To defer or pay?

[iswmle]

My student loans will be out of the grace period in June. All of my loans are federal, I took no private loans, thank goodness. Even so my fed loans are pretty substantial. I originally tried back when I was in school to get an idea of what kind of payment plan to do, and the rep basically told me to not worry about it at the time. I called again today, and they are saying the same thing! I am still in my grace period, and to not worry about it.

But I AM worried about it. I want to be sure that when it comes due I will be able to make my payments. I requested IBR applications from both of my lenders. One told me I will have to wait until June to submit it, the other said I could turn it in now.

That being said, one of the reps told me I can apply to have my loans deferred for another year. I don't know if this is misinformation or not, but I found it interesting. As it is, the IBR calculator is approximating my payments to be around $100. That is low!

What will reflect best on my credit, to defer or go ahead and start paying? Honestly, I am inclined to start paying and get it worked into my budget, but a rep told me whether I am deferring or paying it will make no difference on my credit report. Is this true? I was under the impression it will look nice on my credit report once I start paying. I feel like I have been getting a lot of different info from both lenders.

[debtprison]

Which lender tried to tell you that you must wait until June (when they are due) to apply for IBR? Was it Sallie Mae? They have been getting a fairly bad reputation for apparently trying to discourage people from applying for Income Based Repayment. In my case one of the (overseas) reps actually liked to me and told me I wasn't eligible.

I'm pretty sure many of these lenders absolutely loathe IBR. Not only will it lower a lot of people's payments drastically and in many cases take them to $0 (Generally if you are in poverty) but after 25 years of being on IBR I believe any left over balance is forgiven. I REALLY wish this had existed ten years ago. If it did instead of the amount I owe in student loans doubling, I would have been ten years into that 25 year period.

I suspect these lenders actually prefer debtors default rather than use IBR because if you default the government essentially pays them the balance.

[treehugger1]

Well, it is not quite true that if you default, the government pays them the balance. It takes much more than default. The guarantor has to first go through the DOE recognized protocol for collections, including income tax offset and possible wage garnishment. If wage garnishment occurs, then the servicer receives the payments and no pay-out is made by the government. My own personal experience supports this. I defaulted and after 400 DAYS the guarantor/servicer got a DOE wage garnishment order. The DOE does not receive the money. The servicer does. I have many friends who have also strategically defaulted and they all report that the loan is still held and accounted for by someone other than the DOE. I suppose I will eventually die and the DOE/Government will then have to cover the remaining uncollectable amount, but until that time...

Just my take based upon actual personal experience

[Wantmypeace]

So, how much are they garnishing your wages? Is this for the rest of your life?

[debtprison]

Well, it is not quite true that if you default, the government pays them the balance. It takes much more than default. The guarantor has to first go through the DOE recognized protocol for collections, including income tax offset and possible wage garnishment. If wage garnishment occurs, then the servicer receives the payments and no pay-out is made by the government. My own personal experience supports this. I defaulted and after 400 DAYS the guarantor/servicer got a DOE wage garnishment order. The DOE does not receive the money. The servicer does. I have many friends who have also strategically defaulted and they all report that the loan is still held and accounted for by someone other than the DOE. I suppose I will eventually die and the DOE/Government will then have to cover the remaining uncollectable amount, but until that time...

Just my take based upon actual personal experience

Interesting. You are likely correct. I haven't researched it and was just stating a generality I heard. I still think for whatever reason they do not want people to get on the IBR though. I've heard so many stories about it and have witnessed that reps almost act as if they will lose their jobs if too many people sign up for an IBR request with them.

[iswmle]

It was Ed Fin. who told me to wait. It was actually kind of a nuisance, everything Ed Fin said FedLoan said otherwise. Ed Fin told me to wait to file IBR, FedLoan told me to file whenever I wanted. Ed Fin told me that I could not file at the same time as FedLoan, Fedloan said I could. Ed Fin said my payment amount to the other lender would make no difference. Ex. if on the IBR plan I was eligible for $100 a month payment that would be $100 per lender. FedLoan told me it would me split... ex. FedLoan $30, Ed Fin $70.

I'm turning in my paperwork, next week, anyway, I am tired of getting the runaround and do not want these upcoming payments to bite me in the butt.

[debtprison]

It was Ed Fin. who told me to wait. It was actually kind of a nuisance, everything Ed Fin said FedLoan said otherwise. Ed Fin told me to wait to file IBR, FedLoan told me to file whenever I wanted. Ed Fin told me that I could not file at the same time as FedLoan, Fedloan said I could. Ed Fin said my payment amount to the other lender would make no difference. Ex. if on the IBR plan I was eligible for $100 a month payment that would be $100 per lender. FedLoan told me it would me split... ex. FedLoan $30, Ed Fin $70.

I'm turning in my paperwork, next week, anyway, I am tired of getting the runaround and do not want these upcoming payments to bite me in the butt.

Yes I believe they can take a long time to process the IBR if they really want to so it is wise to do it early. I just fired one off to Sallie Mae last week and it looks like I was lucky in that they acknowledged receipt of it and appear not to be attempting to play any games with me. I'm not an expert on this but when I filled out the IBR form I believe there was a field to specify that it should also include other student loan lenders which you used as well. Does the state you are in have some sort of ombudsman you could speak to in order to get the matter clarified and potentially give the one trying to drag their feet a little warning shot that you aren't one to mess with? Might not be a bad idea.

[IamOld]

Warning about Sallie Mae - they "lose" things...ehem....

You know I know a fellow who PURPOSEFULLY defaulted on student loan because a) the 15% max they can take from his check is LESS THAN his payment, and b) he gets no tax refunds...in the great scheme of things I don't know if this is "good" or not...

I think the next great financial crisis will be mass SL defaults...

[debtprison]

I'm not sure if this link will help or not but I'd probably try here first if it were me.

http://www.ombudsman.ed.gov/

http://www.ombudsman.ed.gov/resolve.html

[discombob1]

My two cents... pay what you can. Your credit will be better off if your loans are in repayment. Also you may want to look at consolidating. I did and got a fixed rate below 3%. I also did the Max 2 plan... interest only payments for 2 years then regular payments. I also have read that after 25 years of payments the rest is forgiven. My regular payment is manageable and I pay over when I can. As hard a reality as it is, you must pay these back. Mine are substantial too, I put myself through college and grad school without help. But the sooner you get into the groove of paying, the better.

[iswmle]

My loans are pretty significant as well, discombob, I was actually considering going to school for social work and opted against it to get these loans out of my hair. That and I am burnt out on school. I am still thinking of consolidating but I only have two lenders, FedLoan and Ed Fin. I wonder if it would be worth my while to consolidate? I know I can still get the IBR even after consolidating, and yes, I heard after 25 years they are forgiven, thank goodness.

[IamOld]

My loans are pretty significant as well, discombob, I was actually considering going to school for social work and opted against it to get these loans out of my hair. That and I am burnt out on school. I am still thinking of consolidating but I only have two lenders, FedLoan and Ed Fin. I wonder if it would be worth my while to consolidate? I know I can still get the IBR even after consolidating, and yes, I heard after 25 years they are forgiven, thank goodness.

Well you know, it's worth asking - http://www.loanconsolidation.ed.gov/
Their website is pretty good but I would call and ask...and then a few minutes later call back and ask again - I was given wildly different information on several occasions, so it's better if you call a few times and get the right answer....but you never know, and it's worth checking rigth??!

[debtprison]

My two cents... pay what you can. Your credit will be better off if your loans are in repayment..

When I check my loans on Sallie Mae's site they tell me they are in repayment now. This is significant because I am on a IBR with $0 due each month. I haven't yet checked how they are reporting this on my credit (I barely care) but I suspect it is probably being reported exactly the same as a standard repayment would with no indication of any hardship status. Although of course this probably does not hide the balance or monthly payment amount, if indicated on the report.

[discombob1]

I would still suggest putting something toward them each month just to keep the interest in check. Problem is once you are out of school even subsidized loans start accruing interest. If you are on IBR with no payment due, you can still send in a payment towards interest without affecting your credit if you are short a month. I would suggest finding out if having the loans deferred does anything to stop interest accruing. If not there's no benefit for you to defer if you payment due is already 0.

[iswmle]

Found out bad news: most of my loans do not qualify for IBR because I did not meet the cut off time. On the phone with FedLoan as I type this to see what my best options are. The rep that I spoke with earlier said if push comes to shove I can defer for another year up to 3 years, but I want that to be my last resort. Seriously looking deeply into consolidation, seems like that will be the best route to take. Gah, if I knew then what I know now...