Private Student Loans: What You Need to Know

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You did it! You worked hard, got a college acceptance letter, and graduated high school with a crisp, new diploma. Now is when the excitement and celebration of getting into college typically starts to give way to some anxiety. College is expensive and very few of us can afford to pay for a degree out of pocket. Most people know how federal student loans work, but what’s the skinny on private student loans? Here we look at the difference between the two and when you might need a private student loan.

Federal Student Loans

If you will be borrowing money to attend school in the fall, you’ll want to start with federal loans first. Federal loans are much more flexible in the repayment process, offering income-driven repayment plans as well as loan forgiveness programs. The terms and conditions of federal student loans are set by law with fixed interest rates. You will not be required to make any payments until after you graduate, leave school, or if change your enrollment status to less than half-time. However, sometimes federal loans will not cover the entire cost of attending college. This is where private student loans come in.

Private Student Loans

Banks or credit unions issue private student loans, typically with less repayment flexibility than federal student loans. The biggest reason to go for federal loans first is because private loans typically end up being more expensive than federal loans. Because the terms of the loan are at the discretion of your individual lender, different private loans can vary greatly from lender to lender. Depending on your specific circumstances, you could have a higher or lower interest rate, it could be fixed or variable, you may have to start paying for your loan while you’re still in school, or you may be able to hold off on payments until after graduation. The biggest drawback of private student loans is their variability, which can lead to confusion.

That being said, many students every year will take out private student loans to cover the costs of attending college. If you find yourself in need of a private student loan, don’t panic. There are plenty of good private loans out there, you just have to find them. This means putting in the time to do your research to find a loan with the best rates, fees, and terms for your situation. Don’t just settle for the first private loan you find. Compare interest rates, fees, and borrower protections across different lenders to identify the most affordable offer.

Which Private Loans have the Best Rates?

To compare all of the available private loans, check out your local banks and credit unions, but don’t be afraid to look online too. Some of the better deals on private student loans can be found through online lenders. One of the best ways to do this is through Credible, an online private student loan marketplace. Students (and parents co-signing for their children) can enter basic information to see multiple loan offers online. Credible allows you to compare terms, interest rates, and fees all on their website. Because many of these lenders operate via the internet, their overhead costs are lower, which could mean lower interest rates and fees for you.

How Much Should You Borrow?

As with any student loan, you will want to minimize the amount you borrow. This is especially true with private student loans, which tend to have limited repayment or forgiveness options if you have financial difficulty in the future. It is very common for students to take out loans for more than they really need. People overestimate their income after graduation and end up with loans they cannot afford to pay back. Unlike federal loans, there is no cap on private loans. A lender may let you borrow much, much more than you can realistically afford. In order to avoid being crushed under a pile of debt after graduation, only borrow what you absolutely have to and keep yourself on a budget throughout the duration of your college career.

Pay Back Private Loans First

If you do end up with a private loan, make sure this is your top priority when you start the repayment process. Many private loans begin accruing interest from the moment they are disbursed. If you can start making payments on these loans while you are in school, it is a good idea to do so. This can help you save substantially on interest in the long run.

If you are having difficulty paying back your private student loans, you’re not alone. Managing student loan debt is a heavy burden for many Americans. Veitengruber Law is a NJ legal team experienced in all types of debt management. We can provide customized debt solutions for your specific needs so that you can get the degree you need without fear of financial ruin.

No Debt vs College Degree: Which Wins?

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If you’re strategizing to keep your debt burden low throughout the first phases of your adult life, you’re probably considering whether or not it’s worth it to assume a large amount of student debt. After all, 70% of college graduates leave their alma mater with a burdensome level of student debt. Today, more than 44 million US residents are struggling to repay a collective $1.5 trillion in college loans alone.

For many people, a college degree is a necessary step toward creating the adult life they’ve dreamed of, and assuming some level of student debt is likely unavoidable. However, it’s absolutely imperative that students fully comprehend the long-term impact of the loans they’re agreeing to.

If a college graduate is unable to repay their loans in a timely manner, or doesn’t prioritize repaying them, financial disaster looms ahead. Graduates face severe financial penalties for not repaying their loans, including additional fees, mounting interest fees, potential wage garnishment, and negatively impacted credit ratings. Keep in mind that New Jersey is not an inexpensive place to live, so if you play to return to your home state after school, you’ll need a savvy financial plan to do so.

The following quick guide will help you determine whether the cost of student loans will make sense for you in the long term. The answer to this question varies from individual to individual, so it’s a decision you’ll need to make for yourself. Carefully weigh the pros and cons, advantages and disadvantages, and do your best to make the most beneficial decision for your situation.

Remember, too, that if you do end up (or have already ended up) with a significant amount of college loans, it’s going to be okay. You’re not alone by any means; as we’ve discussed, 1 in 4 adults in our country are still repaying their loans.

The Pros and Cons of Student Loans

Pros:

  1. Student loans can make college possible, or make it possible for you to attend a school that would otherwise be unattainable. If a student loan makes the difference between you attending your dream school or a local state school, it may well be worth it to bridge the gap with a loan.
  2. In certain fields, if pursuing a higher quality (or more widely respected) education positions you to earn significantly more over the life of your career, then your student loans may represent only a small fraction of your potential earnings. In such situations, assuming responsibility for a larger loan is almost certainly worth it. Study hard, network with grace and skill, and set yourself up to bring home the kind of money you’ll need.
  3. Student loans can be spent on more than just tuition. Choosing a student loan may make the difference between you having to work full-time during your education and instead having the luxury of focusing solely on your studies. You can use student loans to pay your rent or car payment, purchase a laptop and textbooks, or even just buy groceries. Postponing your financial troubles until after you graduate can have a positive impact on your mental health and resources during the few years you’ll have to pursue your education goals.

Remember, too, that even though student loans are pretty terrible, they’re still more affordable than credit card debt or other high-interest personal loans!


  1. Paying off student loans on time will help you build credit. You’ll need a positive credit rating to get a good interest rate on significant purchases like a car or home, so having this opportunity to build credit right out of college can be very positive. Please be aware that you will need to make prompt payments every month in order to benefit from an improved credit score.

 

Cons:

  1. Interest is a pain in the neck. When you repay your student loans, you’ll be repaying the amount you initially borrowed plus the interest that’s accrued over the years you’ve been in college. As of 2018, interest rates on student loans range from 4.5% to 7% for federal to 11% – 15% for privately-held loans.

If you choose high-interest student loans, the interest rates can be almost as disastrous as those on credit cards! If you can afford college without assuming any student loans, clearly it is in your best interest to do so.

  1. Choosing student loans will mean that you’ll begin your adult life with debt. Your financial freedom will be significantly impacted by this burden; you’ll probably need to delay other life goals like home ownership or international travel until you’re able to pay off a significant portion of your student debt.

Home prices in New Jersey don’t show any signs of halting their steady climb, so delaying your entry into the housing market could mean paying as much as tens of thousands more for your first home.

  1. It is nearly impossible to discharge student loans without paying them directly. Unlike many other kinds of personal debt, student loans cannot be eliminated by declaring bankruptcy. If you assume responsibility for a student loan, you will have to repay it.
  2. Missing payments on your student loans can destroy your credit score, which will negatively impact your financial opportunities for many, many years to come. You’ll have difficulty renting or purchasing a home on your own, applying for a loan on a car, and could even lose your job along with your financial credibility.

 

The truth is that student loans can be a net positive in your life and can be relied upon to help you create a better future for yourself and others. In real-life application, though, slow job growth, high interest rates combined with punitive laws preventing struggling graduates from discharging their debts through bankruptcy, and skyrocketing tuition prices are factors that work against even the most well-intentioned students.

That’s why if you do decide to assume student loans, it’s important that you try to live frugally and limit the amount of debt you need to take on. If you can work part-time and still maintain your grades, consider doing so. Purchase clothing second-hand when possible, for example, and keep your wardrobe streamlined until you have more financial freedom.

You’ll find that the fiscally wise habits you can cultivate during these lean years will serve you well in the future, even after you’ve paid off your debts. Remember that being conscious and intentional about your spending is always a healthy decision. Frugality is never something you should be ashamed of!

How Your SSDI Benefits May be Affected by Past Due Student Loans

In the past several years, there seems to be a growing trend, and one that is less than ideal. More and more recipients of Social Security are also carrying significant federal student loan debt. This obviously presents a problem since both sources of money flow from the federal government. With more student loan debt, the federal government will continue to fall deeper into debt. How exactly will your Social Security Disability Income (SSDI) benefits be influenced by past student loans?

According to a report released by the Government Accountability Office, the number of people whose Social Security benefits have been offset rose from 31,000 in 2002 to 155,000 in 2013. That’s almost a five-fold increase! The report also tells us that only about 36,000 of the 155,000 individuals are age 65 and older. We can conclude that there are many individuals whose SSDI is being affected by their student loan debt. Did you know it’s possible that your student loan debt could be forgiven? Before making any rash decisions, it’s necessary to check out how your taxes will be influenced if you were to receive a TPD discharge.

In order for an individual to have any of their loans forgiven by the Social Security Administration (SSA), the individual needs to qualify for Total and Permanent Disability (TPD) discharge. Monitored by Federal Student Aid, which is a facet of the U.S. Department of Education, TPD discharge equates to an individual not having to pay back the funds that they owe for their education.

Which loans fall under TPD discharge?

·        William D. Ford Federal Direct Loan Program loans

·        Federal Family Education Loan (FFEL) Program loans

·        Federal Perkins loans

·        Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligations

Who qualifies for TPD discharge?

Unfortunately, TPD requirements are more difficult to meet than the eligibility requisites for Social Security. Just because you have been approved for SSDI benefits does not mean that you will be eligible for TPD discharge. Here are the rules, which were updated in 2010.

·        You must not be able to complete any “substantial gainful activity” that could provide an income. This activity is includes physical and intellectual activities. The inability must be due to a medically determinable physical or mental health impairment that has lasted for at least 60 months, is anticipated to last for 60 months, is expected to lead to death, or is correlated with 100% military service disability.

·        Social Security does not guarantee disability benefits for military service disability.

If an individual receives the Social Security disability award within the five to seven year review date, they will be part of a group known as “Medical Improvement Not Expected (MINE),” which should qualify them for a federal loan discharge.

To complete a TPD Discharge Application, you must have your medical doctor verify that you are disabled. Once your physician has filled out sections regarding your diagnosis, the severity of the problem, and any limitations experienced as a result, you can submit the application to your loan servicer. It’s required that you submit an application for each individual loan holder.

Please don’t hesitate to ask us if you need help with your TPD application or if you aren’t sure if you’ll qualify.

How Can I Afford to Send My Child to College?

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Helping your high school senior as s/he applies for college is a natural part of parenting. However, when it comes to financing a college degree (especially for parents who have several children or are already struggling financially) – how much help can you give? With the radically rising prices of college these days, along with families who are already dealing with money struggles, it can be next to impossible for some parents to foot their child’s education bill.

In fact, many people are still paying off their own student loans by the time their children are preparing for college. Currently, there is no formal plan in place in the U.S. to help lessen this strain on families, but there may be hope after the 2016 presidential election.

Assuming there are no changes made to the current cost of getting a college education, parents need guidance! A recent study showed that, when it comes to students with parents on the bottom half of the U.S. socioeconomic ladder, they make up only 14% of the undergraduate population at top U.S. universities.

Many students and parents feel that applying to college is a worthless endeavor if they wouldn’t be able to afford it anyway. It’s important for these families to know that there are in fact, many options that will allow your child to attend college (often at an elite university!) at a significantly reduced rate. Often times, students who are high achievers but in a lower economic bracket are given free rides.

The first thing that most high school guidance counselors recommend is to use every resource you can find to look for appropriate college scholarships. Believe it or not, more than $100 million goes unclaimed every year in college scholarships! The reason for that is that many people simply don’t know where to look.

Scholly is an app that can be downloaded via the App Store, Google Play, and can now be  accessed via the web. Scholly was designed to help take some of the burden off of students and their parents when applying to colleges. The app uses an adaptive matching engine that matches students with scholarships that they qualify for, and weeds out things like internships and advertisements.

In addition to private scholarships like those that can be found via Scholly, families with financial struggles should know that all colleges are not created equal. If your child is a high achiever, s/he will benefit from attending college with classmates who are also high achievers. Simply because this means considering elite colleges does not mean it is a worthless endeavor.

In reality, students who come from poorer families often either A) Don’t bother applying; or B) Only apply to local, less expensive schools rather than applying to a top university. A great number of high school seniors have a poor understanding of the college financial aid process and assume that their family could not afford the cost of an elite education. The truth is that at some elite schools, families who earn less than $65,000/year do not have to pay anything!

While we admit that our country needs to adopt a better way for all students to receive a higher education, as it stands, there are financial options available for those students who have the grades to be accepted. To learn more, visit Scholarships.com.

 

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What Can I Do About My Non-Dischargeable Debts?

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Unless you’ve been living under a rock, you know that there are some debts that bankruptcy just can’t eliminate. Probably the most well-known “non-dischargeable” debt is child-support. If you’ve been court ordered to pay support funds to the mother or father of your child(ren) and have fallen behind on payments, filing for bankruptcy will not erase that debt.

The same goes for any court-ordered alimony. Rest assured that many people have attempted to find a loophole out of paying their child-support and/or alimony. Let it be said here that we believe in parents paying the child-support they have been ordered to pay.  At the dissolution of your marriage or relationship with your child’s partner, you didn’t dissolve your role as parent. Therein, you are still responsible for the financial support of your offspring.

However, there are cases wherein the “alimony” (spousal support) you’re paying isn’t officially court-ordered alimony at all. You may have fallen behind on helping your ex-spouse in making his/her car payment or house payment – both of which are considered to be property debts rather than alimony arrears. If this is the case, you may be able to discharge those debts in a bankruptcy case.

If you owe back payments on your child-support payments and/or court-ordered alimony payments, it is possible to reorganize your payments with a Chapter 13 bankruptcy. This will allow you to space out payments so they fit into your budget plan. Keep in mind that a Chapter 13 bankruptcy does not eliminate your debts, but rather has the goal of rearranging the money you owe to various people so that you can make the payments without going under.

Another debt that is very hard to escape is student loan debt. Millions of Americans are struggling to make ends meet and cannot manage to repay their student loans, even while working full time jobs. The cost of a college education is quite high – and when loans are taken out (and often times defaulted on multiple times), the interest adds significantly to the amount due. You can discharge your student loans if you can prove past a shadow of a doubt that you will never be able to repay them. To do so is extremely difficult, and those who succeed have almost always been permanently and significantly disabled.

If you have unpaid income tax debt, believe it or not, it is possible to have it completely discharged in a Chapter 7 bankruptcy, including interest and late or penalty fees that may have accrued over the years.

The bottom line is that there are several types of debt that are difficult to wipe out with a basic Chapter 7 bankruptcy, but some of them can be reorganized through a Chapter 13 bankruptcy. If you are unsure whether your debt(s) are eligible for a Chapter 7 or 13 discharge, speak to a bankruptcy attorney to learn more about the different types of debt, and where your particular debt falls.

Image credit: Steven Depolo

Home Ownership & Student Loan Debt: How They’re Connected

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Applying for a mortgage loan is akin to putting all of your financial cards on the table. Because the amount being borrowed is so high (in most cases), lenders will scrutinize all of your money decisions with a fine tooth comb. With that being said, it is best to wait to apply for a mortgage loan until such a time when your other financial obligations are low and your credit score is good.

However, everyone knows that life doesn’t always go as planned, and many millions of Americans are finding themselves paying off student loan debt years, sometimes decades after they have finished college. Many of these people may have in fact defaulted on their student loans, which can result in a legal judgment from the court.

Understandably, lenders are very wary of giving a loan to someone who has already defaulted on a loan in the past. They’d rather not take the risk of losing big-time money, and may pass you over for the next borrower ‘standing in line.’

So, what is a person to do if they are working hard to make good on an old student loan judgment? Must they wait until their loan is 100% paid off to pursue their dream of owning a home?

The real answer to this question is “maybe.” While that answer may not seem very encouraging, it’s better than an outright “no.” Lenders are going to look at more than just an outstanding student loan judgment (even if you are currently making steady payments on that loan via wage garnishment).

Another big factor that mortgage lenders are going to take into account is your overall credit score and your credit report. If you haven’t taken a look at your credit report recently, take advantage of the free report available to you at annualcreditreport.com. If you want to know your actual score, you will simply have to pay an extra $10.

If your score is at least fair, (above 630), that is proof that your student loan has not put a permanent albatross on your credit score, and moving ahead with applying for a mortgage loan is definitely within the scope of reasonable actions for you at this time.

If, on the other hand, your credit score is less than 630, you probably won’t get approved for a mortgage loan immediately, but you do have several options to help yourself move toward that goal.

First, make contact with your student loan lender(s). By reaching out to them personally, you’ll likely have a better chance of getting out of student loan debt much faster than you will on your current payment schedule. Many lenders have a rehabilitation program that helps debtors get back on track. If your lender is not amenable to speaking with you or negotiating with you, contact a New Jersey attorney who has experience dealing with both student loan debt and real estate. The right NJ attorney can negotiate your outstanding debts down to a much more manageable level – so much so that the fees associated with hiring an attorney will seem like a drop in the bucket.

Another thing you can do is apply for three secured credit cards and begin using them as soon as you receive them in the mail. Pay off the balances consistently every month for the next six months. This action alone will boost your credit score and help put you in position to get that mortgage loan, and get into the home of your dreams.

To get additional information and help negotiating your student loan debt, contact our office now for a free consultation. (732) 852-7295

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Drowning in Student Loan Debt? Veitengruber Law Can Help.

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For millions of Americans, repaying their educational loans has become nigh on impossible. As we’ve previously discussed, the steadily increasing student loan delinquency rates have resulted in a nationwide debt of around a trillion dollars.

The harsh outlook in the current job market has only very slightly improved over the past six months. If you’re one of the many people without a job, or with a job that just doesn’t pay well enough, it probably doesn’t help to know that you’re not alone.

Most likely you’ve already run through your options in your head more times than you can count. Knowing that it’s difficult to have student loans discharged in a bankruptcy is a really frustrating fact for those who’ve reached out for financial help. It can be extremely disheartening to feel like there’s no relief available!

Undue Hardship

While it may be challenging to get any student debt relief through a Chapter 7 bankruptcy, it has been done. However, in order to have student loans discharged, you’ll need to prove to the bankruptcy court that you’re suffering what is referred to as undue hardship.

Although your first reaction to this information may be celebratory (because of course you’re dealing with hardship if you’re considering filing for bankruptcy!), hold the confetti for just a moment.

In a bankruptcy setting, the term ‘undue hardship’ has a legal definition, due to Brunner v. New York State Higher Education Services, 831 F.2d 395 (2nd Cir. 1987). You’ll have to prove that you’ll never be able to repay the loan(s), and that you’ve tried, but failed to do so. The aforementioned court case brought about a three step test that decides whether you’re experiencing true undue hardship:

  1. being completely unable to maintain even the most minimal standard of living for yourself and your family,
  2. this inability to maintain a minimum standard of living must continue for a significant period of time (and you’ll have to prove that it will, and why)
  3. having made at least a decent effort to try repaying your student loan debt, even if you were paying less than the minimum due each month

Additionally, you’ll have to be employed to the maximum level that you reached by getting, what else? Your college degree! Alternatively, you’ll need to show the court that you are permanently disabled in such a way that it prevents you from ever having the ability to reach your full earning potential.

Now, if you’re hanging your head because you’ve realized that you don’t meet one or more of the three steps in the ‘undue hardship’ assessment, that does not mean that there’s nothing you can do about your student loans.

Treading water is one thing, but if you’re going under – you DO have options. Some of these options include: Filing for a Chapter 13 repayment plan, debt reorganization, principle reduction, and more. Best of all, the lender cannot harass you throughout the length of your Chapter 13 plan, if you should choose that option. That means you’ll have several years (typically 3-5) wherein you will not have to make payments on student loans. The reorganization plan you’ll be left with will leave you in a much better position all around once you are required to start making payments again.

Need help now and want a free consultation? Fill out this simple contact form, like our Facebook page, and you’re well on your way to breaking the surface.

Student Loans: Can They Ever be Discharged?

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The year 2012 was the year that the student loan bubble popped, for lack of a better description. Now, in 2013, 90+ day student loan delinquency rates are creeping higher than ever before. The amount of student loan debt owed in the United States is roughly $1 trillion.

The amount of delinquent loans continues to rise due to a variety of economic factors. Although several sources have indicated a slight improvement in the employment outlook for Americans, there are still millions who are underemployed or unemployed. The lackluster job market combined with regular layoffs, furloughs and budget cuts has left many consumers unable to repay their tuitions.

In an effort to take positive action regarding their employability, many Americans make the decision to attend more college in order to make a career change, with high hopes that a new career path will present better employment opportunities and higher pay. This cycle often repeats itself, with many labor markets showing consistent weakness and offering limited work options to Americans, even in their second or third careers. As their job options dwindle, mounting student loans loom threateningly behind them, making it impossible to get ahead financially.

All of these factors have led to an increase in loan deferments and write offs. Americans want to know: How can I reduce my student loan debt?

Unfortunately, student loans are not frequently forgiven in Chapter 7 bankruptcy cases. It may be possible to have part of your student loan forgiven in a Chapter 13 bankruptcy filing, but you would have to show undue hardship as well as make consistent, agreed-upon payments for the duration of your Chapter 13 term. At the end of your bankruptcy term, some or all of your student loans may be forgiven. A word to the wise, though: typically only federally funded student loans are eligible for forgiveness, as opposed to private education loans.

Certain professions will increase your chances of being granted loan forgiveness. Volunteering with the Peace Corps, enlisting in the military, teaching, practicing medicine or non-profit legal positions are all jobs that you may want to consider in order to have a portion of your federal student loans forgiven.

There are many programs you can participate in that can increase your chances of being eligible for loan forgiveness. Working with a qualified bankruptcy attorney like George Veitengruber will increase your chances of finding the appropriate forgiveness programs for your unique and individual situation.

If your student loans are not easily forgiven even after all avenues have been exhausted, there are other options that may help you find the debt relief that you need. Special debt relief services, debt consolidation, and debt settlement are all options that will help you reorganize your debts in order to make your payments more manageable and reasonable. To learn more about all of your student loan debt options, call an experienced bankruptcy attorney for a free consultation today.

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