b&b40 Student Loan Counselor on Air!
Student loan debt has gotten to be even more confusing than ever, especially as people take out more money, loans get sold to other companies, and it’s not clear what’s federal or private, subsidized or unsubsidized (and what the heck does all that even mean???).
Luckily, on today’s show, we have student loan counseling expert, Terrence Banks, from Clearpoint Credit Counseling Solutions (an amazing non profit with free loan counseling services), who helps you decipher what all this jargon means and what your options are when it comes to paying back your student loans. Not only that, he gives you his direct phone number and his email address at the end of the show so you can reach out to him, an ACTUAL PERSON, if you have any follow up questions.
Terrence Banks: Private loans are essentially not held to the same standards and federal loans. The private loans typically cost more than federal loans: they have variable interest rates which means they are subject to change. They can go up or–typically go up. …I just haven’t seen them go down, but they could go down. There’s fewer repayment options, and private loans are not subsidized, so you are responsible for paying all of the interest on the loan. …Federal loans there’s a bunch of options. The interest rates pretty much tend to be a little lower, and fixed in most cases. …Subsidized, which means someone other than the borrower pays some or all of the interest on the loan. And they can also have unsubsidized loans, which means the borrower is responsible for paying all of the interest.
Terrence Banks: If you’re not paying enough towards the interest, the interest capitalizes, [which] means it adds to your balance, and over time, you may get an income tax bill after the time of the 20-25 years in the amount of tax that’s on the balance itself…Even with loan forgiveness you have to be very aware because what they’ll give you is a 1099, what I found out recently, for the difference. So, if you’re under disability, let’s say, and you get loan forgiveness, and I just had a recent student loan case where a woman had $150,000 of student loans, and they forgave the loan, but they had a 1099 which essentially said that this amount was earned income on their taxes.
Terrence Banks: Forbearance allows you to stop making payments for 12 months. The interest will still accrue on these loans. Essentially you can only do it up to three times for the duration of your loan period.
Terrence Banks: Deferment, again you don’t need to make the payments in your loans. Now this is where it gets a little confusing, because deferment allows you–some of the loans, if the loans are subsidized, that amount can be deferred in terms of the interest accruing at that time. Deferment periods are usually up to 3 years, so the interest during that time can just be, for lack of a better term, waved. But, if the loans are unsubsidized, or tough loans, the interest will continue to accrue.
Terrence Banks: You get a natural deferment or forbearance for the first six months that you get out of college where you’re not required to pay back the loans.