Student Loans

Many consumers borrow money to pay for college, but student loans can create a lifetime of debt. You should understand your rights before taking on student loans. You should also understand the different types of student loans. Some are much better than others.

There are two types of student loans – government and private. Government student loans are funded by the government. Private student loans are funded by banks, credit unions and schools.

There are several types of federal student loans. There are direct subsidized and unsubsidized loans, as well as Federal Perkins Loans. There are loans for parents called Parent PLUS loans, which a parent can take out for the student. The parent, not the student, is responsible to repay the Parent PLUS loan.

It is best to start with federal student loans. The terms and repayment options are generally better than private loans. For instance, the interest rates on federal student loans do not rise. The interest rates on private student loans may vary, or be able to increase as high as 18%. Also, federal student loans allow you to pay according to your income level. These loans may allow you to stop paying temporarily if you run into financial difficulties. Federal loans may even be forgiven under certain limited circumstances. Most private loans generally do not offer these options.

Also, you do not start paying back federal student loans until you graduate. You may have to start paying back private student loans while you are still in school. The government pays the interest on federal subsidized loans while you are in school. The interest on private loans starts adding up while you are still in school. This increases the amount you will have to pay back on the loan.

If you are having trouble paying your student loans, you are not alone. About seven million student loan borrowers are in default on their loans. Bankruptcy does not discharge school loans in most cases. You would have to show a very extreme hardship situation. School loans do not survive your death. In most cases, your estate will not have to pay back your school loans after your death; however, if a parent or relative co-signed your loans, they may be liable for your school loans even after you die.

There are various programs offered to manage student loan debt. You should look into these before defaulting on a student loan. You may be able to put your loans in forbearance or deference if you lose your job or suffer a financial hardship. The interest generally accrues while you are not making monthly payments on the loan. This will mean you are paying even more for the money you borrowed. If you are in default on your government student loan, the government may charge extra fees. The fees may be as high as 18% for collection costs. The government can also garnish your wages and seize your tax refund if you default on a student loan. You will usually have the option to rehabilitate the loan by making a very small monthly payment for a period of 9-12 months. Making these timely payments can change the status of the loan from in default to current. You may also be able to enroll in an income-based repayment plan which allows you to pay an amount that you can afford, based on your income and other circumstances. Again, interest will keep accruing on the unpaid principal.

The government may also forgive your loans under certain programs. After ten years of working for the government, it may forgive your student loans. There is loan forgiveness and repayment help for active-duty members of the U.S. Armed Forces.  The government offers student loan assistance to enlisted service members.

The Public Interest Loan Forgiveness Program is also something to consider. The government will forgive the balance of your school loans in certain situations. You must make 120 qualifying monthly payments while working for a qualifying employer. A qualifying employer is generally the government or a non-profit organization. Qualifying employment means full-time employment, and full-time employment means an average of at least 30 hours per week. Qualifying loans include those under the Federal Direct Loan Program. You can find out more about loan forgiveness at www.studentaid.ed.gov.

Legal Editors: Brandy Beltas, Esq. and Marshall Coleman, Esq., January 2018