Avoiding Loan Default
The best way to avoid loan default is to understand the terms of your loan agreement and continue to make qualifying payments. Should your life situation change and you have trouble making your monthly payments, your loan servicer can help you explore your options. While forbearance provides the option of taking a break from payments, your loan balance will increase because of the interest that capitalizes during the months that you are not making payments. Income-based repayment can lower your payments and keep you on track to paying off your loan, as well as make you eligible for certain loan forgiveness programs.
Both of these options temporarily stops payments based on qualifying life circumstances. The major difference between the two is that during a deferment, you may not be responsible for paying the interest that accrues on certain types of loans. FSA provides a chart that lets you know which loans qualify for this option. During a forbearance, you are responsible for all interest that accrues. To request a deferment or forbearance, contact your loan servicer to discuss your options.
Periods of forbearance or months of skipping payments can lead to significant increases in your student loan balance. As a result, your future monthly payments will be higher and you will end up paying more over time for your loan. FinAid.org provides a Cost of Interest Capitalization Calculator that shows you the impact of missing payments. For example, if you take a 6-month break from payments on a $10,000 student loan, the amount of accrued interest adds up to $344.85. When this interest is added to the loan balance, the monthly payment increases almost $4 and requires you to pay an extra $476.40 over the 10 year lifetime of the loan.
Both of these terms mean the same thing, but are used in different contexts. Loan forgiveness occurs when you are no longer required to make loan payments as a result of your employment. Loan discharge occurs when you are no longer required to make loan payments as a result of other circumstances, such as a School Closure or Total and Permanent Disability. Other examples include the Public Service Loan Forgiveness Program, Teacher Loan Forgiveness and False Certification Discharge. Not all loan types are eligible for all forgiveness/discharge options. FSA provides a chart to better understand your options.
If you have questions or concerns about your student loan, your first step should be to contact your loan servicer. FSA provides a Self-Resolution Checklist (PDF) to help you prepare for your call. If you are not satisfied with the information you received from the loan servicer, you have two options. If you are a Virginia resident, you can contact the Student Loan Ombudsman by email (email@example.com), by phone (804-786-2832) or by completing SCHEV's Student Complaint Form and checking the box that you have a student loan concern. You can also contact the FSA Ombudsman Group and use the FSA Feedback System to open a case file. If you have concerns about your private student loan, the Consumer Federal Protection Bureau can address your issue.
The biggest thing to understand is that you do not need to pay anyone for help with your student loans. Loan servicers are paid by the federal government to help you understand your repayment options and discuss any concerns you may have. FSA also has a Student Loan Ombudsman to help when you run into problems with your loan servicer. Finally, Virginia residents have a Student Loan Ombudsman who can advocate on your behalf. Should you receive a call from someone offering you guaranteed student loan forgiveness, it's probably too good to be true. The services that they offer are the same ones that you can get for free. Some of the more malicious loan scams will request your FSA ID or loan servicer account log-in information and offer to work with your loan servicer on your payments. This is a scam and you could end up owing more money than before they offered to help. Your loan servicer or FSA will never contact you over the phone and ask for your account information, unless you reached out to them first. If you think the call is a scam, hang up the phone, log into your account and call the customer service phone number listed on your loan servicer's webpage or contact the Student Loan Advocate. FSA also posts a list of approved loan servicer phone numbers. If you feel that you have been scammed by one of these debt relief companies, you can contact the Federal Trade Commission to file a complaint.
If you feel that a school you attended misled you and engaged in conduct in violation of civil laws, you have the option of filing a Borrower Defense to Repayment Claim. If your complaint is against a school that has closed, there may be a specific application for that school. To apply, complete their online application form, which will allow you to upload supporting documents. You can also fill out the fillable PDF application form (PDF) and submit it by email or regular mail. While your case is being investigated, your loan will be put into Forbearance, or if you loan is in collections, it will be temporarily halted. Keep in mind that interest will accrue while the application is being considered, and if FSA denies your claim, you could end up owing more than when you started. Any questions about the borrower defense process can be directed to their hotline: 1-855-279-6207.