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How can borrowers recover from student loan default?

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Student loan default can have serious consequences. You may be able to avoid default by choosing the right payment plan or refinancing to reduce monthly payments. (iStock)

If you don’t make your loan payments every month, you could fall into student loan default. Defaulting on student loans affects many aspects of your financial and professional life. But there are steps you can take to avoid it including changing your payment plan, talking to your loan servicer about forbearance, or refinancing private student loans (it likely doesn’t make sense to refinance federal student loans amid current benefit extensions).

Before you’re in need of credit repair, consider other options with your student loan servicer. Credible can help you explore options for refinancing student loans and reducing your monthly payments. Visit Credible today to compare student loan refinancing rates and see how your payment could be affected by refinancing.

What is student loan default?

Student loan default occurs when you miss too many payments. Considering the significant student loan debt many Americans currently carry, this can become a common occurrence.

Specifically, if you don’t make a loan payment for 270 days on your Direct Loans or Federal Family Education Loans (FFEL loans), you’ll be considered in default. With private student loans, the specific number of payments you’re able to miss before entering student loan default varies by lender. It could be as few as three payments.

What are the consequences if I default on federal student loan payments?

If you default on federal student loan payments, there are serious repercussions.

Federal student loans default affects a broad array of items. You could become ineligible to receive federal loans in the future, and the full balance on your current debt will become due immediately. You won’t be able to switch repayment programs or put loans into forbearance or deferment. Your credit score will be damaged; the government could seize tax refunds or federal benefit payments, and your wages could be garnished. You could also be sent to collections, and your school could withhold your academic transcripts.

It’s also possible that your professional license (if you have one) could be suspended.

What are the consequences if I default on private student loan payments?

When you fall into student loan default on private student loans, there are also serious repercussions.

Your credit could be damaged by reports of default and your lender will likely send you to collections. Your entire loan balance can become due, and you could face legal action to collect that may lead to a court order to garnish wages.

How do I recover from student loan default?

When you default on federal student loans, options include:

  • Student loan rehabilitation: This involves making nine payments over 10 months under an agreement with your loan servicer. Monthly payments equal 15% of annual discretionary income, which is based on the poverty level. After you’ve made your payments, you’ll no longer be in default, and the record of default is removed from your credit report — although the late payments remain on your record.
  • Student loan consolidation: You can apply for a Direct Consolidation Loan and must either make three on-time payments or apply for an income-driven plan before officially consolidating. Once your loan is consolidated, you’ll no longer be considered in default and will be eligible for all federal loan benefits again. The default remains on your record.

If you have private student loans, you’ll need to ask about options with your lender. It’s best to avoid this in the first place, as there’s not a standard path out of default as there is with federal loans. Refinancing student loans before missing a payment could help you avoid default. If you’re looking to potentially lower your private student loan payments, refinancing them could be the way to go. Visit Credible to compare student loan refinancing rates and terms and explore options.

How to avoid student loan default

Paying for college while also building your credit isn’t always easy. Your options for avoiding student loan default vary depending on whether you have private loans or federal loans.

If you have federal loans, you may be able to qualify for deferment or forbearance to pause payments. Deferment can be a better option if you’re eligible since you won’t owe interest on deferred subsidized loans. You can also choose a different repayment plan, including an income-driven plan that caps payments at a percentage of income.

If you have private student loans, forbearance may still be an option to temporarily stop payments. But forbearance policies among private lenders generally aren’t as generous as for federal loans.

Before you’re stuck getting out of default for multiple defaulted loans, do some research. You could potentially avoid default if you refinance student loans. Many financial experts recommend refinancing and with good reason. It can often reduce your monthly payments considerably, making them more affordable. There is an important caveat, however: given that student loan payment and interest deferment on federal student loans runs through September 30, 2021, now is not a good time to refi federal student loans (borrowers will lose some benefits and protections like public service loan forgiveness). It is, however, a great time to refinance private student loans.

You can use an online tool like Credible to view a rate table that compares rates from multiple lenders at once to see how your loan terms could change by refinancing. You can also use Credible’s online student loan refinancing calculator to see what your new monthly payments would be after refinancing.

By shopping around for the best student loan refinance rates with Credible before you default, hopefully, you can find a new loan with payments that fit your budget.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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