Here at the Student Loan Ranger, we want to inform student loan borrowers about important topics affecting them — from the potential effects of the president’s proposed budget to the latest updates on the federal Perkins loan program .
Of course, there’s one surefire way to know what borrowers are worried about: Listen to them.
Every day, the Student Loan Ranger receives emails from borrowers. Some are parents, some are students; some are old, some are young. But they’re all uncertain about how to manage their loans and need help — and that’s why we’re here.
Below are some recent messages we’ve received. The following questions are real, but may have been edited for grammar or clarity. If you have a question the Student Loan Ranger can help with, please reach out to us at studentloanranger@usnews.com.
[Learn how to avoid turning into a scary student loan statistic.]
Dealing With Default
Q: My son holds direct student loans that are in default. We have the ability to pay off the balances in full. What effects will doing so have on his credit reports in the future? What gets removed from his credit report record and what stays, and for how long?
A: Defaulting on a student loan comes with a number of potential consequences, including collection costs, garnishment of paychecks and seizure of government payments, such as tax refunds and Social Security. The default also goes on the borrower’s credit history, which may affect his or her ability to lease a car, get a mortgage or qualify for additional debt down the line.
When you pay off a defaulted loan, the default does not disappear from your credit history. Rather, it stays there with a notation that the previously defaulted loan has now been paid in full. That entry will likely remain on your report for the remainder of its required seven-year period.
Borrowers facing this situation may benefit from a different strategy: rehabilitation. When a borrower rehabilitates a federal student loan, he or she agrees to make nine consecutive, on-time reasonable payments. This process will remove the default line from the credit report altogether — though the delinquencies that led up to the default will remain. In addition, it will lower collection costs, decreasing the balance you pay off thereafter.
[Explore how rehabilitation can help borrowers recover from student loan default.]
Releasing a Co-Signer
Q: Is it possible for a student to release a parent from future liability for outstanding student loan debt that parent co-signed for? I can’t imagine that a lender would agree to release a parent that is already committed as a co-signer. If this is possible, who would generate the paperwork?
A: When looking to close a tuition gap, many families turn to private student loans. As the student is typically young and lacking credit history, his or her parents often have to co-sign — meaning they take on equal responsibility for the amount borrowed.
Co-signing is a serious responsibility . Should the student be unable to — or simply choose not to — make payments, the co-signer would be responsible for the debt.
However, on occasion, private lenders will release co-signers from a loan — if the remaining borrower meets certain conditions. These will depend on the lender but typically involve the remaining borrower displaying the ability to manage the debt responsibly in the future. A lender will base this on that borrower’s past behavior, such as making a number of on-time payments in a row, as well as having a positive outlook — via passing a credit check or submitting proof of employment, for example.
Interested borrowers should contact their loan holders to learn about their specific qualifications and start the required process.
[See which colleges and universities claim to meet full financial need.]
Tackling Spousal Debt
Q: I have graduated. I have $120,000 in student loans. My husband has around $30,000 and didn’t deal with it, so his wages are garnished and they take our tax returns. I don’t want this problem with my loans. There is no way I can pay them.
A: As mentioned previously, seizure of tax refunds is a consequence of default — one many borrowers are likely dealing with right now. Unfortunately, couples who file taxes jointly receive a single refund, which means the whole family suffers from an individual’s default. Borrowers can take steps to get out of this situation. However, it’s best to avoid default altogether.
Federal student loans come with repayment plans that can decrease the amount you pay each month based on your income and family size , and eligible payments can be as little as zero dollars. Borrowers also may be able to temporarily pause their payments with a deferment or forbearance.
Ultimately, if you’re facing debt you feel you can’t handle — whether it’s more or less than $120,000 — contact your loan’s servicer immediately. The servicer can talk you through your potential options before you fall behind on your payments.
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Your Student Loan Questions: Spousal Debt, Default, Co-Signers originally appeared on usnews.com
