Student Loan Payments First Wise Financial Choice

Student Loan Payments First for Financial Triage

Student loan payments first

Romney Ryan Plan for Student Loans (Photo credit: DonkeyHotey)

I’m aware that student loan payments first drags down your entire financial picture.  I know that getting ahead in life while carrying the student loan debt burden is like swimming against the tide. How are you supposed to fund that start up you’ve been dreaming of?  What about a home?  More than 7 Million borrowers were in default as of June 1, 2013.  Default is defined as more than 90 days late on the payments.  Students build up an average of $27,000.00 in student loan debt while in school.  The average amount in default is $14,500.00.  Nearly 1/3 of student loan debt is in default.  Don’t believe the 11.5% delinquency estimate for the end of 2013.  That figure includes 45 per cent of the money that does not yet require re-payment because the student is still in school.

Bankruptcy A Long Shot at Best so Student Loan Payments First

The hardship rules to discharge student loans in bankruptcy are so stringent that they are not a realistic solution for most people.  Debtors who go into Chapter 13 bankruptcy in which they submit to a 3-5 year repayment plan find that student loan debt is the only debt that actually grows during bankruptcy proceedings.  Because the process usually restricts debtors from making full payments during this time period lenders will add interest, late fees and other penalties. The link below goes into more detail on that.  That means you’re stuck with that student loan bill until you are old and grey unless you do something about it.  You want to stay on top of your credit cards.  You need to stay on top of your car payment or you’ll lose the car.  Let’s face it…you would rather not have student loan payments first.  No one can take back or repossess your education.  You really do plan to make student loan payments first in the future.  You need the money to live now.

It’s not too well known that if you have obtained a private student loan for more than the published cost of attendance at a school then the amount above that published cost can be discharged.  This excess amount is not a student loan as defined by bankruptcy law. 

The Government Has More Bill Collecting Weapons than anyone else

Your local bank or Credit Union can’t just seize your tax refund but the government can.  Your car dealer or credit card company can’t garnish your wages without a court order but the government can.  Once your student loan goes into default you will be burdened with a new set of fees and penalties.  Defaulted student loans remain on your credit reports indefinitely just like unpaid income tax liens do. If student loan payments first is just too stringent of a burden for you to bear head on consider the following options:

  • Negotiating Lower Payments  For loans guaranteed by the government lenders have to offer income based repayment.  This is now limited to a maximum of 10 per cent of discretionary income.  Discretionary income is described as all income after reaching 150 per cent of the poverty line.  Public sector or non profits are forgiven after 10 years.  Private sector loans are purged after 20 years.  Any balance that is forgiven after the 20 years is income as far as the IRS is concerned.  How far they will go in enforcing income taxes against these forgiven balances remains to be seen.
  • Obtaining a deferment or forbearance  For those who have re-enrolled in school, are unemployed or face a financial emergency.  This option does not eliminate the debt or stop the interest from piling up on private student loans.
  • Consolidate Multiple Loans  A consumer may get a lower interest rate or lower the monthly payments by stretching the loan out over more years.
  • Teachers, police officers, firefighters, military personnel, public interest lawyers and some others may be eligible for full and total student loan forgiveness if they know where to look.
  • Total and Permanent Disability Discharge can be had for Federal Direct student loans.  Standards for eligibility were eased by legislation effective July 1, 2013

Student Loan Burden has Become a Drag on the Entire Economy

Postponed start up businesses, home and auto buying and all the rest of the things that must wait because of student loan debt affect us all.  The ripple effect of the massive student loan burden has been felt in the entire economy.  Before getting started on student loan debt it would be wise to look into the “Know Before you Owe” project.  This information can be found on the Consumer Financial Protection Bureau‘s (CFPB) web site.

If the co-signer of a private student loan dies or files bankruptcy the lender has the right to require complete repayment even if the payment record is spotless.  The CFPB says some are placed in default without notice.  Federal student loans are much more attractive in that they have low fixed rates and broad consumer protections.  People with difficulties can arrange to make lower partial payments or defer payments altogether until they recover financially.  Private student loans come with variable rates offering limited consumer protections.   Legislation extending the same protections to private student loans that are enjoyed by Federal student loans is introduced annually it seems but goes nowhere.

 

 

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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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