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Student Loan Problems
Federal and private student loans can be a great way to pay for college. But if you get behind on paying back the debt it can be really hard to deal with. You must normally repay your loans even if you don’t finish school. Student loans can’t normally be “discharged” (thrown out) by declaring bankruptcy.
If you co-sign for family or a friend’s federal student loan you can be held responsible to pay the full amount of the loan. Think carefully before you agree to co-sign for anyone’s loan.
You have different choices for loans and your legal rights will depend on the type of loan you have. If you don’t know who your lender is, you can find out from the National Student Loan Data System at www.nslds.ed.gov or by calling them at 1-800-4-FED-AID (1-800-433-3243).
- There are several types of Federal Student Loans:
- Direct Subsidized Loans and Direct Unsubsidized Loans
- Direct PLUS Loans (for graduate and professional students or parents)
- Federal Perkins Loans Note: this program ended in October 2015
For more information on Federal Loans, go to www.studentaid.ed.gov/sa/types/loans#types.
2. Private Student Loans usually do not have the federal protections described below. You will read first about federal student loans. The differences for private student loans follows the federal information. Because of these differences, you should apply for federal loans before you apply for private student loans.
If your loan is not in default, you have options for repaying federal loans:
Important: If you have to miss a payment, call your lender as soon as possible. You have more options if you contact your lender before you miss any payments and go into default.
- Income-Based Plans. There are different income-based repayment plans based on your income and family size. For more information and an application go to www.StudentLoans.gov.
- On the top menu, click on “Repayment and Consolidation”
- Click on “Apply for an Income-Driven Repayment Plan”
When you apply, ask your lender to find the plan with the lowest monthly payment.
Note: if your plan lowers your payments, your loan might take longer to pay off and the total amount you pay might be higher because of additional interest charges.
- Extended payment plans. Sometimes it is possible to lower your payments by extending your payment plan. Some plans are as long as 25 years.
- Graduated payment plans. These payments start out low and increase every 2 years. Usually, the plan must be for 10 years but, if your loan balance is high enough, you can apply for an extended payment plan. This could be as long as 25 years.
- Consolidate your loans. If you have more than one federal student loan, you can simplify your payments with consolidation. You can apply for this at www.StudentLoans.gov.
- Postpone your payments.
a. If you are unemployed, going to school (at least half-time) or if you are on active duty in the military, you might qualify for “deferment.” This means that you postpone paying back your loans. There are no interest charges while you are in deferment.
b. If you are temporarily disabled or you have a financial hardship, you might be eligible for “forbearance.” This means that you can temporarily stop payments or make smaller payments. The difference between forbearance and deferment is that, in forbearance, the loan will continue to grow with new interest charges.
What is a “default?”
You are in default when you don’t make the payments. For federal loans, you default when you have not made payments for 9 months or longer. For private loans, you are in default after missing just 1 payment. Try to deal with your loan problems before you are in default.
The lender can make you pay if you are in default.
If you are in default, the lender has several different ways to make you pay.
- The lender can take your tax refunds. If you get a notice that they are taking your tax refund and you don’t think you owe the money, appeal. The notice will tell you how to appeal.
- If you get Social Security Retirement or Disability Insurance payments, the lender can take up to 15% of your monthly benefits. This is called an “offset.” The offset must leave you with at least $750 a month. If you get less than $750 a month, the lender can’t do this.
- The lender can also do an “administrative garnishment” without going to court. Garnishment means taking part of your paycheck to pay the loan. In this type of garnishment, they have to leave you 85% of your net wages.
- The lender might sue you in court. If this happens, see our fact sheet If You Are Sued. If the lender gets a judgment against you, they might be able to garnish your paycheck or bank account. See our fact sheet Garnishment and Your Rights.
You will be denied financial aid if you are in default.
If you default on your loan, you won’t be able to get financial aid again unless you can make a payment plan with the lender. The plan should have payments you can afford based on your total income and costs. To get aid again, you must make 6 payments in a row.
The lender can send your loan to a collection company.
If debt collectors are collecting on student loans, they can’t harass you and they have to follow the Fair Debt Collection laws. See our fact sheet Your Debt Collection Rights.
Note: there is no time limit (“statute of limitations”) for collecting on a federal student loan.
- Rehabilitate your Loan: If you have a Direct Loan, you have to make 9 monthly payments during a period of 10 consecutive months. If you have a Perkins loan, you must make 9 monthly payments in a row.
Even if you are dealing with a debt collector you must contact your loan holder to rehabilitate your loan. They must offer you reasonable and affordable payments for the rehabilitation payment plan – this might be as low as 15% of your disposable income.
Note: depending on the type of loan, your lender might charge you a rehabilitation fee that is up to 16% of your loan.
- Consolidate your loans. Consolidation replaces the older defaulted loans, with a new loan that is not in default. If you have more than one federal student loan, you can simplify your payments with consolidation. You can apply for this at StudentLoans.gov.
If you are in default, you bring your loan out of default by consolidating and making three reasonable and affordable payments. When you finish the consolidation, then you can apply for the different repayment plans above.
- Total and Permanent Disability Discharge. Sometimes you can have your federally guaranteed student loan canceled. If you are disabled and will never be able to earn enough money to pay back the loan amount, you may qualify for a Total and Permanent Disability (TPD) Discharge. See our Fact Sheet Discharging a Student Loan Because of a Disability. You can get a copy of the application and more information at the Total and Permanent Disability (TPD) Discharge website at www.disabilitydischarge.com.
- Public Service Loan Forgiveness Program. If you work full-time in certain public service jobs, you may be able to get part of your student loan forgiven. In this program, if you make 120 payments (about 10 years) you may be able to stop paying after that time. If you are repaying on a standard loan, you should be paid off after 10 years.
This program is only available for Direct Loans. If you have a different federal loan, you must change (“consolidate”) your loan before you can start this program.
- School Related Discharges. These are rare but you might be able to get your loan discharged if:
- If your school closed while you were enrolled.
- If your school certified that you were able to complete the program when you couldn’t, contact the lender. For example, a school might certify a student, even though s/he has a mental disability that prevents him from being able to do the work.
- If the school owes you a refund for all or part of tuition. If you withdraw from school, tell the school and lender right away in writing. If you don’t follow the school’s rules for withdrawing, you might lose your refund and be responsible for the student loans. Keep a copy of your letter. Then ask for the refund.
- Bankruptcy. The loan can be discharged (cancelled) in bankruptcy – but only if you can show extreme hardship. Talk to a lawyer about this. It is not easy to do.
- A student loan is cancelled when the borrower dies. The family should send the death certificate to the lender.
- Private lenders DO NOT have to give you an income-based payment plan. They might give you different payment options but they are not legally required to do this.
- Private lenders can say you are in default as soon as miss your first payment. They do not have to wait nine months like most federal lenders.
- Private lenders’ usually try to make you pay by suing you in court and then trying to garnish you. If this happens, see our fact sheet If You Are Sued.
If the lender gets a judgment against you, they might be able to garnish your paycheck or bank account. See our fact sheet Garnishment and Your Rights. Private lenders cannot take your tax refunds or offset 15% of your Social Security benefits.
- Unlike federal loans, private lenders have a deadline for suing you (“statute of limitations) after you default on your loan. In Minnesota, the time limit is 6 years.
- If you are in default, private lenders are not required by law to let you get out of default (“rehabilitate”) your loan. However, some private lenders do this, so it’s a good idea to check with your lender.
- Your only option for discharging your loan is through bankruptcy – but only if you can show extreme hardship. Talk to a lawyer about this. It is not easy to do.
If you need help resolving a dispute with your student loan lender or if you think the lender is violating your legal rights, contact the Student Loan Ombudsman.
Student Loan Ombudsman
U.S. Department of Education - FSA Ombudsman
830 First Street, N.E.
Washington, D.C. 20202-5144
Toll-free phone number: 877-557-2575
Fax number: 606-396-4821
You can also look for the “Ombudsman” online help form at: https://studentaid.ed.gov/sa/repay-loans/disputes/prepare/contact-ombudsman
The Consumer Financial Protection Bureau (CFPB) has an online form that you can use to tell them about complaints with private student lenders or about servicers and collectors of all types of student loans. Go to: www.consumerfinance.gov/complaint.
If you have questions about student loans, repayment plans or need more information, go to the Department of Education website at: www.studentaid.ed.gov.
Or call the Federal Student Aid Information Center (FSAIC) at:
If you don’t know who your student loan lender is, you can ask the National Student Loan Data System at their website www.nslds.ed.gov or by calling them at 1-800-4-FED-AID.
For more information about student loans:
A National Consumer Law Center Project: http://www.studentloanborrowerassistance.org/
Consumer Finance Protection Bureau: http://www.consumerfinance.gov/paying-for-college/
National Student Loan Data System: https://www.nslds.ed.gov/nslds/nslds_SA/
U.S. Department of Education: https://studentaid.ed.gov/sa/