|
 Inevitably, though, some will fall behind even though there is no
good reason to do so. Their credit scores will be crippled and they
will risk the government garnishing their wages and seizing their
tax refunds.
Borrowers need to understand that waiting for student loan
collectors to pounce just costs more in the long run, according to
financial aid expert Mark Kantrowitz, co-author of "Filing the FAFSA."
Interest and penalties inflate overdue debt, and wage garnishment
will take far more of borrowers' paychecks than federal income-based
repayment plans.
Perhaps some are listening because the three-year default rate
peaked in 2010 at 14.7 percent and dropped to 11.8 percent this year
for those who entered repayment in 2012.
Kantrowitz predicted the rate would be around 10 percent for 2013
and 8 percent to 9 percent for recent graduates and other borrowers
whose six-month grace period ends next month. He credited an
improved economy and lower unemployment for most of the drop.
Expansion of income-based repayment plans also may help default
rates, but relatively few borrowers are applying for those,
according to a recent Government Accountability Office report.
About half of federal Direct Loan borrowers are eligible for an
income-based repayment program, but only about 15 percent take
advantage. The GAO blamed the Department of Education for failing to
consistently inform borrowers of their options.
The highest default rates tend to be among people who fail to
graduate and those who attend for-profit schools. But some borrowers
simply lose track of what they owe, and loan servicers may be unable
to reach those whose contact information is out of date.
Here, then, is a game plan for people grappling with student loan
repayment for the first time:
1. Find your loans
Most borrowers have multiple loans taken out over time. Borrowers
can find their federal loans via the National Student Loan Data
System at www.nslds.ed.gov, or by calling 1-800-4-FED-AID. For
private student loans, check www.annualcreditreport.com.
2. Investigate federal repayment options
Federal student loans typically have 10-year repayment terms. Paying
the loan off faster will save on interest, but could prevent a
borrower from achieving more important goals, such as saving for
retirement or a down payment for housing.
Those who have trouble making payments on a 10-year term should
check out consolidation, which can lower payments by stretching out
the loan term to 15, 20 or even 30 years.
There are also income-based repayment plans for low earners. The
latest version, Pay as You Earn, caps payments at less than 10
percent of the borrower's income and allows balance forgiveness
after 10 years for public service jobs and 20 years for private
sector employment. For the lowest earners, PAYE can reduce required
payments to zero.
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3. Check out private repayment plans
Private lenders tend to have fewer repayment choices but may offer
loan modifications, interest rate breaks and forbearance for
strapped borrowers.
Sallie Mae, one of the largest lenders, offers an interest-only
payment option for the first 12 months, said spokesman Rick
Castellano.
Borrowers with good credit (or a credit-worthy co-signer) and
sufficient incomes may be able to refinance private loans at lower
rates. SoFi, CommonBond, Wells Fargo, Earnest, Citizens Bank and
other institutions offer refinancing.
4. Consider changing your servicer
New federal loans are made by the federal government, but the feds
designate private companies to take your payments, arrange payment
alternatives and handle customer service.
Unfortunately, not all servicers are created equal, and borrower
advocates complain that some do a lousy job of communicating
repayment options or even properly handling paperwork.
Borrowers cannot change their servicer unless they opt to
consolidate all their federal education debt. To consolidate, they
would apply directly to the servicer they want: FedLoan Servicing (PHEAA),
Great Lakes, Nelnet, or Sallie Mae.
5. Know where to go for help
If a problem or dispute cannot be resolved with a loan servicer,
borrowers with federal loans can contact the Federal Student Aid
Ombudsman and the Consumer Financial Protection Bureau. The CFPB
also takes complaints regarding private lenders.
(The author is a Reuters columnist. The opinions expressed are her
own.)
(Editing by Beth Pinsker and Alan Crosby)
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