After Graduation

For all of you who have just graduated from college or completed a course of study; congratulations. We hope your job search is over quickly and successful both in terms of payment and satisfaction. Keep in mind that while you’re looking for work and trying to save every dime, your student loans are waiting for you.

First Payment

Federal Student Loans (and most Private Student Loans) come due six months after graduation or finishing a course of study (trade schools, etc). Before you get that first payment notice in the mail, you need to know what your monthly payment will be along with some basic information on your loan structure.

“OMG! What Is My Monthly Payment?”

First off, know what your payment will be. If you’re thinking that it’s around $100 and is actually $200; that wipes out the money you thought you had to go to the movies every month. Know what it is down to the penny and you can budget with confidence. Also, understand how long this is going to take. If you have a loan term of ten years, then you’ll know how long it may be before you can consider buying a new car or purchasing a home.

Interest Rates

Next understand what your Amortization Schedule means. This breaks out what your monthly payment is in terms of interest and principal. In the first few years, the amount of interest paid will be much higher than the amount of principal. For example, a $200 payment could be a total of $190 in interest while only $10 is actually paid back against the loan amount. This is how a $10K loan turns into $15K before everything is paid back.

Remember the only way to reduce the amount of interest you’ll pay over the term of your loan, without restructuring the loan itself, is to pay more than the monthly requirement. If instead of $200, you can pay $225.00 every month; that means you’ll have made a total of 13 payments each year. This lowers your payments near the end of your loan and may even shorten the loan term.

No Job & No Money? Don’t Panic! Be Prepared!

If the next six months come and go with no employment or you find yourself underemployed with a part-time job, then you will also need to know about loan deferment and loan forbearance. Loan deferment basically hits the pause button on your loan schedule. It postpones the repayment schedule for a certain amount of time on all federal student loans. Interest that is unpaid during this period may be added to the principal of the loan which would extend the loan term. In the case of Direct Subsidized Loans, Subsidized Federal Stafford Loans and Federal Perkins Loans, interest does not accrue or continue to build while the loan is under deferment.

Loan Forbearance is a period of time when loan payments can be temporarily paused or reduced. This option should be more attractive for students who are working and want to pay on their loans, but find themselves overwhelmed by the monthly payment amount while trying to keep a roof over their head. Like with deferment, unpaid interest that accrues under a period of forbearance will be added to the principal amount.

Bankruptcy

(Disclaimer: This site is not providing legal advice here, but rather providing information aggregated from publicly available sources) If your financial status becomes so poor that you consider bankruptcy, remember that a standard bankruptcy court does not cover student loans. In order to have these loans discharged through bankruptcy, they must be judged through separate proceedings. It is another area of the law regarding student loans that needs to be reformed. We have detailed the requirements to have this accomplished previously here.

 

Repayment Plans

A much better plan, especially if you are unemployed, is to contact your lender about restructuring your student loan. Three of the best options are the Income Based, Income Contingent and Pay As You Earn repayment plans.

Income Based Repayment (IBR) is noted by the forgiveness of three years of unpaid interest and then the possibility of qualifying for a monthly payment of as little as $0. Those who qualify will never pay more than 15 percent of adjusted gross income over the poverty line. This is determined annually and the size of your family is also taken into consideration.

Income Contingent Repayment (ICR) is similar to the IBR, but is recommended for those applicants who do not expect to generate additional income in the future. With ICR, the size of the loan is not considered in determining a new monthly payment. This is especially helpful for applicants who do not expect an increase in their income in the foreseeable future. More information for ICR and IBR can be found on our website here.

Pay As You Earn (PAYE) is a new program that covers repayment of Direct Loans. Although they cannot be repaid under PAYE, a few types of Federal Family Education Loans can be considered when determining if an applicant is qualified. Applicants must be a new borrower to the student loan program on or after October 1st, 2007. More information on PAYE can be found on our website here.

Moving Forward Successfully

The keys to success immediately after graduation are preparation and staying ahead of any potential problems. This is especially true when repaying student loans. To protect yourself, your credit rating and your financial future, learn everything you can about your student loans. If financial problems do arise, the first step is to contact your loan holder and begin the process to restructure, defer or seek forbearance for your loans. Helping you with that is our business here at Global Student Loan Forgiveness. You can call us at 1-844-832-7070 and speak to a student loan forgiveness specialist.

Re-certification

What is re-certification and why is it important?

Simply put: You must re-certify your family size and income EVERY YEAR to remain in your Income-Driven Repayment Plan (IBR, ICR, PAYE, RE-PAYE).

While millions enjoy the payment benefits of the Federal Income-Driven Repayment programs, many do not complete the annual re-certification requirement and end up defaulting on their federal student loans. While it would be nice if you only had to enroll in your plan once and then simply make the monthly payments, this, unfortunately, isn’t the case.

Re-certification means that each year you are required to submit your income information and family size to confirm your continued eligibility and determine your monthly payment amount. You have an obligation to do this EVEN IF NOTHING HAS CHANGED.

Why you need to be sure to recertify every year.

Because it is required to stay in your Income-Driven Repayment plan AND a failure to re-certify can have some very unpleasant consequences, such as:

  • Sudden increases in your monthly payments (often back to the much-higher Standard Repayment amount)
  • Potential overdrafts if you have your student loan payments on auto-debit
  • Additional accrued interest if you fail to re-certify and must use forbearance while you update your information (which could extend your forgiveness payoff date)
  • Unpaid interest could be capitalized and added to your principal balance (in some cases this may be irreversible)

When you need to re-certify each year:

In most cases, re-certification is done around the same time each year when you initially began making payments to your current IDR program.

However, you can also re-certify anytime your income or family size changes. This means you could potentially re-certify more than once per year if your situation changes and you need to have your monthly payment adjusted accordingly.

Note: If you have multiple loan servicers, you will need to re-certify with each one individually every year as well as when your income or family size changes.

What you’ll need to re-certify:

  • Copy of the Income-Driven Repayment Plan Request Form (the same new application form you submitted originally)
  • Copy of your most recent tax return (or employment pay stubs)
  • Additional documentation for other loans (if applicable)

How to re-certify your Income-Driven Student Loans:

Re-certification is done by actually submitting an entirely new IDR application each year. In the section that asks for the reason for your application, you will indicate that you’re submitting updated information to have your monthly payments recalculated.

This new application submits your income and family size information directly to the Department of Education. There are two ways to complete this process: online or by mail. Online is by far the quickest and most efficient option.

Continue Moving Forward Successfully

The key to staying success after being enrolled into a forgiveness plan/payment plan are preparation and staying ahead of any potential problems. This is especially true when repaying student loans. To protect yourself, your credit rating and your financial future, learn everything you can about your student loans. If problems do arise, the first step is to contact your loan holder and begin the process to restructure, defer, re-certify or seek forbearance for your loans. Helping you with that is our business here at Global Student Loan Forgiveness. You can call us at 1-844-832-7070 and speak to a student loan forgiveness specialist.

Defaulted Student Loans

For federal student loans, the borrower must sign a promissory note prior to the disbursement of funds which is a legally binding agreement between the borrower and the lender. In this promissory note, there would have been clear repayment terms for the money that was being borrowed. Typically, the promissory note will discuss payment due dates, interest rates, and remedies if the loans are not paid off as scheduled. If the borrower stops making payments as agreed upon in the promissory note, the lender will put a default status on the loans after 270 days of non-payment. This default status will be displayed on your credit report and will make it difficult to take out any loans in the future.

What is Delinquency

A delinquency on your student loans happens as soon as you miss one payment, or are even late on a payment by one day. It essentially means that the borrower is late on a payment, but has not fallen into default on their loans yet. In many cases there can be consequences to being delinquent, which may include various fees, and having it noted on your account with collections agencies if the delinquency has lasted at least 90 days.

Dangers of Falling Into Default

Falling into default on your Federal Student Loans can be a serious issue for a multitude of reasons. Firstly, it will negatively impact your credit which will making trying to borrow money very difficult in your future. You will have a note on your credit report that your loans are in default. Once your defaulted student loan is paid off, your credit report will reflect that the loan was paid off but will still inform any new lenders that you were once in default on that loan. This notation can stay on your credit for years.

Debt Collections

Falling into default on your federal student loans will also cause your loans to be sold to a collections agency. Once this happens, you will begin to receive many phone calls from the debt collector attempting to collect payments. Along with the harassing phone calls will come additional collection fees added onto your loan balance. The collection agencies are allowed to charge reasonable fees as a commission for their services. This can cause a lot of confusion for the borrower who if paying the collections agency, wrongly believes they are paying off their loans but may only be paying the fees without their student loan balance being paid down. In fact, it’s not uncommon for loan balances to increase while a borrower is paying a collections agency. If the accumulating interest on the loan and the collection fees combined are larger than the monthly amount being paid to collections, the loan balance will increase.  Understanding the Fair Credit Reporting Act is important for all borrowers whose accounts have been transferred over to a collections agency.

Federal Student Loan Borrowing Limitations

While in default on your student loans you lose all eligibility for new federal aid. This can present a very large problem for borrowers who have taken out loans to obtain a degree, and are unable to obtain this degree due to federal aid borrowing limitations. The borrower is then stuck with the student loan debt, but without the ability to finish obtaining the degree and a better paying job.

Lost Eligibility for Deferments & Forbearance

Default loans lose eligibility for deferments and forbearance. Again, this presents a very dangerous predicament for the borrower who is typically only faced with the option of paying back their loans during this financial difficulty. Deferments and forbearance are designed to allow people some breathing room on their loans while they are having these financial difficulties. The reality is that many borrowers are not applying for these benefit programs while they are eligible, but rather once the collection calls have started and the eligibility for deferments are no longer available.

Wage Garnishment

One of the most frustrating issues when falling into default on your Federal Student Loans is that the Department of Education can have a wage garnishment order placed on you until the loans are paid off. A wage garnishment is a deduction directly off your paycheck that your employer must withhold from you. A garnishment order can be as high as 25% of your paycheck. Once an active wage garnishment order has been put on your account, your options become very limited. You can no longer consolidate to get out of default, and your lender will not lift the garnishment unless you enter into a rehabilitation program and make satisfactory payments to get your loan back in good standing.

Tax Offset

Coinciding with the wage garnishment, the department of education can and will refer your account to the IRS to offset any tax refund you may have by applying it to your loans. This means that any money you would normally have coming back to you in the form of a tax refund would instead by sent from the IRS directly to your student loan servicer to pay off the debt. Also very importantly is that the IRS can and will apply your spouses tax refund to your loans if you are married and filing jointly. Even if your spouse does not have student loans, and is not a co-signor on the loans.

Social Security Garnishment

Social Security benefits can be garnished to repay federal student loans. Section 129 (Benefits Not Transferable) in the Social Security Administration Handbook clearly lays out what is allowed regarding garnishment in paragraph 129.2. Time is no restriction on the garnishment of Social Security benefits for a federal student loan either. This applies only to federal student loans. If a person has student loans from a bank or other private lending institution, that organization cannot touch social security benefits. This also includes state agencies. If a loan collector for such an institution even implies that they can, the person and his agency should be reported to the lender immediately. Banks want their money, but lying in order to collect a debt is against the law.

Garnishments cannot be applied to Social Security benefits without notification. A person who receives the first notice of intent to garnish benefits has 120 days to respond before it takes effect. The Education Department and every other agency that issues an intent to garnish Social Security benefits is required by law to provide the information necessary to file an appeal of any pending garnishment. This includes appropriate phone numbers, addresses, website and email contact information. A garnishment order can be as high as 15% of your paycheck.

Getting Out Of Default

Rehabilitation

Getting your loans out of default will require the borrower to be proactive and take action to get back into good standing. One option that’s available is a rehabilitation program. A rehabilitation of the loan is a 9 month program where the borrower makes agreed upon payments with the lender, and after all 9 payments are made on time, the default status is removed from the loan. The payment in the rehabilitation should be calculated the same with the Income Based Payment is calculated. If the borrower fails to make one payment, the rehabilitation would need to be restarted from the beginning. There are some positives and negatives in regards to loan rehabilitation that the borrower should understand prior to starting the rehabilitation.

Consolidation

Another option is to consolidate your loan into the William D. Ford Direct Loan program. What happens in this program is that your defaulted loans are all paid off and consolidated into one new loan, often times with a new servicing institution. You would have one brand new loan that’s in good standing, with a weighted average interest rate of your old loans. When consolidating you are also able to choose from a selection of repayment plan options, some which can offer payments as low as $0.00 per month. This payment actually counts as a payment unlike a deferment or forbearance which simply pauses the loan. Often people can have $0.00 monthly payments for years, and any unpaid balance remaining on the loan is forgiven after 20-25 years. There are other student loan forgiveness benefits as well. Much like the rehabilitation program, there are positives and negatives with the consolidation as well that the borrower should fully understand prior to going through the consolidation process.

Continue Moving Forward Successfully

The key to staying success after being enrolled into a forgiveness plan/payment plan are preparation and staying ahead of any potential problems. This is especially true when repaying student loans. To protect yourself, your credit rating and your financial future, learn everything you can about your student loans. If problems do arise, the first step is to contact your loan holder and begin the process to restructure, defer, re-certify or seek forbearance for your loans. Helping you with that is our business here at Global Student Loan Forgiveness. You can call us at 1-844-832-7070 and speak to a student loan forgiveness specialist.

Student Loans & Your Credit Score

Repaying Student Loans

After graduation, repaying a loan quickly and without missed payments is the best way to build and keep a good credit score. However, even with this simple rule to follow, there are a number of things to be careful of; some of them are going to surprise you.

Paying off your student loan early may actually damage your credit score. Student loans are installment loans which, unlike credit card debt (revolving credit), it does not look better to creditors to have the lowest balance possible. Future creditors understand that a student loan means there is no larger balance of available credit and that your monthly payment will not change over the lifetime of the loan.

Since paying off an installment loan early can mean a loss of income (interest) on the loan to the lender, it may actually send the wrong signal to potential future creditors and lenders.  This can mean future loans with a shorter term, but a higher interest rate so they will get a better return on their loan to you.

Delinquency And Deferment

Resolve any delinquency immediately. Although it can harm your credit score to pay off too quickly, the damage will be much worse to just leave a student loan delinquent in the hope that you will find a new job or another source of income in order to “catch up”. Once you resolve a delinquency by establishing an Income Based Repayment, Income Contingent Repayment or another repayment option, your credit rating will quickly begin climbing back to its per-delinquent level.

Student loans taken out with a private lender have fewer repayment options than a federal student loan.  Even so, most banks will work with you to help not just you and your credit score, but to keep “bad” loans off of their books.  No bank manager or loan officer wants to have to answer about why a loan is delinquent and have to go through the process of attaching paychecks if they can find a solution agreeable to both parties.  The key here is to notify your lender before you miss a payment and to set up a new repayment plan.  If it is too late for that, then you will need to establish a new repayment plan quickly and follow up with the lender and the credit reporting agencies to make sure any bad information about it has been updated to show a repayment plan is now in place.

A student loan in deferment or forbearance will NOT hurt your credit score. Payments are not required when a loan is deferred, so you cannot be late in making them. If you need a short term of relief from a student loan to get your finances back on track, or to deal with an unexpected expense such as an extended hospital stay, then this is definitely an option for you.

Good Credit Loans

As mentioned above, student loans are installment loans. They are weighed less against your credit score than other types of loans and much less than credit card debt. This also makes them an excellent way to add history and diversity to the credit score of a new college graduate that might not otherwise have a credit history except for a credit card or two. This is also a loan that is supposed to improve earning potential and not to spend on a luxury item. All of this puts student loans, federal or private, in the category of “good credit”.

Federal Student Loan Advantages

Unlike private lenders, federal student loan lenders do not report past due accounts until they are 60 days past due and even then until the end of that month. This provides a federal student loan holder additional time to pursue repayment options or request deferment for the loan.

When deferment is granted, federal student loan lenders report it to the credit agencies automatically; in some cases, they will even backdate it if appropriate. As an example; if you return to school to pursue another degree, but did not file the appropriate notification paperwork, the period for which your loan was delinquent can be removed from your credit history once everything has been filed correctly.

Ensuring The Success of All Our Customers!

The key to staying success before & after being enrolled into a forgiveness plan/payment plan are preparation and staying ahead of any potential problems. This is especially true when repaying student loans. To protect yourself, your credit rating and your financial future, learn everything you can about your student loans. If problems do arise, the first step is to contact your loan holder and begin the process to restructure, defer, re-certify or seek forbearance for your loans. Helping you with that is our business here at Global Student Loan Forgiveness. You can call us at 1-844-832-7070 and speak to a student loan forgiveness specialist.

Global Student Loan Forgiveness - The Industries Leading Student Loan Forgiveness Document Preparation Company!