The average recent grad has over $37,000 in student loans to repay. If you’re a member of that indebted group, you’ll be asked to start monthly payments after a short grace period. Federal Stafford loans give you six month’s grace before repayment begins; Perkins loans come due nine months after your graduate or leave college. Check all your loans first to determine if there’s a grace period and how long it runs.
Six facts you need to control payments and avoid scammers
1) Student loan repayment amounts are the first surprise. Each year’s loans may have a different interest rate and each year may require a minimum payment. If you borrowed $22,000, four years of loans could top $400 a month on the 10-year repayment plan.
2) Repay realities can be harsh—especially if you have not found a job yet. There are ways to defer payment due to unemployment and other hardships, but interest keeps piling up. That gives repayment “relief” scammers the toehold they need to pitch their products to struggling graduates.
3) Beware of scammers who offer that Re-Fi and tell you that debt forgiveness is just around the corner. First, research loan forgiveness plans to determine if you qualify. Some career paths like teaching in underserved areas, police work, or military service may offer some eventual deferment. But you probably lose eligibility if you consolidate your loans!
In March 2016, the Consumer Financial Protection Bureau (CFPB) shut down a California debt relief organization, Student Aid Institute (SAI), for illegal operations. Former students paid an upfront fee of several hundred dollars and a monthly fee. SAI paid nothing toward their loans, forgiveness was a pipe dream, and the company raked in an estimated $3.5 million while loans for 4,300 grads mushroomed in size.
After that closure, CFPB director Richard Cordray said, “We see more and more companies and websites demanding large upfront fees to help student loan borrowers enroll in income-driven plans that are available for free. These practices bear a disturbing resemblance to the mortgage crisis where distressed consumers were preyed upon with false promises of relief.”
4) Know your servicer. That’s the company that handles your payments, and it may not be your lender. In January, CFPB sued Navient, the nation’s largest service, alleging Naviant deliberately attempted to confuse borrowers or mishandle their instructions resulting in overpayments. The case involving 12 million borrowers is ongoing. CFPB’s complaint alleges that Navient did not follow borrower payment instructions.
“Navient repeatedly misapplies or misallocates payments—often making the same error multiple times over many months,” the complaint stated.
Even if someone else services your loans, it’s vital to log in and check your files. If you’re making extra payments and designating them to higher interest rate loans, mishandling will cost you.
5) If you’re a veteran who became 100% disabled in the service of our nation, you qualify for complete loan discharge (forgiveness). However, breakdowns in reporting that discharge to the Big 3 credit reporting agencies do occur. Stay on top of your credit report to make sure this forgiveness doesn’t tank your credit score because the debt was reported as uncollectible instead of forgiven.
6) In 2009, the majority of federal aid borrowers gained the right to have their payback amounts based on how much they earned. This is known as income-driven repayment. The goal was to make borrowing more affordable for those who pursue less lucrative careers or already have larger families. Any borrowers enrolled in these plans—providing they make regular payments on time—could qualify for loan forgiveness after 20-25 years.
Future, present, and past students benefit from learning all they can about these loans. Those promissory notes filed during college are just a fuzzy memory now but repayment is inevitable. You can learn more from CFPB here.
Recent grads are targets for numerous loan scams and other frauds including the bogus “federal student tax” scam. Genuine IRS agents will NOT call you, and there is no federal student tax. Be on guard for fake calls, emails, or other solicitations that prey on individuals just learning about fraud. Grads should check with more seasoned adults before they panic or pay bills they don’t owe.