An unfortunate reality centers around the need for higher education in America and the lack of resources and support around educating students (and alumni) about student loan debt. it is the responsibility for the borrower of the student loans to learn the various outlets, payment plans, and resources available to them.
For people like me, I have both private and federally funded student loans. Federal loans are regulated by the government and often have lower rates and loan forgiveness plans for respective fields. Private loans are at the discretion of the lender and often vary through the terms and conditions within the loans.
Some people accept that student loans are a part of life and plan to pay them for the rest of their lives; I refuse to be one of them. As crazy as it sounds, I’ve always declared that I will be free from student loan debt– or all debt for that matter. As I began my journey last year, I found out some things that are truly eye-opening, and worth sharing with you.
Student loans can never be included in a bankruptcy.
Contrary to all other forms of debt, by law student loans can never be forgiven into any form of bankruptcy. They are also transferrable after death (which will be noted within the terms and conditions). This means that for some, family members and loved ones will be responsible for your debt after you die.
Private Loan interests can roll into the principal amount, and it’s legal.
When I originally signed for my loans– my collective amount for undergrad was approximately 35K. during my forbearance period after graduation, the principal grew from 35K to 55K. How in the world did that happen?! Well, during forbearance periods after graduation, the maximum amount of interest accrues on the loans. Once your forbearance period is over, the lender can transfer your interest amount to the principal, essentially securing the payment of that interest for that time given. The worst thing anyone can do is continue to place student loans in forbearance when they have the funds to pay them. It will only hurt you in the long run.
Co-signers can be released.
After you have paid your loans for some time and have made on-time payments, borrowers can request the lender to release the co-signer from the responsibility of the loan. There are quite a few required steps to make this happen (like an age requirement, credit check, proof of income, etc.) but it’s worth investigating. Im sure the co-signer will be grateful.
Loan consolidation is not always best
With student loans, borrowers can consolidate (also called refinance) student loans ONE time during the lifetime of the loan. Most decide to do that to minimize the multiple interest rates, which can ultimately lower the monthly payment. For those who want to pay the loans off before the expected term end date, loan consolidation may not be best. Why? With a large loan amount, it’s much harder to pay that off vs. multiple small loans. It’s easier to see a “light” at the end of the tunnel if you’re focusing on paying off a student loan of 10K instead of a large loan of 80K. If you go this route, always tackle your lowest loan first and use the Dave Ramsey Domino effect and move to your next loan to pay off.
Student loan debt doesn’t have to be a part of our lives for the rest of our lives (and potentially the remaining lives of your loved ones). Be proactive and get educated on the options that are available to you!
Do you have any additional tips to share?