Student loan debt weighs heavily on consumers. It is estimated that nearly 45 million Americans owe $1.6 trillion in student loans. This makes student loans one of the largest consumer debt categories, second only to mortgage debt. For many borrowers, large student loan amounts dictate job options, restrict housing purchases, and even impact if and when an individual may start a family.
There is no doubt that student loans are burdensome. They are also surprisingly complex. Each individual borrower’s situation has many unknown components and possible outcomes. By asking the right questions of your lenders and then consulting with us, you can create a manageable plan to address your student loans.
First, we recommend that you gather information about your loans. The staff at Peterson Legal often intervenes at this early stage and initiates conversation with lenders, although some clients are comfortable starting to sift through this information on their own. Whether you ask us to do this work or tackle it on your own, here’s a framework to help you understand your own loan situations.
Start by identifying whether you have federal or private student loans. It’s important to understand which loan type(s) you have, as this distinction impacts how you might decide to approach the debt(s). Here are some of the common factors of each type.
FEDERAL STUDENT LOANS
- Federal student loans have no statute of limitations, meaning that at any time you can be sued for failing to pay them.
- Your wages can be garnished without a judgment being entered against you (administrative garnishment).
- The federal government can seize your tax refund.
- These loans typically have the option of flexible payment plans, including income-contingent repayment plans.
- Federal loans are typically not dischargeable in bankruptcy; however, there are several statutory discharges available, including disability discharges and borrower defense to repayment.
- Even if a consumer is in default, the loans can be rehabilitated so as to bring the consumer out of default status.
PRIVATE STUDENT LOANS
- These loans are subject to state statutes of limitations.
- Private lenders need to obtain a judgment before garnishing wages or bank accounts.
- Private lenders are not able to seize your tax refund.
- These loans have much more inflexible payment terms; modifications are usually left up to the lender’s discretion.
- Typically, they are not dischargeable in bankruptcy.
- These loans may be sold to third-party debt buyers.
After determining whether your debts are classified as federal or private loans, press the lender for additional information. Below are some of the questions that we frequently pose to loan servicers and lenders:
- Who is the original creditor?
- What are the terms of the loan?
- How did the servicer arrive at the balance they claim is due and owing?
- Is the lender and/or the servicer correctly reporting information to the credit bureaus?
Once this information has been obtained, we work with you to determine your goals and design a plan to best suit your individual circumstances. For example, if you have a federal student loan, this may mean determining what, if any, statutory discharges are available or assisting you with rehabilitating loans that are already in default. If you have private loans, this may include defending you in a lawsuit or negotiating a more favorable payment schedule.
Let the knowledgeable, experienced staff at Peterson Legal assist you in creating a present and future financial picture that allows you to live your life with confidence, flexibility, and peace of mind. Call or email us today to start a conversation about your student loans and longterm financial plan.