Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

There Is Hope for Those Who Think They Have Fallen Hopelessly Behind on Student Loans

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

There Is Hope for Those Who Think They Have Fallen Hopelessly Behind on Student Loans

Article excerpt

WASHINGTON - I volunteer at a correctional institution for women. During one financial literacy class, I was struck by something that was disturbing two inmates who were scheduled to be released within the next two years.

They were worried about defaulted student loans. Once out of prison, they feared that if they found a job, debt collectors would come after their paychecks. They were concerned that late fees, additional interest and other collection costs would make it impossible for them to get out of default.

They knew, like so many others who have defaulted, that student loans really never go away.

Having them is like being in a debtor's prison.

But there is hope for those who think they have fallen hopelessly behind. As of July 1, borrowers in default have to be offered a standardized payment option to rehabilitate their defaulted loans.

Default has serious financial consequences. You can lose eligibility for deferment, forbearance and access to more affordable repayment plans. The government can snatch your federal and state tax refunds. And a default can severely damage your credit rating. A default occurs when you fail to make a payment for 270 days.

Under new U.S. Department of Education rules, a borrower can qualify to rehabilitate defaulted federal loans by making nine voluntary on-time and full monthly payments over 10 consecutive months. (The extra month allows a borrower to be late on a payment and still qualify.) The rules apply only to federally guaranteed student loans.

Loan rehabilitation was supposed to be "reasonable and affordable" based on a borrower's financial circumstances. Except there was no clear definition of what reasonable and affordable meant. Payments varied among lenders. In some cases, those payments were calculated based on a percentage of the outstanding loan balance, typically 1 percent. As a result, many borrowers complained that their rehabilitation payments were unreasonable and unaffordable. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.