Monday, February 15, 2010


Declaring bankruptcy is the last resort for flailing loan recipients and should be avoided at all costs. A major “severe hardship” obstacle must be cleared to even obtain a hearing on a bankruptcy. If you’ve been kidnapped by Bigfoot or beamed up to an alien mother ship, you still may not qualify for bankruptcy. It’s the third rail of personal finance—don’t touch it or you’ll be scarred for life.

If there is no other way out and you’ve consulted an attorney and a financial advisor, then you may have no alternative but to declare bankruptcy—only if you have no choice.

Note that a great deal of misinformation is available, especially with Internet hucksters and other scam artists who promise that bankruptcy will wipe your slate clean if you do business with them— probably for a hefty fee. That’s just not so. Some debts, including student loans, cannot be simply “wiped clean.” They will haunt you for life under bankruptcy. As soon as you regain financial solvency the lender has every right to go after you for their money. And they will, using your IRS tax returns as evidence you’re making money again. That’s public information and easily available to your lender.

Plus, your bankruptcy hurts in other ways. It will

• stay on your credit report for up to ten years,
• render it nearly impossible to get additional credit, and
• impact your ability to get a job.

Tuesday, February 9, 2010


Here’s another term you should become familiar with if you’re having trouble paying off your student loans. Like deferment, forbearance is a mechanism designed to help if you need to either temporarily lower or postpone your student loan payments.

Forbearance is really for those folks who want to pay their loans but can’t and who were unable to get a deferment on their loans. The application process isn’t as onerous as the one for deferments, and the bureaucratic headaches that always seem to accompany deferments and loan discharges aren’t as prevalent with forbearances. Again, however, it is completely up to the lending institution to determine whether you are awarded forbearance.

If you are approved, be prepared to continue paying interest on your loan. If you can’t, the lender will simply add it to the ongoing loan bill and it will cost you even more money.

Forbearance is the loan holder’s way of saying “We feel your pain.” As long as you make a good faith effort to stay in contact with your lending institution and make your financial situation known to them, getting a forbearance shouldn’t be a major problem. Note that the forbearance is temporary, usually awarded in 12-month stretches for no longer than 3 years.

Start by contacting your lender and asking for the right paperwork. Fill it out, send it back, and follow up. Write down the name of your contact and file it away. Ask for that person whenever you feel like you’re getting the runaround from the lender.

Sunday, February 7, 2010

More Tips on Student Loan Payments

Let’s talk about some more tips on repaying your student loans. All are designed to help you get to the Holy Grail of student loan debt—the day you make your last student loan payment. Put some of these ideas to work and see if that day doesn’t come sooner than you think.

Don’t wait for a bill to come from your lender every month. Go ahead and send a check regardless of whether you receive a bill or not. It’s habit forming and therapeutic, in the sense that you’re cutting your debt down to size. People who wait for the bill to come are taking, in my opinion, a passive approach to student loan debt. By taking charge and cutting a check no matter what, you’re taking command over your own fiscal situation. And that’s a habit that will pay off over the course of your ifetime.

Know all the repayment options available from your lender. Make sure that the repayment option fits your current financial situation. If you’re f lush with cash, go ahead and pay more than you owe. If not, work with your lender to accommodate a financial dry spell with a different loan repayment plan. Like anything else, when it comes to debt, knowledge is power.

Keep your lender in the loop. If you move, get married, or even change your phone number, let your lender know. Direct contact is the easiest and best way to solve any problems that arise. But you have to know who to reach. And the lender has to know how to reach you.

Take a break before starting graduate school. If you’re planning on going straight to graduate school but don’t have the money to pay the bills, try taking a year or two off and go into the corporate world to earn some money. After that, you’ll have earned enough to defray any further student loan costs. Bonus: By taking time off between schools and spending some time working for a living, you’ll gain a greater appreciation of what you want to do with your life—and what you might want to study when you return to grad school.

Request a deferment. If you do attend graduate school, request a deferment from your lender from any undergraduate student loans. As long as you are in grad school, you won’t be receiving any bills for your student loan from your undergraduate days. But work closely with your lender to make sure you filed all the proper paperwork to gain that deferment. Note that it’s much easier to defer government loans than it is private loans. Again, if you are in graduate school at least try to make interest payments on your undergraduate student loan. That will defray the total cost of the loan and help you develop good repayment habits.

Use gift money. Remember the scene in The Graduate when people came up to Dustin Hoffman and offered congratulations and encouragement for his graduating from college? If you looked closely, you’d have noticed them giving him an envelope or two in the process, containing hefty checks, no doubt. If you are similarly rewarded with a bonus from relatives and friends for graduation, or received a signing bonus to work for a firm right out college, use it to prepay your student loan.

Tuesday, February 2, 2010

The Life Stages of Your Student Loan

Life Stages is a very popular term these days, articularly onWall Street, the industry that I hail from. There, the term is meantto encompass the various eras or stages of your life from a financialpoint of view—going to college, finding your first job, getting married, buying your first home, having kids—right on down the line to retirement.

The idea is that you should identify the various stages of your life and develop a financial plan to deal with them. At least that’s what Wall Street firms hope you will do. That way they can collect the hefty fees from all those big financial moves you’re making.

From a student loan standpoint, a life stages view is just as useful, although not as sinister as the kind you see in the financial services sector. In a student loan life cycle, you start the ball rolling by researching your loan options, applying for one (or more), accepting a loan, going to school and graduating, and then the last part of the cycle—paying off your loan—begins. All told, the life
stages thing can last up to 15 years or so, from the time you start looking for a loan to when you actually pay it off

The Early Phase—The Research Cycle

• You, along with your parents or guardian, begin researching financial aid options.
• You’re accepted at school.
• You begin the process of discovering what you can pay for on your own (with savings) and with nonloan financial aid (scholarships, grants, tuition breaks).
• The gap left between what you have to pay for and what you can afford to pay for is the amount of estimated money you’ll need in student loans.
• You begin the process of researching student loans.
• You identify the loan you want and complete and submit your application.
• Your lender approves your loan.

The Middle Phase

• A check is cut by the lending institution and delivered to your home or straight to your school’s financial office.
• The school takes what it needs to cover your tuition, room and board, and other expenses, and returns the remaining amount to you.
• The lending institution sends its first disclosure statement to your home (likely your parents’ home). This is particularly true for federal PLUS loans.
• The lender notifies the credit bureau that the loan has been transacted.
• You attend school, during which time you are not obligated to make any student loan payments.

The Last Phase

• You complete your education, hopefully with a cap-andgown affair upon graduation. Or you leave school early.
• You enter your grace period when you have, on average, from six to nine months before your first loan payment is due.
• Your lending institution, during this grace period, sends you a repayment disclosure statement detailing your loan obligations and the timetable for repaying them.
• When the grace period ends, you receive your first bill, usually a monthly one.
• You begin paying your student loans.
• If all goes well, you pay each month—or even prepay—until your loan is paid off.
• Your lending institution confirms that your loan obligation has been fulfilled.
• Your lending institution sends confirmation to credit bureaus that the loan has been retired.

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