Most people are unaware that a default will cause up to 24.5% added to your loan balance for federal loans. And you can default multiple times. Defaults also can lead to wage garnishment, social security offsets, interception of tax refunds and damage to online payday LA your credit.
You can actually be behind in your payments for up to 270 days on a federal loan before it is considered in default. Since they add up to 25% to a loan balance upon default, I’m glad there is a little time 9 months — to try and get a plan together to avoid default.
We can cure a default once it occurs through a rehabilitation or consolidation. There are key differences between these options and how they apply.
Private loans are a little different, for those we actually often recommend default. While it will hurt the borrowers credit, sometimes a settlement for 10-50% on the dollar and a reasonable payment plan where payments go to the reduced principal balance instead of solely to interest is the best way to go.
There are presently six income driven plans, not all of which provide for debt forgiveness at the end of the repayment period. Each are different and fit different needs, and I have yet to have a client come to me that understood the plan they were on. We often see people on the wrong plans. Sometimes people will consolidate all of their loans together when they should keep some separate for hundreds of dollars per month difference in payments. If you don’t know the differences and are unsure if you are on the best plan for you, a checkup with a student loan lawyer could save you tens of thousands of dollars and shave years off of the repayment period before debt forgiveness kicks in.
Unfortunately, this is a very misunderstood program. As the first batch of people are starting to reach the 10 year discharge target date in late 2017, we are starting to see the results of this system. Some of these results are tragic when people are counting on a discharge after ten years of faithful payments as a public sector employee, only to realize that they have made a fatal error and do not qualify for relief. You have to be on an income based plan working full time for ten years to qualify. There are lots of nuances to the program and more people will be denied than are approved unless they have an advocate on their side to navigate the pitfalls. I wish the system were easier, but it’s not and I can’t change that. So we have to help steer our clients through the quagmire to a successful discharge.
See below for a Crushing Debt interview with Christie Arkovich about public service loan forgiveness with tips about what to look out for, and how to qualify!
There are key differences between the repayment options for federal versus private loans. The starting point is to realize which of your loans are private versus federal. Second, is to learn what type of federal loans you have. Once we know that, we can help our clients create a plan to repay their loans in a manner that is both affordable as well as with an end in sight.
There are advantages and disadvantages to consolidation. Sometimes it’s a good idea, sometimes not. Most people think of consolidation solely in terms of combining their loans into one to simplify repayment or to reduce interest rates. However, in reality a consolidation does not typically reduce interest rates and you don’t always want to combine all loans such as in the case of Parent Plus loans or you limit your options going forward. A consolidation is best used to cure a default, get to a servicer that is more reputable if you don’t like your present servicer, or to change your loan types to increase eligibility for better programs etc. Consolidation is one of the most misunderstood options when I am advising our clients.