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Everything You Need to Know About Student Loans and Protecting Your Credit By: Michael Crowe, Esq. FitzGerald Morris Baker Firth www.fmbf-law.com 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. www.fmbf-law.com 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. www.fmbf-law.com Deferment and Forbearance • Both allow the borrower to postpone payments for a set amount of time. • 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. www.fmbf-law.com Default and Rehabilitation • Entire balance is due immediately, additional fees and penalties accrue. • 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. www.fmbf-law.com 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. www.fmbf-law.com Protect Your Credit • Check your credit card statements and dispute charges! • Check your credit report regularly (www.annualcreditreport.com) 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). www.fmbf-law.com