Many people who are unemployed or face other economic troubles are having problems making monthly payments on their student loans. Where can they turn for help?
"The federal government's student loan program generally provides the most ways to obtain relief, but private student loan programs often have options available for struggling borrowers as well," noted Matt Homer, an FDIC Policy Analyst. "The degree of relief and possible repayment alternatives will depend on the type of loan you have."
With that in mind, FDIC Senior Policy Analyst Elizabeth Khalil points out that student loan borrowers who are having financial difficulties "need to know whether they have a federal loan obtained through the U.S. Department of Education or a loan made by a private lender. Once they have that information, they can explore their options."
Options for federal loans depend on the program. Borrowers may be able to lower their monthly payment or temporarily put repayment on hold. They can choose from a menu of repayment plans and change from one to another at any time. Possibilities include lower monthly payments that increase over time, an extended repayment period that results in lower monthly payments, and monthly payments based on the borrower's income.
Although these kinds of plans may reduce monthly payments, remember that the longer you take to pay down the loan, the more you pay in interest. Federal loan borrowers also might qualify for "forbearance" or "deferment," which can temporarily reduce or postpone payments.
To get help with a federal loan, contact your servicer, the organization that collects your loan payments. Borrowers can identify their federal loans and the servicers for those loans using the U.S. Department of Education's National Student Loan Data System at www.nslds.ed.gov.
For private student loans, borrowers should contact their servicer to learn about possibilities such as forbearance or deferment or alternatives like rate reductions, extended loan terms or other loan modifications. On July 25, 2013, the FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency issued a statement encouraging financial institutions to work constructively with private student loan borrowers experiencing financial difficulties.
"A positive credit history is increasingly important, not only for getting a loan, but also for renting an apartment or finding a job," said Mark Pearce, Director of the FDIC's Division of Depositor and Consumer Protection. "If borrowers are struggling to repay their student loans, they should reach out to their lenders and loan servicers as soon as possible to explore available options to stay on track."
Finally, beware of unsolicited offers from companies that promise an easy solution to student loan woes. The solicitation may even appear to be affiliated with the government or represent government programs. "Some advertisements for ‘debt relief' may be scams intended to collect personally identifiable information that can be used to commit identity theft," Homer said. "Others may just be rip-offs, charging borrowers considerable fees for information that can be obtained free from the Department of Education or a private lender."