This week, two New York Times reporters and Geoffry Walsh, an expert on student debt and bankruptcy at the National Consumer Law Center, are answering questions about ways to avoid default, pay off student loans or try to expunge student loans through bankruptcy court. The first set of answers is below.
The reporters, Ron Lieber and Andrew Martin, recently wrote articles about the difficulties of paying back student loans as part of The New York Times's series Degrees of Debt, which examines the implications of soaring college costs and the indebtedness of students and their families.
List government work programs that will pay off student debt in return for service.
There is the Public Service Loan Forgiveness Program, under which qualified employees can have the remaining balances of their loans forgiven after 10 years of on-time payments.
According to Department of Education, any full-time government job qualifies, whether it's federal, state or local, and so do full-time jobs for nonprofit organizations that are tax-exempt under Section 501 (c)(3) of the federal tax code.
Furthermore, some other private nonprofits may qualify if they provide certain public services, like emergency management, military service, public safety, law enforcement, public health services, public education, public library services, school library and other school-based services, public interest law, early childhood education, public service of individuals with disabilities and the elderly. Labor unions and partisan political groups do not qualify.
Religious organizations don't quality either, which rabbinical students and seminarians d on't like.
What loans are eligible for forgiveness?
Only loans you received under the William D. Ford Federal Direct Loan (Direct Loan) Program are eligible for public service loan forgiveness. Loans you received under the Federal Family Education Loan (FFEL) Program (in which the government guarantees loans made by banks and which was ended in 2010), the Perkins Loan Program or any other student loan program are not eligible for the forgiveness program.
If you have FFEL and/or Perkins loans, you may consolidate them into a Direct Consolidation Loan to take advantage of public service forgiveness. However, only payments you make on the new consolidated loan will count toward the 120-month payment requirement for the forgiveness program. Payments made on your FFEL or Perkins loans, even if they were made under a qualifying repayment plan, do not count as qualifying public service loan forgiveness payments.
What about some a dvice for those who are drowning in tens of thousands of dollars in PRIVATE student loans which you can't put on the income-based repayment or public service loan forgiveness program? Oh wait…there is none! They are basically pay-or-default loans, and as of 2005, Congress stripped away bankruptcy rights on these loans. These loans will literally crawl into the grave with you! Something needs to be done NOW to allow one to combine these loans with federal loans to qualify for income based repayment or restore bankruptcy rights so people can be given a second chance to live their lives!
You are right that borrowers with private student loans have fewer options than those with federally guaranteed student loans. There are some efforts in Congress to change the law so that it won't be so difficult to expunge private student loans in bankruptcy, but there is no guarantee that they will succeed. In the meantime, your best bet is to call your private loan servicer and try t o work out an affordable payment plan.
A Sallie Mae spokeswoman adds the following: “While private student loans do not guarantee repayment entitlements available on some federal loans, we work with our customers one-on-one if they experience financial difficulty. As appropriate, we customize assistance using a variety of tools â€" in some circumstances that means modified loan terms, lower interest rates, good-faith catch up programs or temporary suspension of the requirement to make payments. Since 2009, we have modified $1.1 billion in private education loans with interest rate reductions or extended repayment terms.â€
I will be completing a graduate program next year with approximately $70,000 in debt (all on government student loans, not private ones). I plan to get in the IBR plan as soon as possible to prevent default. This sounds like a better deal, since it will keep my payments manageable for 25 years, and if I don't have a high paying job to make la rge payments, the rest of the balance is forgiven at that time. My two questions are, does carrying a large balance, even if on IBR, over that time period negatively affect my credit score? Will that make it difficult or impossible to be approved for a car or home loan in the future if I have a large balance on IBR but am current on all payments?
We turned to credit industry veteran John Ulzheimer for help with this one. Here's his reply:
“Carrying a large amount of student loans has a surprisingly benign impact to your credit scores. The reason: they're installment loans rather than revolving accounts. Installment debt, when paid on time, has almost no impact to your credit scores. Installment loans (autos, mortgages and student loans, for example) are less indicative of elevated credit risk, thus the small impact. That's another reason you should always pay off credit card debt faster than you pay off installment debt.â€
Mr. Ulzheimer adds that the imp act of any student loan balance on, say, a home loan application will depend on your income. Mortgage lenders want to know how much other debt you'll be paying off besides their home loan, and then they'll compare it to your income to decide how much they're willing to lend you.
