I have seen more articles recently about the best strategies for those struggling to repay their student loans (not surprising to see the plethora of stories on this topic given the weak jobs market and increasing loan default rates).
Here are some of the options laid out in the Wall Street Journal's blog, The Wallet (posted by Melissa Korn):
- Contact the lender to describe your situation and see what they can do for you but know that you may have the options described below.
- “It doesn’t hurt to talk to the lender, to lay out your situation, and ask them what they can do,” says Mark Kantrowitz, publisher of financial aid Web site finaid.org."
- Consider a deferment
- While many may be aware of this option should a student decide to return to school at least half-time, deferment is also available for those who are unemployed or enduring another "economic hardship."
- Interest payments will be added to your loan so try to make at least interest-only payments while in deferment
- You can calculate your hardship eligibility here
- While many may be aware of this option should a student decide to return to school at least half-time, deferment is also available for those who are unemployed or enduring another "economic hardship."
- Consider forbearance which will allow you to reduce or postpone your payments
- For federal loans, forbearance provided in one-year increments for up to three years
- For private loans, forbearance term generally of shorter duration with shorter maximums
- Interest continues to accrue during this period
- After July 1st consider income-based repayment which is described below:
- Finally, If your federal student loan balance is over $30,000, extending your repayment term from 10 years to 25 years can significantly lower your monthly payment, while also ensuring that your total loan cost increases significantly too.
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One of the commenters to the WSJ blog had some good advice to one
defaulter: "but if you can “rehab” the loan, which I believe means 9
months of
payments, you then can qualify for the new income-based payment plan,
which is probably the best possible plan out there now."
For those looking for advice on what to do once they have defaulted on their federal loan, here is what the Department of Education advises on their "Repaying Student Loans" website:
Addressing Your Defaulted Student Loan
If you default on your student loan, the maturity date of each promissory note is accelerated making payment in full immediately due, and you are no longer eligible for any type of deferment or forbearance. Continued failure to repay a loan in default may lead to several negative consequences for you over the long-term including having your wages garnished, your Federal income tax withheld, and losing your eligibility for other federal loans like FHA or VA.
However, there are now more ways than ever before to repay your defaulted student loan and certain programs can even remove your loan from its defaulted status. Determining which repayment option that is right for you depends on what your objective is.
"I want to pay my defaulted student loan in monthly payments that are affordable to me."
- All guaranty agencies and the U.S. Department of Education (Department) will accept regular monthly payments that are both reasonable to the agency and affordable to you. You should call us at 1-800-621-3115 and one of our customer service representatives will assist you with determining a repayment amount that is right for you.
"I want to reestablish my eligibility for additional federal student aid and go back to school."
- Please see Going Back to School for more information on this topic.
"I'm applying for a HUD (FHA) or VA loan and I don't qualify because of my defaulted student loan."
- Your options for reinstating your eligibility to receive a HUD (FHA) or VA loan are: repay or satisfy the loan in full; consolidate your loan through the Federal Family Education Loan (FFEL) loan consolidation program or the William D. Ford Direct Loan Program (Direct Loan Program); or rehabilitate your loan through our loan rehabilitation program. Since defaulted student loans have no statute of limitations for enforceability, you would remain ineligible to receive a HUD or VA loan until you complete one of the options mentioned above.
"My credit record is tarnished because of my defaulted student loan. Is there anything that I can do to improve my credit record?"
Failure to repay your defaulted student loan can be damaging to your credit record. In fact, consumer reporting agencies may continue to report an account for 7 years from the opening date. However, there are several things that you can do to at least partially, and in some cases, fully restore your credit record. Your options for bettering your credit report include: repay or satisfy the loan in full; consolidate your loan through the FFEL loan consolidation program or the William D. Ford Direct Loan Program; or rehabilitate your loan through our loan rehabilitation program.
If you want the negative credit report made by the Department removed, you must successfully complete our loan rehabilitation program.
"Can I pay my defaulted student loan held by the Department by credit card?
Absolutely. We accept American Express, Discover, Master Card and Visa as repayment options. To repay a loan by credit card, please call us at 1-800-621-3115.
"What address do I send my payments to?"
If you have a defaulted student loan held by the U.S. Department of Education, you can mail a check or money order to the address below. If you are at all unsure about the status of your loan, or who currently holds your loan, please call us first at 1-800-621-3115 before sending in payment. You may also use Loan Locator to help you find out what lenders currently hold your loan(s).
National Payment Center
P.O. Box 4169
Greenville, TX 75403-4169
(Please be sure to include your Social Security Number on any payment instrument that you send us).
Lots of good information here, thanks for sharing
Posted by: The Financial Fairy Tales | July 30, 2010 at 03:07 AM