Category Archives: Student Loans

Jun 30 0 comments
Student Loans

Dealing with student debt: Forbearance and Deferment

So it happened: the dreaded day when my student loans all entered repayment. I was slammed with a $544 bill from one of my lenders - a third of my take-home monthly salary. Last weekend I applied for a consolidation loan from the U.S. Department of Ed., but have yet to receive that loan. I cannot afford to pay my lender $544, especially when my other lenders will charge me a couple of hundred dollars more for other loans. What should I do?

When your loan payments are too high to handle and are eating up a large chunk of your income, it is possible to put the payments off for a while.

Your options: Deferment and Forbearance.

Deferment, if you qualify, is less financially damaging. With deferment your loan payments are put on hold for a while - and your federal subsidized loans stop gaining interest.

But you can only qualify for deferment under certain circumstances, such as:

  1. Unemployment
  2. Going back to school at least half-time
  3. Active military service
  4. Economic hardship, which is defined as making a monthly income at or below minimum wage, or at or below 150 percent of the poverty level for your state. You can also get an economic hardship deferment if you are in the <a href=”http://www.peacecorps.gov/” title=”Peace Corps”>Peace Corps</a>.

For unemployment, active military service and economic hardship, the maximum time you can defer your loans is 3 years, with your qualifications reassessed each year. If you return to school, you can defer your loans until you are out of school.

You will not qualify for a deferment if you are already in default.

So deferment, although it can be a great option, is not available to many underpaid recent grads - myself included. As much as I complain about my income, it’s not anywhere near 1.5 times the poverty line for a family of one. I’d have to be making less than $16,245 to qualify.

My other option - and yours, too - to postpone payment is forbearance. With forbearance, interest continues to accumulate on all your loans, so think carefully before signing on - it will increase your overall debt burden.

That said, here’s how you qualify:

  1. Poor health or other personal problems that make it harder for you to make your payments
  2. Administrative forbearance, which can occur if your lender is resolving a change in the loan’s status or you’ve applied to have your loan status changed and are awaiting a response
  3. Economic hardship, or when your loan payments are greater than 20 percent of your monthly income
  4. Discretionary reasons. Your lender can decide, based on your specific circumstances, to grant you a forbearance, regardless of whether you qualify for the above reasons

Again, interest continues to accumulate while you are in forbearance, so forbearing will increase your overall financial burden. Alternative repayment plans could be a better option - they will reduce your monthly payments and often increase your repayment period, providing you with a bit of relief while also allowing you to continue to pay.

Still, for now, I decided to go with a brief forbearance. I called my lender after receiving the $544 bill and explained that I was awaiting a response from the federal government re: can I consolidate? - a response I hope to receive within the next couple of weeks, after many rules governing student loans change tomorrow. My lender agreed, and my loan payments will be put off as I await the government’s determination of my fiscal fate.

Until then, I can breathe easy(ish) knowing I have at least a third of my salary to spend on utilities and groceries.

Also in this series:

Further reading:

Jun 21 0 comments
Student Loans

Dealing with student debt: Consolidation

By wsssst, via Flickr

By wsssst, via Flickr

The student-loan bills keep rolling in. Week after week, month after month, loan after loan - they seem endless.

I accumulated nine separate student loans during my academic career, and many of them are on different billing schedules with different monthly payments and different interest rates. I owe money on at least one of them almost every week.

It gets confusing, my billing cycle. If only there were an easier way.

Lucky for me, there is an easier way. It’s called a consolidation loan, and here’s how it works:

Either the federal government or a private lender will take all your loans (or at least all your federal loans), average their interest rates and combine them into a single loan with a single monthly payment. You’ll usually have more years to repay your loan - meaning lower payments - and, if you have variable-rate federal loans (these existed before 2006), you’ll lock in an interest rate until you’ve paid off your debt.

Sounds brilliant, right? I’d say it’s pretty great.

But wait! There are caveats to consider before applying for such a loan:

  1. You may end up paying more in the long run. If you’re on a 10-year repayment plan, even though your monthly payments will be higher, you’ll accumulate less interest over the lifetime of the loan. If you consolidate and enter, for example, a 25-year repayment plan, you’ll likely pay thousands of dollars more in interest during those extra 15 years. So if you can afford your current payments, consolidating, although convenient, may not be the best option.
  2. You could lose the discounts offered by your current lender. If, say, your lender offers an interest-rate reduction after two years of on-time payments, consolidating before the two years are up would get void that discount.
  3. If you consolidate federal loans with a private lender, you will lose some options offered by the federal government. You will not be able to defer, forbear or cancel your loans, and the alternative repayment plans will become unavailable to you. So if you do choose to consolidate, first try to get a federal consolidation loan.

Speaking of federal vs. private consolidation loans, I should probably tell you how to get a consolidation loan. A lot of private lenders have stopped giving them, and because of the perks associated with federal consolidation loans, I’d suggest starting with the federal government’s Direct Consolidation Loan. Application processing is on hold until July 1, when some rules governing student loans will change and a new (and amazing) repayment plan will be introduced. That shouldn’t stop you from applying - just know you won’t be processed until next month.

Note: If you are applying at a website that is not administered by the Department of Education (i.e. one that does not have ed.gov in its url), you are applying for a private consolidation loan. Just FYI, because this stuff is confusing.

To qualify, you must have at least one FFEL loan. I think that’s the only standard you must meet. Private loans, such as those from Sallie Mae and similar lenders, cannot be consolidated under a Direct Consolidation Loan.

Before applying (you can apply online here), gather information about all your loans, including the loans you will not be consolidating, and if you don’t already have one, apply for a PIN from the Department of Education’s loan-servicing site.

Once you have this information, visit the Department of Education’s consolidation application site.

While applying, you’ll have the option to choose one of the various repayment plans offered by the federal government. That’s the part where you’ll breathe a huge sigh of relief when you see that your monthly payments will drop from $687 to $260. I mean, when I saw mine would do that. Phew. Big sigh. I’ll be able to eat!

I’ll have more information on the various options in upcoming posts.

Give yourself about an hour to complete the entire application process - less time if you have fewer loans, and maybe more if you have a lot of loans. I just completed the process - I decided the benefits far outweigh the costs (seeing as the costs, for me, involve being unable to afford to feed myself).

Also in this series:

Further reading:

Jun 16 1 comments
Student Loans

Dealing with student debt: Student loans, defined

By Jeff Parker, Florida Today

By Jeff Parker, Florida Today

Let’s start with the basics: Which loans are available to graduate students, and how much you should expect to pay for them once you’ve finished school.

I’m not going to spend any time telling you how to get the loans. The Internet is overflowing with information on how to saddle yourself with student debt, so if you’re looking to learn how to apply, I suggest Googling it. Or contacting any number of student loan companies and institutions of higher learning. They will be more than happy to send you the application forms.

Instead, let’s focus on the aftermath: What these loans will do to your finances post-graduation.

My story goes like this: Because I was relatively broke before going to grad school, I qualified for enough loans and grants to finance my entire education, plus living expenses, less maybe $2,000 that I was expected to pay out of pocket. All things considered, the damage was about $80,000.

Eager as I was to escape my crappy job and set myself on a career path, I filled out my FAFSA and signed the promissory notes and went on my merry way, living for a year on Edfinancial Services’ dime and giving little thought to the financial morass into which I had willingly stepped.

My loans are a combination of subsidized Stafford, unsubsidized Stafford and Graduate PLUS loans. Perkins loans, which carry the lowest interest rates, are also available, but I did not qualify for them.

All of the above (except Perkins) are components of the Federal Family Education Loan Program, meaning the federal government guarantees them, sets their interest rates and decides how much of each you can receive per year and throughout your life.

More specifically:

  • Stafford loans carry an interest rate of 6.8 percent, which the government subsidizes while you are in school. Translation: on these loans, interest does not accumulate while you are a full-time student. The maximum annual loan amount is $8,500 for graduate students, and you can get up to $65,500 during your lifetime.
  • Unsubsidized Stafford loans also carry an interest of 6.8 percent, but interest starts accruing while you are a student. The maximum annual loan amount is $12,000; the maximum lifetime amount is $138,500. But that is for all Stafford loans - not just the unsubsidized ones. Meaning if you have $65,500 in subsidized loans, you can have $73,000 in unsubsidized loans. If you have no subsidized loans, you can have $138,500 in unsubsidized loans.
  • Graduate PLUS loans charge 8.5 percent interest per year, and you can get as many of them as you need to cover the cost of your schooling - so long as the federal government determines you can’t afford to cover the costs yourself. The government does not subsidize the interest, which starts to accrue while you are in school.

So those are the federal options available for students who are needy but not impoverished. You can also get private loans, but I know nothing about those.

Once you’ve finished school, this is what will happen: Your federal loans will enter their grace periods, meaning you won’t have to pay them immediately after graduation. The grace periods for each loan are

  • Six months for Stafford loans, be they subsidized or unsubsidized. For the subsidized variety, the government continues to pay your interest. For the your unsubsidized debt, interest accrues.
  • For PLUS loans, there is no automatic grace period - these loans demand repayment right away. But you can get a six-month deferral if you so desire (and if your loan company deems you worthy. I’m not sure how they do this…). Just call your lender and ask politely.

Eventually, depressing though it may be, your student-loan lender will start sending you bills, and you will start sending them money. That’s where I’m at: the sending-them-money part.

You have a few options regarding repayment, and I’ll get into them in more detail in later posts. For now, what you should know is that when your loans enter repayment, your lender(s) will set you up on the shortest possible payment plan, which for federal loans is 10 years.

That means your loan payments will start at the highest level the law allows. This may cause you to freak the eff out, as I did last week. But rest assured, if you can’t afford the high payments heaped upon you at the onset of your repayment period, your loan company will likely amend your plan. Because after all, if you default, they don’t get paid. And they would prefer to get paid.

The total amount you will end up repaying depends on a lot of variables, most importantly how much money you borrowed and which repayment plan(s) you qualify for.

Again, more details will follow, but for now, know this: It’s not unlikely that you’ll end up repaying more than double what you took out, especially if you choose a low-paying career. So take that into consideration when deciding if grad school is for you. Debt can truly be crushing.

Also in this series:

Further reading:

Jun 06 2 comments
Indebtedness, My Bottom Line, Student Loans, What To Do?

Why October scares me. (It has nothing to do with Halloween.)

By stevechasmar, via Flickr

The main source of my financial woes is the more than $55,000 of student-loan debt, the majority of it from grad school, that I must pay off bit by bit each month.

I finished grad school in December, and since then the loan companies have started demanding that I repay them. First the smallish private loans from undergrad, then the equally smallish private loans from grad school, and pretty soon I’ll be paying back a bunch of (much bigger) federal loans, too.

The loan companies have sent me copious amounts of mail to inform me of the terms of my loans and their repayment dates and which companies they’ve sold which loans to and what that means for me, etc., and I must admit the whole process has been a bit overwhelming and has caused me to develop habits of avoidance. Unless it is a bill, I’ll scan the form letter, head cocked, confused, then put it in a pile to deal with it later. More honestly: Unless it is a bill, I generally ignore it.

The letters have increased in frequency and volume in recent weeks, and the little voice in the back of my head has begun telling me I should probably actually read the damn things instead of scanning and stacking and filing them for later. An increase in the frequency and volume of communications from parties to which you owe large sums of cash usually bodes unwell, the little voice says. Erin, you should not ignore those ever-accumulating form letters.

So this week I decided to sift through the stack of loan-company communications gathering dust on my desk and figure out how much I will actually be paying each month once I’m repaying all the loans. That required reading about 40 documents and visiting three loan-company websites (Sallie Mae, who holds my undergrad loans, Ed Financial, who used to own all my grad loans, and the U.S. Department of Education, who bought some of my grad loans from Ed Financial). It took about 90 minutes - far less time than I’d scared myself into thinking it would take.

I also made a spreadsheet detailing each loan’s principle, interest rate and monthly payment.

Then I added the monthly payments. And that’s when life became truly scary.

Bottom line: Come October, I will be screwed.

Combined, my student loan bills will cost me… wait for it… (really, it’s awful)… (you might want to sit down for this, in case you’re one of those people who reads blogs standing up)… a whopping $687 a month once I’m repaying all of them.

Add to that my rent ($500) and my monthly credit card payment ($140), do some simple addition and subtraction and you will discover that I will have (and this is the truly disgusting/petrifying/suicide-inducing part) $229 a month for everything that is not a student loan, a credit card bill or rent.

Oh shit. Holy cow. Put a fork in me. I am done.

Not to mention being stabbed with a fork would be less painful than surviving on $229 a month. That’s groceries, laundry, electric/TV/Netflix bills, food for my cat, gas for my car, savings, my emergency fund, travel, going out, gifts for friends and family, unexpected repairs/vet bills/household needs, toilet paper, toothpaste, tampons, and bottle upon bottle of Advil to cure the acute headaches my life will cause me - all for less than rich people spend on a haircut. And I haven’t even told you about my medical bills.

My first response: I drank a beer. A strong beer. Savored it, slowly, on my couch, alone, while staring at my TV wondering how much I could sell it for on Ebay. It’s a pretty nice TV. I’d get at least a few hundred bucks. Maybe half a month’s worth of student-loan payments.

Then, it was research time. I know there are ways (other than bankruptcy) to put off your student loan payments for a bit, or to make the payments lower for a while. I am not the only person in this situation, and the federal government/student loan industry, taking pity on the overburdened, underpaid former grad students who did not take jobs in private equity, has designed some temporary outs for me and people like me.

They are:

  1. Forbearance
  2. Deferment
  3. Consolidation
  4. Alternative repayment options, including Graduated, Extended, Income-Sensitive, Income-Contingent and Income-Based

Easy, right? Umm no. Each option has its own specific parameters, many of them income-based, some based on behind-the-shade calculations made by your loan company, that could permit or prevent you from qualifying.

It’s pretty complicated, in fact. But it’s also important - your choices here could save or cost you thousands of dollars in the long run, so it’s critical to make an informed decision.

To that end, I will blog about this in a series over the next week or two. My hope: at the end of that series, I will have determined the most cost-effective way to put off my loans. Because I cannot survive on $229 a month.

Also in this series: