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Repay Student Debt

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One of the most common questions I’m asked is how to get student loans out of default. At this point, I can cover the three options without thinking much about them:

 

  1. Pay the loan in full
  2. Consolidate it
  3. Rehabilitate it

 

But that doesn’t mean you shouldn’t think about them! Each option has its pros and cons, and which you choose will depend on your unique situation. Here’s which could work best for you.

 

Payment In Full

This option is best if: you owe a small amount, or you’re rich (yeah, right ...)

 

When your federal student loans default, your entire balance comes due immediately. If you are able to pay in full, try to do so as soon as possible.

 

You have a 60-day window after you receive the default notice to avoid collection costs if you make satisfactory repayment arrangements. Though no longer required, most federal student loan holders have agreed to this procedure. This also goes for consolidation and rehabilitation.

 

If you pay the loan in full after the 60-day window, you’d need to pay collection costs as well. These will depend on your loan holder and the activities they performed, but they could be up to 24% of your balance. So, if you default on a relatively small amount, see if you can find some money to pay it off immediately instead of dealing with those extra charges.

 

Consolidation

This option is best if: you’re trying to return to school quickly

 

Consolidation is another quick method to get out of default. You can do this by either consolidating and agreeing to repay with an income-driven repayment plan or by making three consecutive, voluntary, on-time, monthly payments and then consolidating.

 

This would be your best option if you needed to enroll in school within the next couple of months, but can’t receive new federal loans due to your currently defaulted student loans. If your wages are being garnished, this would also cease after the consolidation is complete.

 

If you choose consolidation, you would incur collection costs of up to 18.5%, which would be capitalized (added to your loan’s balance) at the time of consolidation.

 

Rehabilitation

This option is best if: you want to wipe your credit history clean

 

With rehabilitation, you make nine on-time, monthly, voluntary payments in an agreed upon amount within 10 months. Once you make all of the payments, your loan is sold to a new lender and taken out of default.

 

At that point, the default line is removed from your credit report. This can be a big help if you’re want to get approved for consumer debt, such as a car loan or mortgage, in the next 7 years (the amount of time the default would otherwise stay in your credit history). Consolidation does not remove the default line from your credit report.

 

You can regain federal loan eligibility after making six payments under a rehabilitation agreement, but the loan is not out of default until you make all nine payments. Wage garnishment will also cease after five payments (contact your loan holder if the garnishment continues). You can only rehabilitate loans once.

 

The amount of collection costs charged will depend on the type of loans you have, but will typically not exceed 16%. Any interest and collection costs incurred during rehabilitation will not be capitalized.

 

Still trying to figure out which option is right for your situation? Sign up or log in with your Salt account to post in the comments, and I’ll help you figure it out.

On September 1, the Public Service Loan Forgiveness application was published—120 months after the program was introduced in October 2007. This means you can now apply for forgiveness if you’ve made 120 qualifying payments. Since this process is completely new to us all, let’s go over some information about applying for PSLF.

 

Quick PSLF Refresher

 

PSLF was created at the end of the Bush administration to encourage graduates to go into needed public service and nonprofit fields that may not offer competitive compensation with for-profit entities. It forgives the remaining balance on your federal Direct loans after you make 120 eligible, full, and on-time monthly payments while working full time for an eligible employer.

 

Learn more specifics about the program here, or check out one of our PSLF webinars. We will hold them at least twice a month until the end of the year.

 

PSLF Application Forms

 

Remember all of those times I’ve recommend you complete the PSLF Employment Certification (EC) form? This is when it comes in handy. You must complete the new PSLF application as well as an EC form(s) to cover all your eligible months of service.

 

This is completely your responsibility. You are not eligible at this time if you cannot get your employer or previous employer to complete the form and certify you worked full time during each month of employment. Once you have EC forms covering 120 months of eligible service, you can apply for PSLF.

 

Additionally, you must complete an EC form when you apply for PSLF. This is because you must still be working full time for an eligible employer at the time of application.

 

PSLF Application Process

 

Once you submit a completed PSLF application to FedLoan Servicing (the federal loan servicer that will process all PSLF applications), you will be notified that your loans will be placed in an administrative forbearance. This doesn’t mean your application is approved. Rather, you are just not required to make any payments—though you may want to until you’re officially approved.

 

Because this is a new process, it is unclear how long the approval decision will take. You may be required to provide further employment information beyond the EC form, which will slow down the process. If you submitted EC forms previously to cover portions of your service, your application will likely be processed faster.

 

You will be notified once FedLoan Servicing makes a decision on your application. If you are approved, your loans will be forgiven tax free. You will receive a refund for any payments you made after you were notified that your application was submitted. If you are denied, you will be placed back into repayment and any interest that accrued during the forbearance period may be capitalized.

 

Hopefully, I’ve answered your questions here. If not, check out Federal Student Aid’s Q&A or sign up or log in with your Salt account to post your questions about applying or qualifying for PSLF below.

My heart goes out to anyone affected by the recent hurricanes. During times like this, your first priority is your and your family’s safety, then picking up all the other pieces. You may find some helpful resources regarding assistance here.

 

The least of your concerns should be your federal student loans or your in-school deferment if you’re in college. Thankfully, provisions for both of these issues are available for those in federally declared disaster areas. Check this Federal Emergency Management Agency’s (FEMA) site to determine if you live or go to school in a qualifying county.

 

Emergency Response Contact Center

 

In response to the hurricanes, the U.S. Department of Education has created the Emergency Response Contact Center. You can contact the center by calling 844.348.4082 or emailing HarveyRelief@ed.gov or IrmaRelief@ed.gov if you were affected by those storms and are looking for educational informational resources.

 

The phone number is a hotline, which will prompt you to leave your information to be called back. If you know who your loan holder is, you can contact them directly for more information or call 800.433.3243. You can also contact a Federal Student Aid Ombudsman at 877.557.2575.

 

Student Loan Assistance

 

If you’re affected by these hurricanes (or any other natural disaster), loan holders automatically place non-defaulted student loans in a 3-month forbearance.

 

If you don’t need this forbearance (remember interest accrues during the 3-month period and capitalizes), contact your loan holder directly to cancel it. They will send you a notice about it being applied.

 

If you have defaulted loans, you or a reliable source will need to request the 3-month forbearance from your loan holder.

 

College Students

 

If your college attendance has been interrupted due to the hurricanes, your federal student loans will remain in the deferment status until you re-enroll in the next term or withdraw. If you don’t re-enroll, your deferment will conclude on the start date of the term. Any grace period time you are eligible for will begin as of that date.

 

I’m thankful I don’t need to write blog posts like this often, but I want to offer any guidance I can. Please let me know if you need any more information about how to handle your loans during this time, or what to do if you are unable to attend school. I’ll update this post further if any new information becomes available.

 

Sign up or log in with your Salt account to post your question.

Wouldn’t it be nice if to forget about interest and pay just the amount you actually borrowed? Many people ask me how to do that.

 

Unfortunately, almost all borrowers pay at least some interest. You can decrease this amount, but it takes some planning and attention to detail—not just a bigger check.

 

How Interest Works

 

Interest accrues on the principal balance of your loans every day. It’s the cost of borrowing the loan, and much of where your lender’s income comes from. The more you pay the principal down, the less the interest accrues, and vice versa.

The faster you can pay down your principal, the cheaper your loan will be in the long run due to smaller amounts of interest accruing daily. So, can’t you just put some extra money toward the principal to speed up this process? Not exactly.

 

How Payments Are Applied

 

Lenders apply your payments in a federally regulated fashion. First, your money goes toward fees (like late fees), then toward accrued interest, and finally toward principal.

 

So, if your payment is less than the amount of interest accruing every month, none of your payment will reach your principal. This is fairly common with income-driven repayment (IDR) plans.

 

This also occurs if your loans default. In this instance, collection costs are added to the loan, and you need to pay them off before interest and principal. Some borrowers might see their principal not go down until they repay all of the fees and late interest from the delinquency period.

 

What To Do

 

There’s no getting around how loan payments are applied to your account. If you want to apply more money toward your principal, you’ll need to make a payment that is more than the accruing interest. You’ll also need to make sure your loan holder knows what you are up to.

 

When loan holders apply extra money to federal student loans, they automatically apply the extra money to your next payment—potentially pushing your next due date back a month, depending on how much extra you paid. Again, this is set in federal regulations.

 

Here’s an example: Your payment is $100 and is due on September 1. You make a payment of $200. Instead of that extra $100 going directly to your principal balance, your next due date will be November 1. This leaves you without any cost savings, but it gives you a bumper month if you were to need it.

 

Here’s the trick if you’d prefer the cost savings: You just tell your loan holder how you want the money applied. You may be able to do this online, or you may have to call or email your loan holder directly with instructions. Whichever route you choose, follow up to make sure they actually apply your extra payments correctly—that’s not always the case.

 

What questions do you have about how your loan payments are applied? Sign up or log in with your Salt account to post them in the comments!

Borrowers ask me a lot (I mean, all the time) whether a student loan company that has contacted them is “legitimate” or a “scam.” Most of the time, I’ve never heard of the company—or it sounds almost like a well-known organization in the student loan industry.

 

Without doing some research, I can’t say if it’s a scam or not. Luckily, our friends at NerdWallet have done that homework for us. They have compiled a list of debt relief companies with questionable services or unreasonable rates. You can learn about how they determined this list here.

 

Now, I was not involved with the creation of this resource (and I’m definitely not getting paid to promote it), so I can’t say without a doubt that every company on it is a bad actor. But I am naturally inclined to be wary of debt relief companies. Here’s why.

 

What Debt Relief Companies Do

 

We’ve cautioned you before (more than once) against paying companies to manage your student loans for you. I’m not trying to beat a dead horse, but I can’t stress enough how careful you need to be when you decide to work with one of these debt relief companies.

 

Legitimate debt relief companies can do things for you like apply for consolidation, income-driven repayment, or payment postponements. The problem is that you can do all of these on your own for free—as opposed to paying large, lump-sum fees or monthly fees (or both).

 

A company charging for such services isn’t doing anything unsavory, but there are bad actors that are. Just because a company is not on NerdWallet’s list doesn’t mean it has to be a good company.

 

Additional Warning Signs

 

I advise steering clear of any company that contacts you advertising that it will:

 

• Forgive your loans immediately without proof of income, employment, or discharge eligibility.

• Reduce your monthly payments to $0 without your income information.

• Reduce your interest rate on federal student loans.

 

No company can do these things for you. And I will never recommend working with companies that make unrealistic promises or demand upfront payment.

 

Do you have questions about a company you’re working with or have been contacted by? Do you have any experience with debt relief companies you could share with us (good or bad)? Sign up or log in with your Salt account to let me know.

The Center for Consumer Advocacy (my group) at American Student Assistance® (the company that powers Salt®) kicked off a Public Service Loan Forgiveness (PSLF) campaign this summer: 10 Years to Zero Debt. The intent of our campaign is to educate more people about PSLF and boost enrollment in the program. Ideally, we want to get 100,000 people to take action. You can follow the campaign on Twitter (#10YearsZeroDebt).

 

PSLF is a federal student loan forgiveness program that erases your remaining balance on federal Direct loans after you make 120 eligible payments while working for an eligible nonprofit or public service employer. We’ve talked a lot about PSLF over the years (you can learn more here and here), but I want to focus on the issues borrowers face with their eligibility for the program.

 

Denied!

 

The Consumer Finance Protection Bureau (CFPB) estimates that 25% of the workforce is working for a PSLF-eligible organization. That’s about 33.6 million people! But, according to FedLoan Servicing, only 1.06 million PSLF Employment Certifications (EC) have been submitted. This is only 3% of that population.

 

Now, not everyone in the workforce has student loans, but FedLoan has also reported that 33% of PSLF ECs are denied. That is unfortunately a lot of people. That’s why I want to give you some tips on what NOT to do to ensure your application is approved.

 

Are You Eligible?

 

This can be a stumbling block for many people. Remember, to be eligible for PSLF you must:

 

• Work full time for an eligible nonprofit or public service employer.

• Have federal Direct loans (or consolidate other federal loans to become eligible).

• Repay under an eligible repayment plan (i.e., standard 10-year, IBR, ICR, PAYE, or REPAYE).

• Make 120 eligible payments in no less than 10 years (exception for Peace Corps, AmeriCorps, and Department of Defense student loan repayment recipients).

 

If you aren’t meeting every one of these, your application will be denied.

 

Common Mistakes

 

A third of PSLF ECs have been denied (349,701). Many for simple mistakes on the form. Here are the most common (and avoidable) mistakes that will cause you to have your application denied:

 

• You left a blank end date for your employment dates instead of selecting that you are still employed.

• Not checking box 15 certifying the accuracy of the information on the form. (Just like accepting the terms and conditions of your iTunes account by checking a box.)

• Missing required fields such as the federal employer identification number (EIN).

 

You can’t officially apply for forgiveness until September, but you can get your PSLF EC forms signed annually to ensure you have an accurate record of your eligible payments for when you do apply.

 

Does PSLF still confuse you? Do you have questions about how to apply or why your applications was denied? Sign up or log in with your Salt account to ask them in the comments.

Back in November, I wrote about new regulations for the borrower defense to repayment (DTR) federal student loan discharge. This wasn’t a new discharge, but borrowers have rarely used it due to tough qualification standards.

 

DTR helps borrowers whose colleges defrauded them or violated state consumer protection laws. And with the collapse of Corinthian Colleges in 2015, it rose to the forefront as a sorely needed option for affected borrowers.

 

Unfortunately, unlike more commonly used discharges, virtually no procedures existed for DTR. So, the Department of Education worked not only to streamline a process for this discharge but also to open it to a larger population of student loan borrowers.

 

New regulations were negotiated and set to take effect on July 1. However, on June 14, new Education Secretary Betsy DeVos announced that the DTR regulations would be “indefinitely delayed.” With over 82,000 DTR claims submitted already, what does this mean for borrowers?

 

New Negotiations

 

Advocates for the revised rules believe that they would protect students from predatory college practices and taxpayers from footing the bill from massive school closures like the case of Corinthian or ITT Tech. Opponents of the revised rules say they go too far, are onerous, and will cause schools to close their doors.

 

At this point, it is unclear how the DTR rules will change. But to start this process, the Department announced two public hearings. These are scheduled for today (July 10) in Washington, DC and July 12 in Dallas. Whatever side you are on, you can have your voice heard on the subject if you’re in those areas on those dates. (If you’re in DC, look for me because I’ll be there!)

 

The Department also announced an upcoming negotiated rulemaking session on these rules. So while the debate on DTR restarts, don’t expect a resolution anytime soon. New rules will likely have an effective date of July 1, 2019.

 

Current Rules

 

Affected borrowers can still receive relief through DTR before those new rules go into effect—remember, this discharge currently exists. Meeting the application criteria is not easy, though.

 

Direct Loan borrowers must demonstrate that their school defrauded them by violating a state consumer protection law. Federal Family Education Loan (FFEL) borrowers must demonstrate the same AND show that the school had an improper relationship with the lender of the loans.

 

Oh, and each state’s statute of limitations applies, too—typically 6 years.

 

Borrowers Looking For Relief

 

Though not impossible, it’s not going to be easy to prove your DTR case unless you have something in writing showing how the school defrauded you. If you went to school years ago, this becomes more and more difficult.

 

If you think you may be eligible, collect all documentation from the school you can: letters, advertisements, emails, anything. You can then apply by email or mail at U.S. Department of Education, PO Box 429060, San Francisco, CA 94142.

 

If you’ve already submitted an application, I can only ask you to be patient. The Department is working on them, but there is a serious backlog.

 

What questions do you have about DTR? Sign up or log in with your Salt account to post them in the comments.

As of this month, I’ve been paying my student loans exactly 3 years. Three years isn’t that long a time, but for some reason, I feel like I’ve had my student loans for an eternity. I think it’s the fact that so much life has happened for me in those 3 years: three new jobs, three new cities, and everything in between. Now, the road between where I started and where I am feels a lot longer than it actually is.

 

In these 3 years, I’ve changed my strategy toward student loan repayment quite a bit. Some may view that as a sign of instability and indecisiveness, but I think of it as being comprehensive. You can only know what works best for you until you try out all (or at least quite a few) of the available options.

 

Here’s a recap of my trials and tribulations with student loans, and what the plan ahead looks like—for now, at least!

 

Year 1: Big City, Little Budget

 

When I first graduated from school, my loans were a major source of anxiety. There were so many of them, and compared to what I was getting paid, I didn’t know when I’d ever be able to pay them all back.

 

Regardless, I didn’t let them detour my career dreams. I moved to New York City to work at an ad agency. And while I had a blast there, money was really tight each month. Like, needing to skip a few meals tight every month. I knew the lifestyle I was living wasn’t sustainable.

 

Rather than try and adjust my life in New York, I took a promotion at my job that moved me back to Boston—my hometown.

 

Year 2: Back to Square 1

 

I had lukewarm feelings about moving back to Boston. I was excited to see my family again, but returning to the city I grew up in felt wrong somehow. How did I do all the “right” things, and manage to end up back where I started?

 

Regardless, I tried to turn it into an opportunity. I moved back home, because renting an apartment in a city where my parents lived seem financially foolish. My loan repayment strategy did a complete 180: I went from paying the minimums to making double payments. I made a promise to eliminate all my debt in 5 years.

 

But, I underestimated my own wanderlust—and potential career growth. A year into life at home, Facebook approached me with an opportunity that I couldn’t refuse. I packed my bags, and moved across the country to San Francisco to chase a dream job.

 

Year 3: Sunshine Dreams

 

This year has been a great one for me. I love my job, and I am learning a ton. San Francisco is a beautiful city, and a place I could see myself living for a while. Thankfully, I make more than I did when I lived in NYC, so I’m able to make loan payments without my budget feeling so constrained each month.

 

And, the future looks a lot brighter. I’m optimistic about my future career growth, and the financial benefits it may bring. While I’m not optimistic (or is it idealistic?) enough to revive the 5-year repayment promise, I’m confident I’ll have my loans paid back before their repayment terms are up.

 

On paper, it’s not the smartest decision: The longer you take to pay back a loan, the more interest you pay. I acknowledge it’s not perfectly logical. But, neither are people.

 

I made decisions that maximize my future personal and professional growth—and my current happiness. These decisions don’t maximize my financial efficiency. And I’m ok with that. Maybe you won’t be, and that’s fine, because that’s the point.

 

There’s no out-of-the-box formula for student loan repayment. You need to do what works best for your current life and your future. Only you can understand either of those things. Do what feels right.

 

Do you have a repayment story to share? Sign up or log in with your Salt account to let me know in the comments.

It’s easy to feel overwhelmed by student loans. As a Salt® student loan counselor, I talk to a lot of people who feel like this. And one thing they commonly ask me is, “What happens to this loan if I die? Will my family get stuck with these payments?”

So, let’s talk about what happens when you die.

 

(Just to your student loans. Don’t worry. I’m not going to bring up religion or philosophy.)

 

An Important Note

 

Debt can easily lead to depression. If you’re struggling financially and emotionally, as a result, please get help right away—and not just with your student loans. There are always options. Call the National Suicide Prevention Lifeline at 800.273.TALK (8255) for support.

 

Death Discharges

 

Death is right near the top of the list of things you’re not “supposed” to talk about, but being concerned about your family is reasonable and responsible—especially if you’re worried about leaving them with a lot of debt. And in this case, the reality is pretty reassuring.

 

Federal student loans are discharged when the borrower passes away. Your family, spouse, or estate would not be responsible for the remaining balance. (They would just need to provide a certified death certificate to the loan servicer.)

 

Private student loans are more complicated. Some lenders offer a death discharge. (Check your loan’s paperwork to see if you loan does.) Beyond that, it depends on whether you had a co-signer or co-borrower, where you live, whether you’re married, even when you got married.

 

But most often, your student loans will not outlive you. Hopefully, this will relieve some of your anxiety.

 

What questions do you have about death discharge for student loans? Sign up or log in with  your Salt account to post them in the comments below.

I hear this a lot as a Salt® student loan counselor—especially this time of year, with borrowers losing their tax refunds to defaulted student loans. The truth is, loan servicers always try to contact you if your loan is delinquent and drifting toward default. Unfortunately, the contact information they have might be out of date.

 

Are you still using the same address, phone number, and email address from when you started school? If not, you might not get the information you need to stay in control of your loans and protect your credit. You can easily fix this, though!

 

Get In Touch With Your Loan Servicer

 

Make sure they’re able to contact you. If you’re not sure how to contact them, go to the National Student Loan Data System (NSLDS®). That’s the federal government’s central database for student loan information. There, you can find out who is servicing all your federal student loans, as well as how much you owe and other important loan details.

 

When They Do Contact You, Pay Attention

 

Now that you know your servicer, be on the lookout for information from them. Check your spam filter once in a while. And if you get a phone call from a number you don’t know? Well, to be honest, I don’t always answer those calls either. But at least listen to the voice mail.

 

“But I don’t need to open all their emails. I’m still in school.” I hear that a lot, too. Maybe they’re emailing you because they don’t know you’re in school. Perhaps you’re just taking one class or “taking a semester off but going back in the fall.” In these cases, you’d be enrolled at less than half-time status. That means your grace period would have already begun, and after that, repayment starts.

 

Know Your Options

 

If you stay informed and in contact, you’ll have a better chance of staying out of default. You have options to pull your loan out of default (rehabilitation, consolidation), or avoid it altogether depending on how late your payments are. But ignoring the situation and your servicer definitely won’t help things.

 

What questions do you have about student loan default? Sign up or log in with your Salt account to post them in the comments.

One of the biggest choices any student has to make about their federal student loans is whether to consolidate or not. Consolidation is a very popular option, but it’s also one that people frequently request without fully understanding the consequences for it.

 

Consolidation allows you to combine multiple federal loans into one big loan. There’s no fee to consolidate online at StudentLoans.gov, so be careful not to pay an unnecessary fee to a third-party debt relief company for this. The consolidation essentially replaces your existing loans with one big, new loan, with an interest rate based on a weighted average of the rates you already have.

 

Why Should I Consolidate?

 

There are plenty of great reasons that people decide to consolidate their loans:

 

  • Simplicity. By the time you finish your education, it’s possible to have many different loans, possibly even spread out among different companies. Consolidation lets you put them together into one place, handled by one servicer.
  • Updating your loan. All new consolidations are through the Direct Loan program. If you have older federal loans and want to apply for Direct loan-only options like Public Service Loan Forgiveness or the Revised Pay As You Earn payment plan, you may need to consolidate into the Direct Loan program.
  • Reducing your standard plan payments. Depending on the amount you consolidate, this option will stretch out the term of the standard payment plan up to a possible maximum of 30 years. This means consolidation will usually lower your monthly payment amount.

All of those look like pretty good benefits!  So, what’s the catch? Each of those benefits carries with it a natural downside, and it’s really up to you whether the downsides will impact you or not.

 

Why Shouldn’t I Consolidate?

 

  • Loss of advanced repayment tactics. Consolidation may make it harder to pay back your loans strategically. For example, if you have multiple loans with different interest rates, it might be possible to make a series of overpayments directly to the highest-interest loans and pay them off quicker than the lower-interest ones, saving you money in the long run. If you consolidate, you only have one loan with one interest rate, so you can’t pursue that strategy.
  • Loss of Perkins loan benefits. Perkins loans are a special kind of federal loan with a few special benefits. They don’t gather interest when you use deferment, and people who work in certain public service areas can qualify for Perkins loan cancellation, which is one of the best forgiveness options out there. Consolidated Perkins loans lose both of these benefits.
  • Payment of more interest on the standard plan. Lower payments may be easier to manage, but it comes at a price. The longer it takes to pay off your loan, the more time there is for interest to build up, which means paying more total over the life of the loan (unless you voluntarily make larger payments than the minimum they’re asking for!).

 

Are you wondering whether you should consolidate your loans? What questions do you have? Sign up or log in with your Salt account to post them in the comments.

My friend Ava (not her real name) graduated from law school with over $200,000 in private student loan debt. Recently, she decided to default on her loans. (What?) She’ll still make small payments toward them, so if the lender sues, she can show that she made an effort.

 

Since she’s married, has two kids, and just bought a home, Ava feels she doesn’t need good credit anymore. Her husband can handle any necessary future borrowing, she said. She is going through with this plan despite my warnings about reneging on her obligations (and not being able to show her face at any Sallie Mae parties).

 

However, my biggest concern for her is that depending on someone else’s credit isn’t always smart—because the unexpected can happen. I know from experience. After 7 years of marriage, I’m currently getting divorced.

 

The Future Is Never Predictable

 

I didn’t expect to be in this position right now (please, no tears). Yeah, it sucks and it’s been stressful, but I’ve had an unexpected ally: my credit score. It has helped me maintain a level of independence and security during this period of upheaval.

 

For instance, I had to refinance my home. I was terrified when I began this process. It was quite a relief when I was told that I’d “easily be approved” due to my credit. (Who would have thought that taking on a mortgage by myself would be the least anxiety-inducing thing happening to me?)

 

Truth is, I’ve been a little obsessed with nurturing my credit score for the last 5 years. I’ve paid my bills on time, declined all those store cards for an extra 10% off, and paid off my credit card every month. That effort rewarded me with a score solidly in the excellent range.

 

Take Care Of Your Score

 

As I’ve learned, you can never know what the future will bring, including when someone will take interest in that credit score of yours. Don’t ignore your score because you’re not married, don’t own a home, or feel secure financially.

 

A decision like Ava’s could hurt you if your car breaks down or is totaled and you need to finance a new one. Or, what if you depend on your spouse for finances, but he or she becomes (God forbid) disabled or passes away? What if you lose out on your dream job or apartment because the background check includes a credit check that you fail miserably?

 

Even the best-laid plans can go awry without warning. So, take it from me. Take care of that credit score. Make sure to:

  • Pay on time every month.
  • Limit the balances you roll over on your credit cards.
  • Don’t accept every credit card offer you receive.
  • Don’t take on more debt than you can handle.

 

These tactics helped build up my score, which got me an awesome rate on my home refinance and is allowing me to avoid moving on top of everything else.

 

Do you have questions about how to build up your credit score or have a personal credit story that others’ might benefit from? Log in or sign up with your Salt account to share it.

A lot of what I talk about here normally focuses on paying down debt responsibly—among other exciting student aid topics. What sometimes gets lost is the need to save money at the same time.

 

Easier said than done, I know! But, we can’t forget to put away money for our future selves. That’s why the Center for Consumer Advocacy at American Student Assistance® (ASA) (the company that powers Salt®) signed up for America Saves Week, which begins February 27.

 

During this week, the organizations that signed up pledge to promote healthy savings behavior. I’m trying to be an overachiever and decided to start a week early! So, here are some ways you can both save for your future goals and make your loan payments.

 

Retirement Savings First

America Saves Week conducted a survey last year that showed that only 52% of respondents were saving enough for retirement to maintain their desired standard of living in their golden years. ASA® also published a study regarding retirement and student debt showing that 73% of respondents put off saving for retirement due to student debt. Yikes!

 

I have two tips for retirement savings: auto-save through your employer (if offered) and take advantage of employer matches. It’s a lot easier to save money if you don’t ever have the option to use that money in a different manner. Many employers offer a 401(k), 403(b), or an IRA option to allow you to deduct money directly from your paycheck before you even get paid. A recent survey showed that 15% of working Americans did not participate in an offered employer-sponsored retirement plan. Use this option!

 

Likewise, if your employer offers to match any of your retirement contributions, take the offer. Always. It’s free money for your future self, but one in four employees who work for a company that offers a retirement match do not take advantage of it, leaving $24 billion on the table!

 

Other Savings

The rule of thumb with savings is to have a goal of between 3 and 9 months of living expenses stashed away for emergencies. How much is right for you? This article has some pretty good guidelines to figure out how much is enough. Now, how do you get there?

 

This is going to sound repetitive, but auto-save! If you have the savings deducted automatically, you are a whole lot more likely to reach your savings goals. And remember, that these are GOALS. You shouldn’t expect to have these lofty amounts within a couple of months.

 

It takes time, so don’t get discouraged if you can only save $10 a month. Any savings is better than no savings. To slightly alter a famous blue fish’s motto: just keep saving, just keep saving, just keep saving, saving, saving …

 

Making Student Loans Work Within Your Budget

Even if you borrowed an overwhelming amount of student loans, federal loans offer repayment options that might work for you to not only cover your debt obligations, but also allow you extra cash. Income-driven repayment (IDR) limits your monthly payments to between 10% and 20% of your discretionary income. These plans also offer forgiveness after 20 or 25 years of eligible payments, depending on the plan (10 if you work for a public service or nonprofit employer).

 

I only recommend using these plans if your normal payments are unmanageable, because you could end up paying more in the long run given the length of time your repaying and the amount of interest accruing. With that being said, these plans can really alleviate financial stress if you are struggling to make your payments and create room for savings priorities.

 

What questions do you have about making room for savings and loan payments? Log in or sign up to let me know!

A few months ago, I wrote a blog post about short-term and long-term options for keeping student loans under control. Today, I’d like to focus one specific option: discretionary forbearance.


It’s not hard to understand why forbearance is such a tempting option for borrowers. After all, it suspends payments on your federal student loans, often for up to 12 months at a time, and can even be used on past-due loans to bring them back into good standing by retroactively “postponing” the payments you missed.


The biggest draw of forbearance, however, is probably the fact that it’s extremely easy to apply for. Other options usually require you to find the correct paperwork, fill it out, and send it in to your servicer, often along with documentation to prove you qualify. With forbearance, most servicers will grant it over the phone. Some will even let you apply for forbearance directly over their website.


So, why would someone decide not to use it? Isn’t this a great deal?


The Downsides Of Forbearance


Your forbearance time is limited. The exact amount varies from loan to loan, but most loans only get about 24-36 months of forbearance total. This means that every month you use up now is a month you won’t have available in the event of a future emergency.


Since forbearance doesn’t keep interest from building up, it can also get very expensive. At the end of the forbearance, any unpaid interest gets added right onto your loan balance. This means that the forbearance actually makes your loan more expensive!


You should also avoid forbearance because there are often better options. If you’re unable to make payments due to low income, you may qualify for an income-driven repayment plan that could reduce your payments to as little as $0.


If income-driven payments don’t suit your situation, there are also numerous ways to qualify for a deferment. Deferment is essentially an improved version of forbearance; it postpones payments as well, but interest only builds up on the unsubsidized portion of loans, and using deferment won’t exhaust your forbearance time (though each deferment may have limits of its own).


When To Use Forbearance


In general, there are usually two times when using forbearance makes sense. First, if you’ve explored all other options and you simply don’t qualify for something else, forbearance is still much better than letting your account fall past due. Just don’t forget that it’s only a temporary option, and you’ll eventually need to find a long-term solution that works for you.

 

Second, if you’re already seriously past due and in danger of default, your servicer may let you bring your account back into good standing through forbearance. Payment is still the best way to bring the account current, but if you can’t afford a large enough payment to avoid default, an over-the-phone forbearance may be the fastest way to bring the account current and avoid default.


What questions do you have about forbearance? Log in or sign up to post them in the comments below—and for a limited time, earn 50 bonus points for doing so!.

Recently, the Consumer Finance Protection Bureau (CFPB) and multiple states’ attorneys general filed lawsuits against Navient, the biggest student loan servicer in the country.

 

Navient services 12 million borrowers and more than $300 billion in student loans—including my own. If you have loans with Navient like me, you might be wondering what the heck you’re supposed to do right now. Do you keep paying? (Yes!) Do your loans go away? (Sorry, no.)

 

To help you figure it all out, here are the facts as they stand now, as well as what your responsibilities still are.

 

Lawsuit Allegations

The CFPB, Illinois attorney general, and the Washington attorney general filed lawsuits against Navient alleging that Navient:

  • Processed payments incorrectly.
  • Steered borrowers to use forbearance instead of counseling borrowers about income-driven repayment (IDR) plans, causing these borrowers to pay more through accruing interest.
  • Deceived private loan borrowers about cosigner release requirements, preventing cosigners from being released from the loans.
  • Misreported default information to the credit reporting agencies for borrowers who received total and permanent disability discharges.
  • Provided bad information to borrowers, which created obstacles for these borrowers to repay effectively.
  • Did not properly respond to borrower complaints.
  • Kicked numerous puppies (just kidding).

 

Navient has denied all of the allegations.

 

What This Means For You

I’m not an attorney and I don’t play one on TV, so I can’t give you any legal advice, but this is a lawsuit with no legal determination or settlement at this point. I can understand why this lawsuit in general would make you uncomfortable or upset if you have loans with Navient (as I do).

 

I’m sure that the allegations will be thoroughly investigated, but right now, they don’t affect the status of your loans or your obligation to repay them. Yes, you MUST keep paying your loans if you want to keep them in good standing. Don’t have a kneejerk reaction and stop paying. This will only hurt your credit or the status of your student loans, not Navient.

 

Next Steps

Again, keep making your payments. If you are concerned that your payments weren’t applied correctly, that you were encouraged to use forbearance without being counseled about IDR plans, or that another aspect of your repayment was mishandled, contact Navient’s Office of the Consumer Advocate at 888.272.5543 or advocate@navient.com. For federal student loans, you can contact the Department of Education Ombudsman at 877.557.2575 or here as well. You can also file a complaint with the CFPB if you feel your loans were not handled appropriately.

 

In the meantime, make sure you continue to educate yourself on your student loan options here with Salt® or the Federal Student Aid (FSA) site. And remember, we’re here to help! What questions do you have about the Navient lawsuit? Log in or sign up to post them in the comments.