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Everything You Need to Know
About Student Loans and
Protecting Your Credit
By: Michael Crowe, Esq.
FitzGerald Morris Baker Firth
Student Loans – Federal vs. Private
• Federal loans are those either lent directly by the federal government
or backed (guaranteed) by the fed gov.
• Offer a variety of repayment options and deferment/forbearance
but have no statute of limitations on enforcement & can use other
gov benefits to satisfy.
• Examples – Perkins, Stafford, Parent PLUS
• Private loans are not originated or backed by the federal government.
• Usually originate from banks or Sallie Mae.
• Easier to obtain but have less options for structuring repayment.
Federal Loan Repayment Options
• Balance Based Repayment – Term of 10 to 30 years. Duration dictates
monthly payment.
• Income Based Repayment:
• Income Contingent (ICR): capped at 20% of discretionary income. Monthly
payments adjust yearly. After 25 years the balance is forgiven.
• Income –Based (IBR): same as ICR but capped at 15%.
• Pay As You Earn (PAYE): capped at 10%, forgiven after 20 years, available only
for direct federal loans i.e. not Perkins or Parent PLUS.
Deferment and Forbearance
• Both allow the borrower to postpone payments for a set amount of
• The main difference is how the interest is handled.
• During deferment interest does not accrue for subsidized federal
loans and for unsubsidized the interest does not get added to
principal until the deferment period is over.
• During forbearance interest continues to accrue.
Default and Rehabilitation
• Entire balance is due immediately, additional fees and penalties
• Wages can be garnished without court order, tax refund and benefits
can be seized without court order.
• Rehabilitation
• 9 out of 10 timely “reasonable and affordable” payments.
• Consolidation with payment plan.
Why Does it Matter?
• Interest! A $45,000 loan at 6.8% can add up to over $60,000 before
you even graduate and can start paying on it.
• Under a balance based plan over 30 years, the amount paid off will be
over $110,000.
Protect Your Credit
• Check your credit card statements and dispute charges!
• Check your credit report regularly ( and
well before applying for any major loan – auto or home.
• Dispute inaccuracies and mistakes.
• Add an explanation.
• Add positive information that is otherwise unreported
(employment, residence, contact information).
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