When you take out student loans for school, you enter into a contract with the financial institution you’ve chosen to borrow from. However, if you don’t build an understanding of that contract, you are at a disadvantage once it comes time to pay back the loans. You’ll experience roadblocks to devising a repayment plan, as well as difficulty knowing your rights and protections as a student loan borrower. That’s why we’ve compiled some of the most important student loan information to help you understand your options, whether you’ve just taken out loans or have already entered the repayment stage.
Federal vs. Private Student Loans
When it comes to student debt, there are two types of loans: federal and private. Federal student loans are by far the most prevalent, comprising about 92% of all student loans according to the Federal Student Loan Portfolio. Federal borrowers tend to have the most flexibility and can choose from several repayment plans, with the possibility to take income into account. These income-driven plans keep monthly payments affordable based on your yearly income and forgive your remaining debts after a certain number of years (usually 20 to 25).
Federal student loan borrowers are also able to apply for deferment or forbearance of their loans if they are unable to pay for a certain period of time. With federal loans, borrowers who work full time with a qualifying employer may also be eligible for debt forgiveness through the Public Service Loan Forgiveness Program.
Private student loans, however, are less common, making up just under 8% of student loan debt according to a MeasureOne report. Typically less flexible options in their set repayment plans, private student loans often offer limited or no grace before a student has to begin repayment after graduation or forbearance to pause loans when they are struggling financially.
What are Your Student Loan Rights?
As a consumer, you have rights when it comes to interacting with student loan providers and agencies like debt collectors. If there is one thing to always remember in your journey to repaying student loans, it’s that it is illegal for collection agencies to harass borrowers by using threatening or deceptive tactics. If you experience harassment by a particularly insistent debt collector, the National Consumer Law Center reports that “one of the most important protections in the federal fair debt law is your right to send a letter and request that a collection agency stop contacting you. There are no magic words that you must use, but the request must be in writing.”
While this does not remove your obligation to repay your debts or keep the collections agency from pursuing legal action against you, they will not be able to call or keep sending you letters to collect the debts. Just remember to keep a copy of the letter and keep the receipt after mailing it through the postal service.
The Impact of COVID-19 on Student Loans
As of now, the principal and interest payments for federal student loans have been suspended through the end of September. Despite suspended status, any payments made will continue to count toward debt forgiveness. In addition, the Department of Education is not currently collecting on Direct and Federal Family Education Loans in default. Private student loans may or may not be providing such benefits to help borrowers in this difficult time. Contact your lender to learn about your options.