To answer their questions, Reuters hosted a Twitter chat June 4 that
included experts in financial aid, student loans and personal
finance - including myself, Mark Kantrowitz, senior vice president
and publisher of Edvisors Network Inc, and Reyna Gobel, author of
"Graduation Debt: How to Manage Your Student Loans and Live Your
Here's a sample of the questions asked during the chat and advice
from the experts who participated.
Q: What advice do you have for recent grads who have student
debt? What should they do first?
A: Graduates first need to understand that there's no longer
a good reason to default on federal student loans, said Gobel.
The Department of Education now offers a slew of repayment options,
including some that can reduce a borrower's payment to zero while
still keeping them current, said Kantrowitz.
Borrowers can get out of default and even erase the negative marks
from their credit reports with rehabilitation programs. Repayment
options are explained on the departmentís Web site (https://studentaid.ed.gov/).
"The student loan crisis is due to a lack of education on repayment
plans, not money," Gobel tweeted during the chat.
After 90 days of non-payment, federal student loans are considered
delinquent and reported as late to credit bureaus, which can hurt
borrowers' credit scores. After 270 days of nonpayment, federal
loans are considered in default and collections activity can begin,
including wage garnishment and seized tax refunds.
To avoid a late start, graduates should pay close attention to the
due dates for their first loan payments, which vary by servicer,
Kantrowitz said. Typically, that first payment is due six months
after the student graduates or drops below half-time enrollment. He
recommended graduates put a reminder on their calendars two weeks
before the due date to make sure payments are made on time.
Signing up for automatic payments could also trim 0.25 percent to
0.50 percent off the loan's interest rate, Kantrowitz said.
Q: When saddled with student loan debt, is it more efficient
to just consolidate and lock in a low rate?
A: Consolidating federal student loans typically won't change
the overall interest rate paid, since the new rate is a weighted
average of the original fixed-rate loans.
But consolidating makes repayment simpler - one loan payment instead
of several - and choosing a payback period longer than the standard
10 years can lower monthly payments.
That increases the total interest the borrower may have to pay, but
lower payments could free up money for other important goals, such
as saving for retirement and paying down private student loans,
which typically have variable rates, less accommodating payment
plans and few consumer protections.
One downside to consolidating is that it can prevent a borrower from
tackling highest-rate debt first if he or she can make extra
payments on the debt, Kantrowitz said.
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Those with private loans can explore private loan consolidation,
which is now offered by more lenders, including Discover, Wells
Fargo, RBS Citizens and many credit unions. Borrowers with good
incomes and credit scores can qualify for low, and in some cases,
Q: Is it a good idea to defer a loan? What are the risks?
A: Deferment allows the borrower to temporarily delay loan
repayments because of economic hardship. On certain loans - Federal
Perkins Loans, Direct Subsidized Loans and Subsidized Stafford Loans
- the government may pay the interest.
Otherwise, interest continues to accrue, "digging borrower into (a)
deeper hole," Kantrowitz tweeted.
Borrowers who don't qualify for deferment may be able to get
forbearance, which also means interest accrues.
More information may be found on the Web site (https://studentaid.ed.gov/repay-loans/deferment-forbearance).
"Deferment is good for short-term financial difficulty," Kantrowitz
tweeted. "For long-term problems, look into alternate payment plan."
Q: What about public service forgiveness options?
A: People with big federal student loan debt and low incomes
can benefit from two relatively new repayment plans: income-based
repayment and "Pay as You Earn."
Both cap the borrower's monthly payment (the Pay as You Earn cap is
typically the lowest). The Public Service Loan Forgiveness plan
erases remaining Direct Loan balances after 10 years for people who
work full time in eligible jobs, which include police, fire,
military, public schools and nonprofits, Kantrowitz said. Other
borrowers may be eligible for forgiveness after 20 to 25 years.
But borrowers who hope to qualify for forgiveness need to sign up
for income-based or Pay as You Earn programs. Otherwise, they'll be
signed up for the standard repayment plan which requires higher
"If thereís any chance you qualify for public service loan
forgiveness, choose an income-related plan," Gobel tweeted.
(Editing by Beth Pinsker and Bernadette Baum)
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