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The most Important Facts on Student Loan Delinquency and Default

Understanding the consequences of loan delinquency and default

There is a very small number of students who don’t have to borrow money to finance their educational costs. Educational loans are the best way for many of college students to gain academic degree because they generally can be deferred until graduation. This means that you will enjoy a grace period after you left school which can allow you to start working before you have to begin paying off your loans. The federal student loans provided by the US Department of Education like Stafford Loans, Perkins Loans or PLUS Loans offer up to nine months grace period after graduation to start repaying your student loans.

It is not unusual, however, for a large number of students to fall making their loan payments when they are due, which leads into delinquency. Delinquency means that you have fallen behind on your loan payments and your account is no longer current. For instance, if you miss to make your payments for a couple of months your loan lender may tag your account as “delinquent”, which in essence means that you owe back payments and are not yet in complete default.

Loan delinquency has numerous consequences which may include some of the following:

  • Extra fees and penalties
  • Bad credit effects
  • Collection efforts
  • Potential Default

The first you should do after you fall behind on your student loans repayment is to call your loan lender or lenders to settle an agreement on your payments and make a deal that works for both parties. Consecutive missed loan payments or extensive delinquency may lead into student loan default. Default comes about after 270 days of failure to pay on a federal student loan or 120 days of nonpayment on a private loan. Under most federal student loans your loan will be put into default after nine months of missed payments, and for majority of private student loans you have to miss about three months of payments to put your loan into default, though this depend on the specific loan lender.

Default cause severe consequences and some of them are following:

  • Bad credit record
  • Cancellation of federal student aid eligibility
  • Additional late fees and penalties
  • Possibility of going to court
  • Potential Default
  • Cutting off of Tax Return
  • Annulment of certain repayment benefits
  • Loss of professional license
  • Incapability to join the armed forces

The best way to avoid these serious consequences is to ensure you make your payments on time.  Defaulting on federal student loans is in general worse than defaulting on private student loans owing to the fact that the government can’t take action without the court’s intervention. However, it is less possible to default on federal student loans because there is a great deal of available repayment benefits with these loan plans.

Getting Out of Default

There are different federally authorized rehabilitation programs designed to help student loan borrowers to get out of debt giving them an opportunity to bring their loans out of default. Rehabilitation can repeal negative consequences of student loan defaulting. Participation in these rehabilitation programs is granted to students who take federal student loans.

Rehabilitation program involves a number of things. A representative from Default Collections will set up a monthly repayment plan for you and must approve the monthly payment sum required to participate in this 10-month program. First, borrower must make at least nine qualifying in-time loan repayments. In the case any of payments is missed, student has to begin paying off plan for the beginning. After completing of rehabilitation agreement, the underwriter transfers the loan to a lender and servicer and the loan is considered out of default. Borrower then once more becomes eligible to get the student financial aid such as student loans, scholarships or grants. In addition, he or she is able to apply for deferment and forbearance as long as these have not been exhausted for the period of default.

How to Avoid Going Into Default

Prior to taking out a student loan you should be sure that you will be able to make your loan payments when they become due. The best thing connected to federal student loans is that you don’t have to repay it until you left the school and they come with six to nine grace period after graduation. The interest on some loans starts to accumulate when the loan is given. Keep in mind that if you don’t have a subsidized loan then you will be responsible for that interest which starts to accrue right after the loan is given. However, if you realize that you are going to fall making your payments on time, you should contact your loan provider and utilize any available deferment, forbearance or repayment-adjusted option to avoid going into delinquency which often leads into student loans default.

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Student Loans Forbearance – the Most Important Facts

Forbearance is a way of putting off paying back your loans

Educational loans for college students provided by the federal government or private lending companies are a great chance to vast majority of US students to gain higher education. Still, Loan borrowers are obligated to repay their loan debts after they graduate or fall below half-time status. It’s not unusual, however, for students to have troubles making their payments. If you find yourself unable to make your planed loan payments, but don’t qualify for a loan deferment, you may consider forbearance as most advantageous option. Forbearance is a period of time during which lender of your student loan temporarily reduces or suspends your standard payments. Forbearance allows borrower to temporarily make smaller amount of payments, extend time of making payments or stop making loan repayment for a period of time.

Student loan forbearance vs deferment

The difference from loan deferment is that deferments don’t capitalize interest that accumulates during the time borrower delays the repayment term, and forbearance does. In other words, this means that over the longer period of time forbearance will cost you more than deferment, hence it should be utilized after all of your deferment time has been exhausted. Additional dissimilarity from deferments is that you can be granted forbearance if you are already in default.

Loans Eligible for Forbearance

You can apply for forbearance if your loan is taken under following student loan programs:

• Federal Family Education Loan Program (FFELP) which includes:

  • PLUS Loans
  • Federal Direct Loans
  • Some Private Student Loans

• Consolidation Loans
• Stafford Loans
• Supplemental Loans for Students

Types of Forbearance Available:

  • General Forbearance
  • AmeriCorps Forbearance
  • Teacher Loan Forgiveness Forbearance
  • Internship/Residency Forbearance
  • Loan Debt Burden Forbearance

Who is Eligible

You can ask your loan provider for forbearance option under certain circumstances which prevent you of making regular payments, such as health issues, financial hardship, unforeseen personal problems, natural disaster, military deployment or unemployment. Under certain conditions, you can automatically be given forbearance, for example, if you are involved in military service or US guard forces.

In addition, you are eligible for student loan forbearance in the following circumstances:

How to Apply

The application process is very simple and it takes only a few steps:

  • You should download the correct forbearance form
  • Complete the form and
  • Return the completed forbearance form to your loan provider.

It’s  not a common practice for forbearance to be automatically put into effect under certain repayment plan like some deferments are, and therefore it’s good idea to make a personally forbearance request to your loan servicer if you want to utilize this option. You should contact your loan lender or lenders at least 30 days before you want your forbearance to start to allow for enough processing time. They will contact in writing of the decision made. Keep in mind that it’s important to keep making payments until your forbearance is granted and be sure to make clear with your loan servicer which student loans you would like to be put into forbearance or if you’ll prefer to make postponement of your complete loan repayments. In case you’ve borrowed from multiple lenders, you have to make a forbearance request to each of them.

Federal and Private Education Loans Forbearance

If your student loan is provided from the federal student loan plan, you should make use of forbearance offered because the federal student loans generally come with a vast amount of forbearance time.

On the other hand, forbearance time available for private student loans can differ from one loan servicer to another and it is, therefore, very important that you learn about the actual forbearance time built in to your private student loan before you accept and sign the promissory note. In addition, you should be alter to the fact that some private student loan options do not offer any forbearance or deferment time, which means that you are required to make payments while you are still  at college. That is why is of vital importance to be familiar if any forbearance time is built in to your loan in advance, as you’ll probably want at least some forbearance time available, particularly while you are still in school.

How to Utilize Forbearance

When you are prepared to utilize forbearance time for your loan repayment, you just need to contact your lender via their website, a written application or over the phone. Once you utilize your forbearance, you must keep in mind that you’ll have to make payments once again and take note of that date to prevent missing to make payments.

It is very important to make your loan payments on time every month. It cannot be denied than taking student loans is a serious financial responsibility. The best solution for successful repayment of student loan debt is to do your emergency planning ahead of time. It’s a good idea to map diverse probable settings for your student loan borrowing and repayment. As a result you will know exactly what to do in case your life circumstances after graduation aren’t exactly what you hoped they would be. Keep yourself informed about all alternative repayment options before taking a loan. Evidently, it would be the best to make your payments on time, every time. Be aware that there are serious consequences if you repeatedly skip payments. However, as a borrower, you do have options in seeking alterations in the terms of your loan. If you have difficulties to manage your student loan repayments, or, for any reasons realize that you don’t have enough money to cover all of your expenses, the best thing to do is to think about requesting forbearance on your student loan.

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10 Great Tips on How to Repay your Student Loans Quickly

Going to a college or university undeniably is a good investment. Millions of students today take federal or private student loans in order to finance their education. According to some reports, the average amount of debt a student holds upon graduation is about $20,000.

I’ve Just Graduated! What Now?

You have just graduated. You are excited and proud of yourself holding your degree in one hand. And you are worried and anxious holding your debt in another. You are starting your new life with a student loan of approximately $15,000-$20,000 and wondering how to get rid of it in the shortest period of time.

Here are some useful tips on how to repay your student loans quickly. First, let’s list a few things you should pay attention to before taking your student loan.

1. Think about the Amount of Your Loan

The golden rule is: the less money you have to borrow, the better. Try to minimize the amount you are borrowing. Keep in mind that your monthly payments shouldn’t go over 10% of your anticipated monthly income without deductions such as tax or regular expenses once you graduate. This will allow you not to hording in debts. Moreover, it will be of assistance to repay your student loans quickly.

2. Be Familiar With Your Rights and Responsibilities

Be aware that you are responsible for repaying your student loans on time even if you don’t complete your education or fail to find employment. Complete entrance counseling prior to receiving the first disbursement and exit counseling before leaving school. It answers many essential questions about student loans and explains what will happen when you fail to make payments. It can give you helpful suggestion on how to manage your student loan payments. Student loans will not be excused in a bankruptcy proceeding, so it is vital that you put effort on paying them off as quickly as possible. Be informed about your rights as a borrower.

3. Don’t Wait Until You Graduate

Start paying off your student loans while still in college, even in case this requests you to find a part-time job, because this will save much money in interest. Keep in mind that as soon you start making money, the soon you will repay your student loans and start to make your capital.

4. Develop a Plan

Build up a plan to repay your student loans within certain amount of time. Don’t set them up paying off in next 20 years. In case you have some smaller debts like credit cards, clean them all up before taking your large student loans, which will allow you to focus on your loan repayment and will save you money.

5. Control Your Career

Be sure you choose a college that can place you in job after graduation. Carefully choose your mayor and pay attention to jobs available in the labor market, companies hiring and salaries offered. Keep learning and upgrading your skills to make yourself a valuable employee. This will increase your salary and consequently, help you repay your loans quickly.

6. Check for Available Repayment Options

Before entering your student loans, you should take into consideration all repayment options accessible, since they offer different conditions of paying off. For example, Biweekly Repayment Plan allows you to pay half of your monthly payments every two weeks instead one large payment. This will reduce the time needed repay your loans. With private student loan lenders you can negotiate favorable repayment conditions and choose from different repayment options according to your finances.

7. Don’t Change Your Lifestyle After Graduating

Once you have graduated, you don’t have to change your habits. Keep living like a student, stay in your affordable apartment, and use public transport. In that way you won’t increase your cost of living. Instead, use your newly earned income to pay down the loan principal and prevent it increasing with compounding interest, since your loan is not going to start accumulating interest during the grace period.

8. Arrange Your First Job Offer

Once you have your degree, use it as soon as possible. When you settle your first job offer negotiate your salary.  You will have six months grace period after graduation (or more under PLUS loan and private student loan plans) which is intended to allow you time to find your first job before you have to make payments. As soon you start to work, soon you will start paying off your loans. However, you should contact your student loan company to ensure that you are in the grace period, since you maybe wouldn’t be automatically put into grace period.

9. Keep in Touch with Your Lender

Update every change of your address, telephone number and any other change of your personal data that may occur. Don’t ignore bills and problems related to your debt.  Failing to do that can end up costing you a bunch of money.  Open and read every paper mailed from your student loan lender or you might miss out on a important deadline or vital information you need to act on concerning your student loans. If there is information you do not understand or if you have any concerns, ask for help. Remember, it is essential to ask if things doesn’t seem clear to you to avoid any troubles with your student loans repayment.

10. Don’t Panic

If you are having difficulty making your payments because of some unexpected financial issues, unemployment or health problems, remember that diverse student loan plans offer different repayment options like deferments and forbearance, which can help to avoid delayed fees and other penalties. If you use these options, you can also prevent a negative mark showing up on your credit report. If you have any difficulty making your student loan payments contact your student loan company to give you assistance in this matter.

Different federal and private student loan plans give assistance to millions of students in order to gain their academic education. This leads to better employment opportunities, which is worth every dollar invested.  If you had to take out student loans to support your education, there is no reason why the loans should not be managed appropriately. Just be sure to be economical and find out the very best way to cope with your student loans while still in college.

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The Graduate and Professional PLUS Student Loans

If you are a graduate or professional student in need of financing for college, the Direct PLUS loan may be right and one of the best student loans for you. To qualify for this federal student education loan, you must have already earned a Bachelor degree and be working toward an advanced degree in your chosen field. Parent student loans are also available through the Direct PLUS program if you are under the age of 25 and are dependent on your parents for more than half of your support.

Terms of the Direct PLUS Loan for Students and Parents

Unlike other forms of federal student loans, the Department of Education checks the credit history of the primary applicant for federal student loans. A good credit history is required, whether the applicant is you or one of your parents. If neither you nor your parents can pass the credit check, your federal student loans request will be denied.

How to Apply for the Direct PLUS Loan

In order to be considered for this loan type, you must first complete and submit the Free Application for Federal Student Aid (FAFSA). Before the college you plan to attend can determine your eligibility for graduate student loans, it must first determine the maximum amount you can receive with either a direct subsidized or an unsubsidized Stafford student loan. Once that step has been completed, your next steps in obtaining a Direct PLUS are to fill out the application and the Master Promissory Note . This is a promise to pay back all of your graduate school expenses, plus all interest that accrues while you are in school.

Direct PLUS Loan Limits

Under this loan for professional students, you can borrow up to the cost of attendance at the college of your choice for one school year. Prior to issuing you the Direct PLUS loan, the Department of Education will deduct the amount that is equal to all other forms of financial assistance you are eligible to receive.

Fees and Interest Rates

Before each disbursement of your Direct PLUS loan, the Department of Education will deduct four percent of the total as a processing fee. In addition, you will be charged a 7.9 percent annual percentage rate and deducts a 4.0 percent fee each time a loan disbursement is made. This is a fixed interest rate that is not subject to market variations.

Repaying Your Loan for Graduate Students

The repayment period for a Direct PLUS loan begins as soon as you receive the loan, but it can be deferred while you are attending college at least half-time. Once you graduate or drop to attendance level lower than half-time, your first payment will be due within 60 days. You may be able to extend the deferment period to six months if you received your loan after July 1, 2008.

After you begin making payments on this loan for professional students, you typically have between 10 and 25 years to repay it in full. If you do not make any payments on your Direct PLUS loan during the deferment period, the interest will be capitalized and charged to you once repayment begins.

Types of Repayment Plans

The Department of Education allows several options for the repayment of federal student loans. The standard repayment plans provides a fixed monthly payment and up to 10 years to repay your loan. The extended plan is similar, with the exception that you have up to 25 years for repayment. A graduated repayment plan starts out low and then the monthly payment increases every two years. Finally, you may be eligible for the income based repayment plan if you meet income and family size guidelines or work in the public service sector.

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Introduction to Federal Student Loans for Education

After high school, many students are unsure of what to do with their lives. They have the option of going to work or enrolling in college. Many who want to enroll in college do not have the money that it takes to pay for tuition. In this situation, students can borrow much of the money they need from federal student loans. If you are about to graduate from high school or you are thinking about going back to college, understanding how student loans work can be extremely helpful.

Direct Loan Program

The federal government offers a Direct Loan Program through the Department of Education. With this program, the federal government loans money directly to students, with the help of loan servicers. This means that when you borrow money from the Direct Loan Program, you’ll be able to get any help you need from an individual loan servicer instead of having to deal with the Department of Education.

Types of Student Loans

When you want to get involved with federal student loans, there are a few different types of loans that you could pursue. Two of the most common types of loans are Stafford and Perkins loans. Stafford loans are typically available to anyone who wants to go to school, regardless of credit history or income. With Stafford loans, you can get a subsidized loan or an unsubsidized loan. Whether you qualify for a subsidized loan will depend on the information contained in your Free Application for Federal Student Aid or FAFSA. If they determine that you have a significant financial need, then you can qualify for a subsidized loan. This means that your interest will be paid while you are in school, and your loan interest rate will be lower overall.

The Perkins loan is a similar type of loan, except it is only for individuals who have a significant financial need. There is a maximum amount of money that you can borrow each year with the Perkins loan program. If you still need to borrow money after the Perkins loan, you can use a Stafford loan.

PLUS loans are another type of federal education loan that you can get from the government. These loans are designed for parents of college students or for graduate students. Eligibility for this type of loan is also determined with the information from the FAFSA.

You also have the option of getting a consolidation loan from the government. With this type of loan, you can consolidate multiple student loans into a single package. The only have the option of consolidating once, so you need to make sure that you do it at the right time to get the best interest rate.

You may also be able to qualify for state-based student loans. These loans are actually issued from state governments and agencies instead of the federal government. Minnesota, Texas, Hawaii, New Jersey and Alaska are the five states that offer this type of program.

Considerations

Getting education loans from the federal or state government can provide you with cheaper interest rates than what you can get in the private market. They are also easier to get qualified for because you do not have to have a certain amount of income or credit score. The repayment terms of these school loans can also be very flexible. You have the option of choosing from a fixed payment, a graduated payment or an income-based repayment option. If you are interested in going to college, looking into federal loans should be one of the first things you do. After scholarships, grants and other sources of funding have been exhausted, they are often the most attractive option.

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