and wondering what would happen is I just paid a little but not full payment to each private loan. Will the payment still go to default?
Kenny
Answer:
Dear Kenny,
I applaud you for understanding the overtime solution is not sustainable and will collapse at some point, leaving you stranded on payments you can’t afford. So many people don’t look forward enough to see those issues brewing.
The partial payment strategy does not solve the problem. You will probably be charged a late fee and you will move towards default, but just a little slower.
Private student loan lenders are not required to make any payment affordable. They don’t have to adjust the payment and they can hold you to the original payment you agreed to when you took out the loan.
That being said, private student loan lenders often allow someone to defer payments or pay a lower amount. That actually just causes your loan balance to grow exponentially. They will be tacking on interest to the unpaid balance. It is so ironic that people jump for the deferred payment option when they can least afford to pay the loan but it just makes the unaffordable loan bigger still.
You have a few logical options.
You can clear the decks of any unsecured consumer debt you may have to make room for your full student loan payments. To do that you should talk to a local bankruptcy attorney. And in fact, some of your private student loan debt may be easily discharged in bankruptcy. Read this for more information.
You can get your federal student loans onto an income based repayment program and lower the payment to make more room for the private student loans. See my guide on low payment programs here. But beware, these low payment solutions can be a trap if not used correctly. Please read why, here.
If the private student loans are simply unaffordable, you might just have to default completely. Defaulting is not the first strategy but it does have some benefits. Read this article on the top ten reasons to default on your private student loan.
There are some new federal repayment options coming out soon. If you’d like to be notified about them I would suggest you subscribe to and watch my email newsletter. You can subscribe here.
Steve Rhode – Consumer Debt Expert Get Out of Debt Guy – Twitter, G+, Facebook
After four years of university study and several more for a second or third degree, students are left with tremendous debt and a big hole in their pockets. Despite attempts to stay within a budget, find secure employment and start a payback plan, graduates find themselves stuck in the mire of financial obligations and bank loans.
Not all graduates face the same fate and the type of degree can determine the ease of finding proper employment as well as the salary associated with it. For example, many educators today view a humanities degree as practically useless when it comes to procuring a job with any semblance of sufficient income and specialty degrees such as those in the medical, dental or engineering fields require extra years of study and hence additional loans.
According to an article published in The Atlantic in March 2014, even those who continue on with their studies and obtain humanities Ph.D.s have job prospects no better than those who end their studies earlier. In the Atlantic article, English professor William Pannapacker suggested that a humanities Ph.D. “will place you at a disadvantage competing against 22-year-olds for entry-level jobs that barely require a high-school diploma.” Pannapacker went on to advise would-be graduate students to recognize that a humanities Ph.D is now a worthless degree and they should avoid going into further debt in order to acquire one.
Andrew Green, associate director at the Career Center at the University of California, Berkeley has a different take on the situation. He admits that there is no doubt that humanities doctorates have struggled with their employment prospects, but he points to less widely known data showing that between a fifth and a quarter of these doctorates go on to work in well-paying jobs in media, corporate America, non-profits, and government.
Paula Chambers, founder of Versatile Ph.D., a service that prepares graduate students for the non-academic job market, takes a positive view of the employment situation for humanities graduates. Chambers points to humanities Ph.D.s in many industries far removed from academia such as a Ph.D. in Greek and Roman history who landed a marketing job at a wine estate, a Ph.D. in British history who is now a branch chief at the National Parks Service or a Ph.D. in Classics exerting influence as a director at a hedge fund.
But were these the goals set by humanity students when they started their graduate education? How long will it take them to repay the loans they incurred in order to reach the academic level they did?
When it comes to graduates in other disciplines, the numbers aren’t much better. According to a research study conducted by UK specialist insurer, Endsleigh and reported in England’s Guardian in August 2014, only 34% of the then recent graduates had found full-time work in the career of their choice.
The vast majority of graduates do, eventually, find work, but often it is in a different field to their degree. According to Higher Education Statistical Agency figures for 2012-2013, only 8% of the students surveyed were unemployed six months after leaving university. But how much were they earning? The Endsleigh survey found that almost half (48%) of them said their current wage was lower than expected, with 57% currently earning £15,999 or less with the average salary around £20,000. Certainly not enough to pay back all the debts accrued over the years of study.
One of the solutions to the debt-study dilemma that has proven successful but which may not be appropriate for everyone is to work while attending school. Both small and large corporations are eager to employ students who will agree to a lower salary while attending classes towards their degree. On some levels it is a win-win situation. The student gains work experience and has some income towards his/her studies while the hiring firm pays less for a worker who, at the end the tenure, may well prove appropriate to the position and be taken on as a permanent member of the staff without the need of retraining for the job.
In the above situation, although there no guarantee of employment upon completion of the student’s degree, at least an accumulated debt of untold proportions has been avoided.
The most obvious direction to choose for avoiding education loans is simply to postpone studies altogether until the money is there. But this is a catch-22. No education, no job. No job, no money. What is a student to do?
The problem of student debt is growing. Here are the statistics according to a report posted on CNBC in June, 2015, and the numbers are staggering: There is more than $ 1.2 trillion in outstanding student loan debt, 40 million borrowers and an average balance of $ 29,000. The high levels are serving to perpetuate or even worsen economic inequality and are undercutting the opportunity and social mobility that higher education should provide.
Perhaps one way to avoid the debt altogether would be for students to plan to put away a small amount of money on a steady basis as soon as they are able and to learn how to invest their money early on in their lives. Opening an investment account with a good broker can be done at any age with the approval of an adult and as an individual from the age of 18. Investing can also be fun but learning to do it properly requires at least the minimum of training and education.
With today’s precarious global financial situation accelerating, it appears that the question of student debt and its repercussions remains a large part of the economic equation.
We’ve all heard the stories. Whether from our friends, colleagues, adult children, or through our own experiences, we know that student loan debt is taking a huge toll on students and graduates across the country. With the total volume of outstanding student debt amounting to well over a trillion dollars, we’ve heard stories of its impact on home buying, saving, the start of new businesses, new families, and more.
This summer, we had the pleasure of meeting Dani who shared her story with us. Her story was similar to many of the stories we receive on student debt. Dani, who graduated with a degree in elementary education, wasn’t making a lot of money. She was struggling to make ends meet and pay down her student loans. She was living in a family member’s basement located over an hour away from her job, driving a car in desperate need of repair, and trying to balance the cost of groceries against her student loan payments. At one point, she could not pay her student loans and received threatening calls as a result.
“I can’t even tell you the number of times I’ve cried over my finances… It’s not like I’m going out and saying, ’Oh, I don’t have to pay those.’ I want to, and it’s really hard to deal with not being able to.”
Dani was on a one-year reduced payment plan, but it was about to expire. She knew that her income still wasn’t enough to manage a full student loan payment so, before the reduced payment plan expired, she contacted her student loan servicer to find out what steps she needed to take to stay on the plan. Although they assured her that she’d be able to do so, her request to extend the plan was eventually denied. Dani continued to try to work with her student loan servicer but she was getting nowhere.
“I needed help. I contacted the CFPB because I really needed someone else on my side. There’s nothing that I was doing with this private student loan servicer that was changing anything, and I was stuck in a position that felt hopeless…”
The loan servicer reviewed her account and determined she was indeed eligible to stay on the reduced payment plan for another year. By reaching out to the CFPB, Dani was able to take charge of her student loan debt.
“It’s such a relief to be able to not have to worry about if I’ll have money for gas to get to work; or, not have to worry about whether or not I’ll have something to eat that week; or being able to afford a place to live.”
We’re glad that Dani got the help she needed by reaching out to the CFPB. Whether you’re struggling with student loans or planning how you’ll pay for college, we have tools to help you. You have the right to take charge of your student loan debt, so let us help you along the way.
To learn more about our recent work to help student loan borrowers, read our report on Student Loan Servicing.
Earlier this year, we asked you to share your stories about student debt stress. More than 30,000 of you responded, telling us that student loan servicers (the companies that send you a bill each month) can make it harder to manage your loans and may contribute to our nation’s growing student loan default problem.
Last week, we published a report based on your stories and issued a call for industrywide reforms to protect consumers.
Building on this work, today, we released our annual report on student loan complaints , taking a closer look at the problems experienced by certain student loan borrowers. We are particularly concerned about repayment problems facing those with older federal student loans that were made by banks and other private lenders. We found that servicing issues may make repaying student debt even harder for this group of borrowers, in particular.
Federal student loan borrowers may have loans made directly by the Department of Education (Direct Loans) or loans made by a private lender. Most federal student loans were made by private lenders until 2010 when the program (known as the Federal Family Education Loan Program or FFELP) was ended. These loans were once the most common way to borrow for college and borrowers with these loans still make up nearly a third of all student loan borrowers— owing more than $ 370 billion in outstanding debt.
Today’s report found that federal student loans made by private lenders may have a greater rate of borrowers in default and delinquency than the broader student loan market. This raises concerns about whether distressed borrowers with these loans are getting adequate information on repayment options from their servicers.
In fact, while the CFPB estimates that more than one-in-four student loan borrowers are delinquent or in default market-wide, today’s report reveals that at least 30 percent of FFELP borrowers—more than five million in total— are behind on their loans or are already in default. As one FFELP borrower told us:
“I have a loan with [servicer] and I have not been given any help dealing with my payment options. I have filled out applications for an [income-based repayment plan] and forbearance. Customer service is constantly giving me false information and not helping me to get my payments lowered…Please, help me. I am trying hard not to allow my loans to go into default. I am not trying to ignore my loans but how can I pay a $ 2,000 monthly payment. They are not helping me to resolve this payment to a payment that I can afford.”
Today’s report also notes:
Borrowers with federal loans made by private lenders report that they run into roadblocks when trying to access income-driven repayment plans, despite the right under federal law to do so. Borrowers with these loans generally have a right to enroll in payment plans that set their monthly payment based on their income. The complaints we received show that some student loan borrowers had trouble getting accurate information, having paperwork processed on time and staying on track once they were able to enroll. These problems can increase costs for borrowers and may contribute to driving some borrowers into default.
More than 1-in-5 of these borrowers are past-due or are not making payments, but are not yet in default. We also asked some of the largest student loan companies to share information about how their customers with these loans are doing. We looked at a sample of this data and found that more than 12 percent of these borrowers are behind and more than 10 percent are in forbearance (asking their servicer to let them take a break from making payments)—potentially signs of significant distress. We also know that more than four million borrowers with these loans are already in default, based on data published by the Department of Education.
Ninety-five percent of these borrowers are not enrolled in income-driven repayment plans. For the first time, today’s report sheds light on how many of these borrowers are enrolled in income-driven repayment plans. We found that, despite the widespread availability of these plans, the overwhelming majority of borrowers in our sample were not enrolled. This is particularly concerning given that borrowers in the standard monthly payment plan default on their loans at nearly five times the rate of borrowers who enrolled in income-based repayment, by one recent estimate.
Continuing signs of student debt stress among borrowers with federal loans made by private lenders is cause for concern. There remain many unanswered questions about how these borrowers fare over time, in part because there is very little public information available about the performance of federal loans made by private lenders.
Today’s report also calls for better information about the entire student loan market, including more details about delinquencies, defaults, and how borrowers in income-driven payment plans fare over time. It also shows why last week’s call to establish clear and consistent industry-wide standards is an important part of the Bureau’s ongoing work to help make sure student loan borrowers are treated fairly.
If you have questions about repaying your student loans, check out our Repay Student Debt feature of Paying for College to find out how you can tackle your student loan debt.
If you have a problem with your student loan, you can submit a complaint online or call us at (855) 411-2372.
If you have more student loan debt than you can handle, or if you’ve been paying and paying (and paying) and can’t make headway, chances are you’ve wondered about student loan forgiveness. As you look into your options, keep in mind that everything you read (or hear — even from your student loan servicer) may not be accurate. We asked experts who work with borrowers all the time to share the most common myths they hear about student loan forgiveness. Here are their top picks.
Myth: You have to pay someone to get loan forgiveness help.
“There are lots of online scams that charge borrowers for things that are available for free from the government. The truth is you don’t have to pay anyone,” says Pauline Abernathy, vice president The Institute for College Access and Success. Borrowers can use the free tools offered by the Department of Education — starting with the National Student Loan Data System. If more help is needed, they may want to seek advice from a reputable counseling agency or consumer protection attorney who is well-versed in student loan law.
Myth: Student loans can’t be wiped out in bankruptcy.
“The bankruptcy laws require you to show that being held responsible for the student loans will amount to what’s called an ‘undue hardship.’ Though this standard can be difficult to meet, it’s not impossible,” says Jay S. Fleischman, a lawyer who concentrates in the fields of student loan resolution and consumer bankruptcy. He goes on to explain that if you attempt to discharge your student loans in bankruptcy, you’ll have the advantage of dealing with an attorney, rather than a debt collector. “Those attorneys often have the ability to resolve payment disputes more readily than non-lawyer collectors,” he says. “Many people who seek a discharge of their student loans in bankruptcy end up settling on a reduced balance or affordable payment plan, which may accomplish your goal of bringing the payments in line with your financial abilities.”
Myth: Only Corinthian students get relief from debts involving school fraud.
Students may be eligible for cancellation of federal loans from schools that committed fraud or broke state laws. It’s called a “defense to repayment,” and the Department of Education is working on a process to make it easier for borrowers who attended other schools to apply for this relief. More information is available from the Department of Education. “The Education Department is developing a comprehensive system to assist students defrauded by any school and to hold schools accountable for their actions that result in loan discharges,” said Abernathy. Borrowers who have been victims of fraud by their schools may also want to look into state tuition recovery funds. StudentLoanBorrowerAssistance.org maintains a list of state tuition recovery funds.
Myth: Forgiveness applies only to federal loans.
While it’s true that private loan forgiveness programs are few and far between, some borrowers are able to settle private student loans for less than the full balance says Steve Rhode, founder of GetOutofDebt.org and a Credit.com contributor. “Settlement offers I’ve seen have been in the 45% to 50% range with up to two years to pay,” he says on his site.
Myth: Only consolidated loans can take advantage of public service loan forgiveness (PSLF).
Not true, says Joshua Cohen, aka The Student Loan Lawyer. “As long as all of your loans are Direct Loans, they qualify.”
Myth: Payments don’t count for PSLF until an employer certification form is completed.
Or until it is transferred to FedLoan (a student loan servicer), or until you’ve enrolled in the program etc. … “Where is this stuff coming from?!” Cohen asks. The employment certification form is encouraged, but not required. And the reality is that qualifying payments made on Direct Loans while working for a qualifying employer made after Oct. 1, 2007, currently count toward the 120 payments required under this program.
Myth: If you are a teacher, you automatically qualify for PSLF.
“There are specific requirements and if you work for a for-profit school you may be out of luck,” says Rhode. (Here’s more information on teacher loan forgiveness.) Similarly, those working in other professions that may be eligible but can run into some hurdles when trying to qualify. Nevertheless, is important for borrowers who are hoping to take advantage of PSLF to understand the requirements of the programs for which they may be eligible, so they don’t wind up missing out on an important benefit.
Myth: Student loan forgiveness is for everyone.
“In reality, it really only provides relief to those with very large debts and/or low incomes,” says Andrew Josuweit, founder of StudentLoanHero.com where this issue is explored in detail.
It makes sense that borrowers who are able to afford their payments aren’t going to be able to take advantage of the most popular forgiveness options, many of which require a certain number of payments under an income-driven plan. A recent report from Equifax found that the income group most at risk of defaulting on their student loans were those earning less than $ 30,000. “This rings true across all age groups, with those earning less than $ 30,000 suffering from triple or even quadruple the delinquency rates of their higher-earning peers within the same age group,” say the authors of the report, Dann Adams and Naser Hamdi.
But even high earners may run into a situation where they lose their income, and for anyone who isn’t working, even small debts can become unaffordable. Additionally, there are programs for lawyers, doctors, nurses and other higher-earning professionals, too. No one should automatically assume they aren’t eligible. (And don’t always rely on servicers to provide correct information. Sometimes they don’t.)
Myth: Parents are out of luck.
While it’s true parents with Parent PLUS loans aren’t eligible for Income-Based Repayment (IBR), they may be eligible for Income-Contingent Repayment (ICR), and that’s a “qualifying payment plan for PSLF,” Cohen points out.
Myth: Miss a payment or change jobs, and you start over.
If you miss a payment under one of these programs, “you just delayed it by a month for the missed payment, but you don’t start over,” says Cohen. However, if you were making payments under IBR and then consolidated you “ended the old loan and created a new loan. You start from Day One,” he notes.
Myth: I don’t have to worry about taxes on forgiven loan. (Or the reverse: Canceled student loans mean a tax bill.)
The truth is, it depends. Certain types of student loans canceled under PSLF are not taxable, but student loan debt discharged due to Total and Permanent Disability may be, unless you qualify for an exclusion. And currently, balances forgiven after completing an income-driven repayment plan are not tax-exempt. We’ve heard from borrowers who were shocked to learn that they owed large tax bill after they became disabled and were able to get their remaining balances canceled. Others were relieved to discover they qualified for the insolvency exclusion and wouldn’t have a tax bill to worry about. (Here’s a primer on taxes after student loan cancellation.)
Student loans can trap borrowers in debt for decades, and can make it difficult to buy a home or a car. If a student falls behind on payments, those late payments can ruin their credit scores for years to come. Even if loans are paid on time, debt can affect your credit scores. The programs today aren’t perfect and they can’t help everyone, but they can provide immediate relief for some. So borrowers will want to make sure they fully explore all their options for student loan repayment and forgiveness programs in order to take advantage of the programs available to them. It’s also wise to review your credit reports and scores (you can check two of your credit scores for free on Credit.com) to find out how your loans affect them.
College students may have spent their summer break working or relaxing at the beach, but politicians, banks and consumer advocates have been busy trying to figure out the future of campus-related financial products – better known as campus cards.
At a hearing of the US Senate’s Banking Committee on July 31, senators heard a wide variety of opinions about whether or not further regulation is needed to guide partnerships between colleges and large financial institutions. In particular, the issue of the fees associated with students accessing student loan refunds via campus debit cards or prepaid debit cards was a matter of discussion. Currently, many colleges around the nation have signed deals with big banks to offer financial services to students on campus. These products and services often come with a school’s logo, as a result of multi-million dollar deals between the colleges and banks.
Christina Lindstrom, an official with the advocacy group US PIRG, testified that campus card arrangements are costly and unnecessary. “Right now students are being hit with high fees that are hard to avoid as they try to access their federal financial aid refunds through campus sponsored bank accounts and prepaid debit cards,” she said. Lindstrom went on to say that students at some schools were being charged “steep and unusual” fees to get their federal financial aid, including PIN transaction charges and overdraft fees of $37 and higher. “On the whole these accounts are not necessarily a better deal for students than what they might find through a bank not affiliated with the campus,” she testified.
By contrast, Richard Hunt, the president and CEO of the Consumer Bankers Association, told the committee that the relationships forged between banks and colleges have many benefits for students. “Some Consumer Bankers Association members have entered into agreements with institutions of higher education to provide useful services, such as campus ID cards that can be linked, at the option of students, to a standard deposit account,” he said. “These financial institutions also provide important services, such as on campus financial literacy programs and assistance with financial aid systems to colleges and universities.”
Hunt went on to cite a study by the General Accounting Office (GAO), the research arm of congress, that found that fees associated with college cards were not higher – and often were lower – than those charged by other banks.
The banking committee will continue to consider whether or not to place limits on campus card agreements.
