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Thursday, September 13, 2012

Answers to Your Questions About Student Loans, Part Two


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. Along with questions, some readers proposed their own answers. The first set of answers is here, and the second set 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.

I am supposed to start paying loans in November and signed up for the income contingent payback plan but haven't gotten any paperwork nor have I been asked to provide proof of my income. How do they decide what I'm paying per month? â€" Christy Maier Dorfler

You should have received the forms by now, so you may want to contact your loan servicer and ask them to resend the forms. If that doesn't work, try the Department of Education directly. According to Mark Kantrowitz, publisher of finaid.org, a Web site devoted to college financial aid, your payment will be based on your previous income. As a consequence, you will be asked to fill out a form called the alternative documentation of income form, and a form that permits the Department of Education to gain access to your tax returns through the Internal Revenue Service.

If you file for bankruptcy, can you add your student loans? â€" Mike Reynolds

If you file for bankruptcy, you have to list all of your debts including your studen t loans. But student loans won't be discharged unless you file a separate lawsuit as part of the bankruptcy case and win, which is not easy, according to Geoffry Walsh, a lawyer at the National Consumer Law Center. Essentially, you will be required to prove to a judge that paying your student loans is an undue hardship. As my colleague Ron Lieber recently wrote, it's a difficult process that can be tough on your self-esteem.

The way to do college is, after high school (if you have no money) to get a full-time job. Then after work, go online and get a degree online from a university. Live meagerly, save 10 percent, pay for the online courses and use the rest for rent and food and expenses. It may take 10 years or more to complete, but at least by the time you are in your late 20s or early 30s you are set and debt free. You will have another 30 years to reap the rewards for your efforts and have a family, house, cars and vacations. Those without the money to do it in fou r years need to think in much longer terms. â€" NewsDogReports

This isn't a bad idea, but not all online classes are created equal. Some online classes are surprisingly expensive and carry little weight with employers, so there are few rewards to reap. Having said that, many of the nation's top universities, including Stanford and the Massachusetts Institute of Technology, are moving aggressively into free online classes, and it is only a matter of time before there will be many more rigorous online programs. It is hard to know, however, when, if ever, employers will consider online degrees the same as those from brick-and-mortar colleges.

How do I really get my student loans reduced? Do I call and tell them, “Hey, I want my repayment to go to a certain part of the loan?” For example, perhaps the interest on it, give more than they ask. â€" Jorge Aguilar Cruz

If you have federal loans, you should look at the different repayment plans that are available, including income-based repayment. The Web site studentaid.gov explains these programs in some detail. However, if you extend the term of your loan, you may reduce your monthly payments but pay more interest over the life of the loan. If you have private student loans, call your servicer and ask them to explain what types of repayment options are available.

Thank you to all fellow Americans who helped me with student loans. I have payed them off, and that has helped my credit history. â€" Thomas Doran

Thanks for posting this. Despite the sobering number of borrowers in default, nearly six million, it's important to remember that most students pay off their student loans and find the investment well worth it.

I've been deferring my loans for almost two years now. I can't afford to pay them. But the interest just keeps growing. Is filing bankruptcy possible yet? â€" Tim Weiskopf

As I stated previously, you can try to file a petition with the court to d ischarge your student loans. But initially, a better option may be to apply for income-based repayment, if you have federal loans. If you decided to follow through with trying to discharge your student debts in bankruptcy, it will help prove undue hardship if you have tried to exhaust your repayment options, Mr. Walsh says. He also suggests seeking out a bankruptcy lawyer with experience in student loans. The National Association of Consumer Bankruptcy Attorneys Web site may be a good place to start.

Is it smart to double-pay all loans at once or to take that extra income and put it all toward one loan so I can knock them out one at a time? â€" Gaber Zua

The best approach is to apply the extra money to the loan with the higher interest rate, Mr. Kantrowitz says.

I have private loans. Even though I'm still a full-time student (Ph.D.), my deferment has expired and I was rejected for forbearance. My bank - Citibank - says it will not work with me. It's pay or default. What are my options? And how is this fair? Banks were bailed out, the auto industry, I need help, too! â€" Cari Varner

Your best option is to call Citibank and try to work out an affordable payment plan. If you can't do that, then unfortunately you don't have many choices. As for fairness, I suggest you read the comments that accompanied my story on Sunday about student loan defaults. While many readers believed that the student loan system was broken and in need of reform, at least an equal number had little sympathy for borrowers who were struggling to pay off their loans. Sure, the banks got a bailout, but the idea of bailing out citizens - whether for mortgages or student loans - is deeply unpopular and unlikely to happen in any major way.

Should I consolidate or continue to pay the four loans separately? There are a few federal (Stafford) and private. The highest rate is a fluctuating one at 6 percent currently. O.K., thanks! â€" Madelyn G

Lik e many borrowers, you have both federal and private student loans. Unfortunately for you, federal and private loans cannot be consolidated, Mr. Kantrowitz said. You can consolidate your federal loans, but it won't reduce your interest rate because the rate will be the weighted average of your existing loans. Under consolidation, however, you may be able to extend the length of your loan, which may reduce your monthly payment even if it increases the amount of interest you will pay over the term of the loan.