If you’ve kept up with our $10,000 sweepstakes, you know that we urged borrowers to ask Betsy Mayotte, the director of regulatory compliance at American Student Assistance® (our parent company) anything about their student loans.
Betsy knows her stuff—she helps borrowers, schools, and lenders follow higher education rules—and you guys had some great questions. Here are a few that we thought were especially helpful.
(Note: These questions were reformatted for the sake of easy reading. They’re not exactly how they appear on Reddit—but we did it for you.)
1. Can you point me to list of loan forgiveness programs? I’m a state employee, making far less than others in my field.
2. Also, please let me know where I can find information on how/when/if I should consolidate my loans, and with whom to consolidate them?
3. Realistically, what happens if I decide to let my loans go into default and just not pay them? What are the long-term and short-term results of just walking away from those loans?
1. Funny you should ask—we just made one! I literally did the edits for it yesterday and expect it to be posted at our site by the end of the month. This is what we have for you right now, though. In the meantime, Google is you friend to find more info.
2. If you have federal loans, you can only consolidate at www.loanconsolidation.ed.gov. Private loans have various options—start with your current holder. You should only consolidate probably when you are done with school and only if you need to to lower the payment. Consolidation extends the term so it can mean paying more interest in the long run.
3. Ugh—default is terrible! Of course it affects your credit in a big way. But they also add collection costs—as much as 25%. They can garnish your wages and tax refund and it can even affect your professional license in some states and professions. These federal loans don’t go away so default is really not a good option. If you are having problems making payments, talk to your lender about lower payment options.
Hello! I have around $60,000 in loans—private loan, Stafford loan, and Parent PLUS loan. I’m making decent money and could afford to pay more each month but end up opting to put money in savings. My questions are:
1. Should I be paying off my loans instead of saving?
2. What are the chances Elizabeth Warren or some other awesome politician wipes out our debt? Or does something, anything, to help us.
1. To answer your question about whether to pay your loans off instead of saving, I think that depends on your overall financial picture. You should have 6 months or a year even of expenses in savings at least, and you also want to be thinking about retirement funding. Once you have that in place I think it’s a good idea to pay off those other loans. If you can afford to do both, I’d work off that private loan first as there aren’t a lot of options if you should get into a financial jam down the line.
2. With the federal loans, the chances of the debt being wiped out is zero. These are taxpayer-funded loans so they’d have to find the money somewhere else to do this and with the national deficit the way it is that extra money doesn’t exist.
Also, the money the government makes off these loans is used to fund other programs, such as Pell grants and the subsidies on subsidized Stafford loans, so if you wipe out the debt, you wipe out the funding for these programs that help lower income families have access to college. The other argument folks would have against wiping it out is how fair it would be to those who had already struggled to pay their loans off.
There is some talk, a lot of talk actually, of reinstating bankruptcy protections on student loans—especially private student loans—but I’m not sure if and when that might happen. Don’t kill the messenger here Redditers—I know these are sensitive topics to some—I’m just telling it as it is right now not judging the policies themselves.
I will say that I wish they would find a way to provide more education debt management and financial literacy resources to students and families. If the government is going to be in the student loan business, I think they have a responsibility to provide the tools families need to use this funding wisely. They are trying, but I don’t think they are there yet.
I’d love to see the day where I posted an AMA like this and nobody had any questions for me because the resources were so readily available elsewhere they didn’t need my advice. PS—these comments here are my own—and don’t necessarily reflect the company I work for.
Be sure to check out the rest of Betsy’s answers over on Reddit.
(Photo: Eva Blue)