College Student Loans
The easiest way to solve student loan problems is to prevent them from the beginning. It's like that saying: An ounce of prevention is worth more than many pounds of student loan debt. Here are our suggestions:
- Whatever you do, try to make all of your loans federal loans and not private loans. The most difficult part when reviewing the paperwork before signing up for student loans is that the student borrower does not understand the fine print, nor is fully educated on the difference between loans. Most adults do not even understand the many pages of legalese when signing for these loans. There are major differences between federal and private loans. This is because there are a host of regulations to protect and assist the Federal Loan borrowers: These include: Forgiveness Programs and Income Based Repayment Programs that will allow you to terminate your debt early under certain circumstances — this would apply, for example, if you take a government job, work for a non-profit company or become disabled. If your income is low when you finish your studies, you can request that the monthly payments be lowered based on your income: there are a couple of programs known as Income Based Repayment (IBR) or Pay As You Earn (PAYE). Your monthly payments will be determined by your net income after household expenses. And, if you make the IBR or PAYE payments on time, there is a possibility of forgiveness of the balance owed after a certain amount of time.
Some private loans allow for payment reductions for a limited length of time. But, private loans are not regulated in the same way as federal loans. Because they are private, it just depends on what the specific lender allows. There are simply less rules to restrict the actions of the private lenders.
- We do not recommend asking family or friends to co-sign on student loans. Although this sounds like a wonderful idea and it may reduce the interest rate slightly, this is the kind of long-term loan that can tear up families. These are not short term loans or loans that are minimal in amount to help you get a start on your way into the real world. When you default on a student loan, all of the interest due becomes capitalized. In other words, if you owe $20,000 on the student loan and then you default, any interest in arrears becomes part of the principal of the loan. Suddenly, after a couple of defaults, the loan balloons to $40,000 and then you suddenly owe $200,000 in loans because you defaulted on a few other loans at the same time when you lost your job.
Before signing on the "dotted line" of student loans, do lots of research and be realistic in your goals. Please call the Firm. We are people with experience on this subject, and are waiting by the phone to give legal advice.