How to Keep Student Loans Under Control

 Here's a new one. One of our neighbor's daughters (Annie) is about to head off to a college that believes that student loans are bad, so they don't offer them!!! While I can cheer that college on for their decision, it unfortunately forces those students who need loans, to obtain them from private channels, rather than from FedLoans. This poses a significant risk for the college students for several reasons. I'll talk about private loans first.

Private Student Loans (PSL)

According to Student Loan Borrower Assistance (dot) org, "In theory, private student loans are used to fill the gap between available federal aid, and what students and families can afford to pay out-of-pocket for college costs. In practice, unfortunately, many borrowers take out these higher cost loans without first exhausting their federal student assistance options." PSLs lack the more affordable, fixed rates, and flexible repayment options that federal loans have. Prospective borrowers should exhaust federal grant and loan options before considering a private student loan.

So, Annie's college is denying their students with an affordable means of obtaining financing for college by not providing federal student aid options for their students. PSLs should only be taken as a LAST RESORT, only after all other options for scholarships, grants, and federal loans are taken.

Interest will start to accrue the moment you take these loans out; there is no "in school" deferment on interest for private loans. So, the amount you borrow today, will grow while you're in school and you'll owe much more after graduation, if you don't start repayment immediately. So many folks have a sticker shock after graduation when they get the bill with all that amortized interest tacked on to these pesky loans.

The good news about PSLs is that outside of bankruptcy, these loans are treated like any other credit card debt. This means that the creditors have a limited amount of time in which they can collect on the debt, also known as a Statute of Limitations (SOL). Each state has its own SOL laws, in California, creditors have Four (4) years to collect on a debt upon a written contract; and Six (6) years, if the contract is a Promissory Note.

Federal Student Loans (FSL)

There are several types of federal student loans, depending upon the type of education, school, and options available based on credit worthiness. The most important part to understand is when does the interest begin to accrue.

Subsidized SLs are the absolute BEST option for your education financing because these loans are (1) interest FREE while you're in school; and (2) repayment does not begin until Six (6) months after you last attended school. Unsubsidized SLs, on the other hand, begin to accrue interest while in school, similar to the private loans.

By now you've probably heard about the various types of repayment programs for SLs. However, payment plans, like graduated, extended, and income based or income contingent repayment plan are only available for federal student loans, not private.

Keep Student Loans Under Control by:

Choose the direction of your life first and determine whether you even need a college degree to achieve your goals. Some of histories great leaders and achievers are college dropouts!

1. Exhaust all other student aid resources such as scholarships, grants, education savings plans (529 savings) first.

2. WORK! Your parents, and myself included, likely worked a job while attending college. My husband took no loans for his education and worked several jobs during the summer months to save for his next year's tuition. Hard work always pays off and you might as well get used to working hard for what you want.

3. If you must take out a student loan, take SUBSIDIZED federal student loans first. Remember that these loans are interest free during school, and take six months after graduation before they become due. Next, take a federal unsubsidized, then private loans. ONLY BORROW WHAT YOU NEED, NOT THE MAXIMUM OFFERED.

4. After graduation, you'll have that six month grace period to consolidate your federal student loans and determine what payment plan you can afford. You cannot turn a private student loan into a federal student loan EVER, and why would you after the distinctions made above? ProTip: You can consolidate these loans on your own and don't need to hire anyone to help. You have a college degree, figure it out. These companies did not exist "back in my day!"

I'm starting to see the younger generation coming into my office for consultations on student loans because they over indulged on credit and enjoyed their college years with nothing to show for it, but unemployment and mountains of debt!

The Law Office of Christine A. Kingston is a Federal Debt Relief Agency. We help people file for bankruptcy under the Bankruptcy Code. Our practice is limited to Chapter 13 and Chapter 7 bankruptcies, student loans and debt settlement.