There are a lot of things that people argue about these days. Just recently I ran to get out of the rain. When I got undercover, I encountered a person that told me I should walk in the rain and that if I did so I would get rained on less. Out of curiosity I googled the topic, getting 76 million results. It turns out that this question is hotly contested by some people. While I personally think this question can be definitively answered using mathematical models, I’ll leave deciding whether to walk or run in the rain to you.
To my great dismay, when I google student loans I also see a great variety of opinions, many of which are objectively incorrect. The incorrect information tends to be information that people repeat without researching. Or in a lot of cases, it is people trying to mislead you to make money off of you.
I personally think life is tough enough without people trying to mislead you to make money off of you, so here is my attempt to sort through some of the nonsense.
What I am going to try to help you with is some basics on how to effectively manage your student loans. This article is focused on helping people who are not currently in default on their student loans. If you have already defaulted, give me a call (904) 419-9858.
The first thing you need to do is get a grasp on your total student loan debt picture. I have encountered many people who aren’t sure how much they owe and whom they owe it to. This is really quite a terrifying position to be in. First, if you don’t know what you owe and to whom, then you have no way to hold your lenders accountable. And as recent news has shown us, your lenders aren’t always going to be honest in the way they handle your student loan debt.
See e.g. https://www.consumerfinance.gov/about-us/newsroom/prepared-remarks-cfpb-director-richard-cordray-navient-enforcement-action-press-call/
Second, if you don’t know whom you owe your debts to, you raise the possibility that you will fall victim to fraud. As I discuss in other articles, debt collectors sometimes attempt to collect debts against people who never owed the debt. Thus, it is important to know what is legitimate and what is not.
So, how do you get a grasp of your student loan debt picture? It is actually not that hard. The first thing I normally tell people to do is to visit the following federal Department of Education website: https://www.nslds.ed.gov/npas/index.htm . You will need a PIN. lf you filled out your FAFSA online, it is the same PIN. lf you do not have a PIN, or lost it, you can request one through this website.
Once logged in, you will see a summary page which provides you with a summary of all your FEDERAL student loans. By looking at this you can see exactly how much you owe, who is servicing the loan, and any other details that you need.
However, this will not give you information about your PRIVATE student loans. To complete the picture you can pull a free credit report on yourself. You can get a free credit report at annualcreditreport.com. Use this site specifically as it is the site authorized by the government to provide the free annual report required by law.
Looking at the federal summary and comparing it with the consumer report will allow you to get a better perspective on your total debt picture. If a student loan is on the credit report but not on the federal summary, this means that it is a private student loan.
Now there is a lot to think about when it comes to student loans. But first I want to give you a warning. There are a lot of debt relief scams out there. It is true that the student loan servicers are frequently incompetent and are not generally trying to help you, but this doesn’t mean you need someone else to help you apply for a FEDERAL student loan repayment plan or consolidation. Don’t pay someone to apply for you. If someone is attempting to charge you for free resources, they don’t have your best interests at heart.
You can apply for free and the information you need is easily accessible on the Department of Education website. See https://studentloans.gov/myDirectLoan/index.action# . I recommend applying through the Department of Education. Why? Because as already mentioned, the loan servicers are frequently incompetent. This way you have an external paper trail if you need it.
When it comes to federal student loans, there are a lot of programs out there that can potentially benefit you. My goal here is not to fill you in on those programs as this information is easily accessible on the Department of Education website. You should of course explore the loan forgiveness programs such as the teacher loan forgiveness program and the public service loan forgiveness program.
There are various income based and other repayment plans. Again, you can access excellent descriptions of these plans at https://studentaid.ed.gov/sa/repay-loans/understand/plans . If you have a high debt burden you probably should participate in one of the income based repayment plans that offers loan forgiveness such as the REPAYE, PAYE, IBR, or ICR repayment plans. But here is the catch, you must be vigilant in filling out the required paperwork each year so that you stay on the plan.
You should also be aware of the various forms of loan discharge that are possible. Click above on the "Loan Discharge" tab for a summary of the various discharge programs. A significant number of students that attended for-profit schools, for instance, may be eligible to have their loans discharged.
Federal loan consolidation is frequently an area where students and former students are misled. First of all, as noted already you can apply for federal loan consolidation through the Department of Education. So don’t fall victim to a loan consolidation scam!
Second, while consolidation can reduce your monthly payment and make things easier to manage, it doesn’t generally save you money in the long run. Why? Because the interest rate you pay is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%.
Many students have federal loans with different interest rates. One former student I talked to recently, for instance, had federal loans with interest rates varying by as much as 3% because of when she took out the loans. While she could consolidate, a better strategy was for her to get on an income based plan and then to use her extra income to pay off the high interest rate loans. This way she pays less interest over time as she is paying off the higher interest loans first, instead of consolidating all the loans.
This is not to say that consolidation is a bad thing. But, you should think it through before you consolidate all your loans together.
Now on to private student loans. Unfortunately your private student loan terms and conditions are not regulated in the same way that federal loan terms and conditions are. With private student loans you don’t have access to the federal repayment plan options. Instead, what options you have is dependent on your loan agreement. The terms of private loans are almost always less favorable than those of federal student loans. Thus, I would never borrow from a private lender to pay off a federal student loan.
The only silver lining with private student loans is that the lenders have less powerful collection tools and that collection efforts are subject to the applicable statute of limitations. If you are having difficulty with your private student loans give me a call. I would be happy to talk to you about potential solutions.
I hope you found this brief summary helpful. I get a lot of calls from individuals who are being sued by student loan lenders or collectors. While I enthusiastically help these clients and love giving them relief, you will be much happier if you never reach this point. Give me a call if you want a free initial consultation. (904) 419-9858.