Pitfalls of Student Loan Repayments

If you have Federal Student Loans, you are likely to be able to navigate the repayment system quite well. These loans come from the Department of Education and are serviced through the National Student Loan Data System. All you have to do is sign up online after you graduate.

If you have private student loans, everything is more complicated. You will have to do some due diligence to stay on top of your loans.

First, ask yourself how much you owe and what institution services the loan. The bank or financial entity that gave you the money may not be the same as the servicer which takes care of the details of the loan, and you must deal with the servicer to pay your loan. You do not want to lose track of a loan and default. It is good to check your credit report to find out if you have information about all your loans.

If you are having trouble paying back your loan, here are some things to do.

Federal loans have an income-driven program for repayment. Income-driven repayment plans reduce the amount you owe per month based on your income and family size. Sometimes the loan is forgiven entirely if you are a veteran or if you are working in certain public service jobs. Always check! But, checking is not so easy if you have private loans. Advice for finding out if your servicer for a private loan has an income-driven repayment plan and signing up for that plan: Don’t call but message them through their messaging system. Then you have a paper trial! Also, know that you have to sign up yearly to keep on the income-driven plan. And, your servicer does not always tell you when the deadlines come due. A second piece of advice is make sure to put this annual deadline on your phone, both a month ahead and a week ahead!

Avoid loan forbearances. Private loan servicers often encourage you to take a loan forbearance. This is not a good practice. Although you do not have to pay your monthly payment for the time allowed, the interest will still accrue.

Make sure your monthly payments are documented. Some people want to prepay their loans. But, many terms of your loan are based on consecutive monthly payments. For instance, if you wish to get a co-signer off your loan, you can do so…if you have paid consecutively for so many months. Often private loan servicers do not credit you with consecutive payments if you pay ahead for several months. Also, if you send in one large check to cover several months, it may be processed as a one-month payment. So, always, again, message your servicer so you have a paper trail when paying all at once or prepaying. Better yet, set up an auto debit plan for paying your loan with your own bank.

Finally, never trust a private loan servicer to get it right. Check you financial credit report every four months. Make sure they have not missed a payment you have made or that they have not noted your loan unpaid when it has been discharged.

If all else fails, make sure to contact the Consumer Finance Protection Bureau.

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