This entry is part of a series of topic blog entries examining how college students may build good credit in tough economic times. As an activity for a multiplatform storytelling graduate course, these entries display my contribution to contemporary journalism in relationship to blogging/online writing and storytelling without compromising traditional journalistic methods such as accuracy and timeliness.
If you have student debt, which may impact your credit rating, you are not alone.
From private loans to federal loans … no matter the type of loan – more and more students need loans to cover the rising costs of college. About 65.5 percent of four-year undergraduate students who received Bachelor’s degrees graduated with some debt in 2007-08, according to FinAid.org.
Loans, lenders and the legal system
In March 2010, President Obama signed a historic health care reform bill that includes drastic changes to the way students pay for college. Starting in July, all new federal student loans will come directly from the U.S. Department of Education.
Proponents of changes to the student loan process claim that the legislation will make it easier and cheaper for students seeking lenders to finance their college education since this eliminates middlemen: private lenders. Private banks will not longer receive federal subsidies and guarantees for lending to students, and, ultimately, the reform is supposed to cut program costs and free up extra money for students in need, which could be especially helpful for community colleges and historically African-American institutions. (Find out more about student loan reform.)
However, as Michelle Singletary, a contributor at the Washington Post, suggests, students do not care about how who provides the loans. Students are just trying to keep our heads above water in a sea of student loan debt.
Not all of us are as lucky as Francisco J. Espinosa, an airline ramp agent who took out $13,250 worth of student loans and got out of paying interest due to a mistake by his lender (the financial institution failed to object) and an initial “legal error” made by lower courts (a judge failed to prove that Espinosa endured an “undue hardship”), according the a recent Supreme Court ruling.
Living with student loan debt
Students should not count on getting student loans discharged, but we can take steps to avoid defaulting on a loan or filing for bankruptcy. You are in default when you fail to adhere to the terms to which you agreed when you accepted the loan, and the lender may take legal action to collection the funds. On the other hand, bankruptcy is a legal process that you go through when you are no longer able to pay off debt. Both severely damage your credit rating for at several years.
The Federal Student Aid suggests that students:
Find ways to make payments on time
Of course, the best way to keep your loan status in good standing is to make your payments on time. Contact your lender and set up payment arrangements. If possible, arrange to have each monthly payments automatically debited from your bank account or ask if you can choose your monthly due date to avoid late fees. Remember, if you have difficulty sticking with your original payment plan, lenders may allow you to switch payment plans.
Know the terms of your student loan(s) … there may be relief in the fine print
When you graduate, leave school or drop below half-time enrollment status, you usually have a grace period that varies depending on the lender. Contact your lender for details on when repayment starts.
Currently, student loan payments are capped at 15 percent. Starting in 2014, these payments will be capped at no more than 10 percent of the borrower’s discretionary income. Under this legislation, if you keep up with payments, the borrowed amount that is unpaid after 20 years is forgiven –10 years for public service workers (i.e. military personnel, teachers, nurses, etc.) – compared to the 25-year rule that is now in effect.
Request for payment deferment or forbearance
A deferment allows you to postpone making payments upon approval from the lender. Although temporary, this is a great option in case of situations such as unemployment, military deployment, internships, etc. if you are eligible. Also, be sure to find out if interest will continue to accrue during this time.
If you are ineligible for deferment, apply for forbearance, which allows for temporary payment postponement or reduction of payment while interest accrues.
Consider consolidating loans
You may be able to combine all of your loans into a single loan. Loan consolidation may provide for more convenient options such as lower monthly payments, fixed interest rates and flexible payment options.
I appreciate this article.The student loan reform bill is groundbreaking. No longer will lower to middle income US residents feel pressured to cover unmet loan amounts by lending from banks and private loan companies. Many students have to forgo college because private student loans are unavailable due to income constraints. Only one lender and getting rid of the middleman means more money is available for potential college students; in turn, more students will have the opportunity to attend college. It is also great news that loan repayment are being cut to 10%, although, “Francisco” is, indeed, lucky that he does not have to pay interest on his student loans.
Great points, Kervin. It can tough being in the middle income level: not “poor enough” for substantial financial aid and not “rich enough” to outright pay for school out-of-pocket. So, this may actually help many Americans more than it will hurt private loan companies. I’m usually not a huge fan of “big government” moves, but I’m curious to see how this will play out for people applying for student loans in the future….Thanks for contributing to my blog from west coast! Miss ya!