What should I do if I am late in repaying my student loans?


Faced with delinquency

If you’re already in arrears on a loan not covered by the suspension, or if you expect to fall into delinquency at the end of it, don’t hide your head in the sand. Call your loan officer to explore your options. “Be prepared to discuss your financial situation – what has changed, what is short term and what can be long term,” says Scott Buchanan, executive director of the Student Loan Servicing Alliance, a non-profit trade association. profit focused exclusively on student loan problems. The loan manager will want details, including your income and discretionary expenses.

If you are convinced that your situation is temporary, you can look for a short-term solution. With a stay, the loan manager will suspend your payments. With one forbearance, it will reduce or suspend your payments. They are offered in increments of three months up to one year. Either way, interest will continue to accrue, so your loan balance and the total cost of your loan will increase, and if you are looking for a loan forgiveness, your progress will stop.

If you took out a Parent PLUS loan to help pay for your child’s education, you are legally obligated to repay the money. But if your child is better off than you, you can take the “skin-in-the-game” approach and have them make a few payments, says Melissa Cox, certified financial planner in Dallas.

Yet for many borrowers, these options only push the limits, observes Michael Lux, a lawyer who blogs at Student loan Sherpa.com. If your payments will be as unaffordable in the future as they are now, or if you are looking for a loan forgiveness, consider switching from a standard 10-year repayment plan to a cash-based repayment plan. income, which will reduce your monthly payment amount based on your income and family size, and extend the loan term to 20 or 25 years. After that, the balance is remitted, although you may owe tax on the remitted amount. For eligible workers in certain public service careers, the civil service loan forgiveness program remits the balance after 10 years of payments, with no tax penalty.

If you have a federal loan, such as a FFEL or Perkins, held by a third party, you can consolidate the payments into a single, new federal direct consolidation loan so that they are eligible for coronavirus deferral and zero interest. However, consolidating may not be a good idea for everyone as it resets the loan cancellation clock and can also result in deferred interest being added to the balance. Check with your repairer first. To find and compare your options, try this free student loan tool: Loan simulator.

Whichever route you choose, call your loan manager well in advance of the Jan. 31 expiration, Buchanan advises, to avoid last-minute rush.

A final note

Beware of crooks who may call with offers for secret or special relief. They often use official sounding business names or claim to work for a consumer advocacy group or the federal Department of Education. According to the CFPB, red flags include pressure to pay high upfront fees, promises of immediate loan or debt cancellation, requests to sign a third party authorization or power of attorney, or a request for your unique FSA ID.

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