How Can I Manage My Student Loans?
Authored By: Alaska Legal Services
Answers to common questions about student loans.
- I have a student loan that I cannot pay, is there anything I can do?
Yes! The worst thing that you could ever do with any loan is to do nothing. You do have options. The options that you have depend on the type of loan you have. Some important terms to know are:
Original Lender: this is the school, company or bank that loaned you the money.
Guarantor: this is the entity, usually it is the state or the federal government, which sponsored your loan, such as the Department of Education.
Collectors: these are companies who specialize in debt collections, usually your loan is sent to collections if it is in default.
Default: means failing to make your payments as agreed.
Most student loans are guaranteed student loans, which means that they are government backed. Educational loans are generally NOT DISCHARGEABLE in bankruptcy unless you can prove that paying them would be a hardship on you and your family. A Hardship Exemption in bankruptcy is extremely hard to get.
Even if you have a government student loan, you still have options to make your payments manageable and even cancel your loans in some circumstances.
- How can I make my payments more manageable?
It is important to try and work out a payment schedule you can actually pay BEFORE you get into payment trouble. In some instances, the Department of Education will require that you have made at least two consecutive payments before they will agree to make a payment arrangement with you. Some options you may want to consider are:
Deferment and forbearance: Under certain situations, you can apply to have your loan payments deferred. Examples of these situations include economic hardship, losing a job, serving in the military, or going back to school. If you don't qualify for a deferrment, you might still be able to qualify for a forbearance. For certain loans, the federal government might pay the interest on deferred or forbeared loans.
Loan Consolidation: This option allows you to combine all of your loans together in one lump sum and have one monthly payment. This may help you to have a lower payment for an extended period of time.
Income Sensitive Repayment Plan: This option allows you to tailor your payment to your income. You will need to provide income records.
You can visit studentaid.gov/h/manage-loans for more detailed information on these payment options.
- What will happen if I still cannot pay?
If you miss a single payment, you are deemed delinquent. You will remain delinquent until you become current again.
If your payment plan calls for you to pay monthly, you will be deemed to be in default if you fail to make payments for 270 days. If your plan calls for you to pay less than once a month, you will be in default if you don't pay for 330 days.
If you are in default, some of the consequences are:
Intercept Tax Refund: This means they take any money you are supposed to get refunded to you at tax time. This can be a big chunk of money, especially if you qualify for the Earned Income Credit. (If you are married and your spouse DID NOT cosign on your student loan, he/she can apply to have their portion of the refund returned.
Intercept Alaska Permanent Fund Dividend: This means they can take your PFD and apply it to your loan.
Wage Garnishment: This means they can take money directly from your paycheck. The Department of Education DOES NOT have to have a court judgment against you before they garnish your wages. Also, state garnishment exemption statutes ARE NOT applicable to federal wage garnishments for student loans, but you can agree to make payments, which may convince them to stop the garnishment. In rare circumstances you may be able to qualify for a federal hardship exemption, but they are very detailed and difficult to get and you must reapply every 6 months.
- Under what circumstances could my loan be cancelled?
There are only a few circumstances in which you could cancel your federal student loan. They are:
Total and Permanent Disability(TPD): If you have been determined to have a permanent and total disability by the Social Security Administration, the Veteran's Administration, or a physician, then you may qualify to have your loan cancelled. You or a representative can apply for TPD onine at the Department of Education's website.
Closed School Discharge: If, after 1/1/86, the school you attended closed BEFORE you could complete your education, you could qualify for a cancellation. You must prove that the school closed and that you were enrolled when it closed. You can find a list of closed schools on the Department of Education website at www.ed.gov .
School received False Benefits: If the school lied to the Department of Education about your ability to attend school. For example, a school enrolls a person who they know cannot complete the education, such as a mentally challenged person, just to get the federal funds.
This information was adapted from the Oklahoma Legal Aid Website with permission from the Legal Aid Services of Oklahoma, Inc.