Student Loans: Debt, Repayment and Default

The cost of higher education continues to rise. In the United States and Canada borrowers owe more than 1.2 trillion dollars in student loan debt. More than 7 million borrowers are in default. It is important for students and potential co-borrowers to understand the various types of loans, as well as the resources available during repayment.

‍If you need assistance reviewing the terms of a loan or have questions, contact your LegalShield provider law firm.

Loans

Subsidized loans are awarded to students based on their financial need. While the student is in school the federal government pays any interest on the loan. Therefore, subsidized loans do not gain any interest before the student enters repayment. This will save the borrower a great deal of money over the course of repayment.‍

Unsubsidized loans begin accruing interest when the loan money is first disbursed. If this interest goes unpaid, it will be added to the loan’s principal. This means the borrower will pay interest on the principal of the loan, as well as any interest that has already been added to the balance of the loan. This will cost the borrower a lot of money in additional interest over time.‍

Credit Cards have become readily available and widely used by college students in recent years. The interest rates on credit cards are generally higher than those on both subsidized and unsubsidized student loans. In addition, borrowers must make monthly payments. Failure to make payments on credit cards can lead to a poor credit score and can affect an individual’s ability to obtain further credit or even find a job.

Repayment

Grace periods are offered by many student loans before repayment begins. Make sure you know the grace period duration for your loans so you are prepared when payments become due.

Discounts may be available for borrowers who set up auto-payment for their account.  Many lenders also offer reduced interest rates for borrowers who make timely payments.‍

Consolidation may benefit some borrowers. Consolidating loans with one lender allows the borrower to make one monthly payment. It may also be possible to lock in a lower interest rate with a consolidated loan. Borrowers should beware, since consolidating student loans may exempt them from some beneficial repayment programs.‍

Default, the failure to make payment on student loans, may have serious consequences. If you default on your loan, your remaining balance and interest may become due in full and you may lose access to modified repayment plans. Also, additional fees and penalties may be added to your loan, your credit score and history may be damaged, your wages may be garnished and your tax refunds may be withheld. Your lender will also seek to collect, using all of the above methods, from your co-borrower.‍

Avoid default by contacting your lender if you are unable to make your scheduled loan payments. It may be possible to alter your payment due date or the structure of your repayment plan to better accommodate your budget. If you are experiencing financial hardship, you may be eligible for deferment or forbearance. Canadians have several options for repayment assistance and may learn more by visiting the canlearn.ca website.