As final exams end and commencement ceremonies begin, grads worry about finding work – and paying loans
This is commencement season at many universities across the country. It’s also when esteemed research foundations give us the latest bad news about student loan debt…
- “The volume of outstanding student loan debt more than tripled between 2004 and 2012,” the Brookings Institution recently reported in a new study called Student Loans Rising. “As of 2013, outstanding student loan balances in the U.S. exceeded $1.2 trillion, more than any other type of household debt with the exception of mortgages.”
- “About four-in-10 U.S. households (37 percent) headed by an adult younger than 40 currently have some student debt — the highest share on record, with the median outstanding student debt load standing at about $13,000,” the Pew Research Center reported this month.
Dismal facts like these explain why new grads will ask themselves the time-honored question, “Where will I find a job?” But their second these days is, “How the hell am I going to pay off my student loans?”
Out of this desperation, grads sometimes grasp for quick fixes that aren’t really quick or even fixes. Turns out there’s only one sure-fire shortcut to getting rid of your federal student loans, so skip ahead to No. 7 if you can’t wait to find out.
Otherwise, here are the answers to student loan questions — some common, some oddball — that Debt.com hears frequently this time of year…
1. If I took out student loans in the United States and then move to another country, do I still have to pay?
YES. “The federal government will continue to pursue you if you flee the country,” says Christian Eminente, sales director at Campus Debt, a national student loan relief agency.
So will private lenders. And if they can’t get you, they’ll go after someone you love. If you have a co-signer on your loan, then they’re responsible for your loan — mom, dad, grandma, grandpa, whoever. And if you move back to this country, the debt is once again yours.
2. Do I still owe my loans if the school I attended closed while I was enrolled?
SOMETIMES. Most federal loans are forgiven in this case, except Federal Perkins Loans, because these loans are provided by the school.
Your loans may not be discharged if you…
- Withdrew more than 90 days before the school closed.
- Are enrolled in a similar program at another school or institution. If you complete a similar program at another school after your loan is discharged, you might have to pay back the amount.
- Completed all the coursework for the program, and did not receive a diploma or certificate.
So keep track of your academic and financial aid records; you’ll need those to substantiate your claim. Your academic records will also become handy if you plan on attending a different institution and will be transferring your credits.
If you need to discharge a student loan after your school closes down, here are two agencies you may need to contact…
- To receive a closed school discharge application, contact your loan servicer.
- For answers to questions about your closed school, call the appropriate person on the list of Closed School Customer Service Contacts.
3. If my spouse dies, do I inherit their student loan debt?
YES – if you live in Arizona, California, Louisiana, Idaho, Nevada, New Mexico, Texas, Washington or Wisconsin.
In those states, all property accumulated during marriage becomes joint property. You automatically inherit the loan once your spouse dies, with the exception of Sallie Mae Smart Option Loan, the New York HESC NYHELPs loan and Wells Fargo Private Student Loan, since they offer death and disability forgiveness.
If you co-signed the loan, whether federal or private, you inherit it — no matter where you live.
Here’s what determines your eligibility to discharge your co-signer:
- A certain number of consecutive and timely payments
- A credit check that shows you’re able to repay the loan on your own
Co-signers can also take action and request to be removed from the loan. Here are two sample letters from the CFPB for both the borrower and co-signer to get the process started:
- Borrowers, use this sample letter when applying to have your co-signers released from your loans.
- Co-signers, use this sample letter when requesting to be taken off the borrower’s loan.
4. If I declare bankruptcy, are my student loans wiped out?
YES. But it’s not easy.
Last year, the Huffington Post reported only 4 out 0f 10 applicants who declared bankruptcy to get rid of their loans were successful.
Just because you file for Chapter 7 or 13 bankruptcy doesn’t mean your student loans will automatically be forgiven. Your bankruptcy attorney must file a separate lawsuit in bankruptcy court called an adversary proceeding — a separate lawsuit filed within the bankruptcy case, to prove that repaying your student loans would be an “undue hardship.” And that’s hard to prove.
The Department of Education says, “Your loan will not be discharged if you are unable to satisfy any one of the three requirements.” In other words, you got to prove all three of these…
- Poverty: If you’re forced to repay your loans, you won’t be able to maintain “a minimal standard of living.”
- Persistence: You can’t pay back your loans “for a significant portion of the loan repayment period.”
- Good faith efforts: You’ve really tried to repay the loan for at least five years before filing for bankruptcy.
5. If I’m jailed, do I still owe my student loan debt?
Before you get locked up, be sure to put plans in place so that your loans get paid. Because when (if?) you get out, maybe your friends and lovers didn’t wait for you, but your student loans did.
6. Can I get arrested for refusing to pay my student loans?
NO, but you can get sued.
If you default on your federal student loans, Uncle Sam will seize a portion of your paycheck, your income tax return, and your Social Security check if you’re receiving Social Security insurance. Your credit score will also plummet.
As for private student loans, lenders might try to collect from you themselves or indirectly through a collection agency. They can also sue you. And if you have a co-signer, their lives will become a hassle, too.
7. If I die, do my student loan debts die with me?
YES, but only federal loans. See Question 10 for the list.
If you took out one of those, your loans die with you. And if your parent took out a Parent PLUS Loan to help pay for your education, the loan also dies if you or the parent dies. A PLUS loan is made by the Department of Education to parents with kids in college (undergraduate, graduate or professional students) who are dependent on them. However, if both parents co-signed and one dies, the surviving parent is still responsible for paying.
According to the Department of Education, all the school or loan servicer needs to discharge your federal loans is proof of death — usually a certified copy of the death certificate. For Perkins Loans, give a copy of the death certificate to the school. For a Direct Loan or FFEL Program loan, the death certificate must be sent to your loan servicer.
Private loans, on the other hand, are different even in death.
Unlike public loans, private lenders aren’t mandated to discharge a loan after the borrower dies — and many of them don’t. And because students usually need a co-signer to take out private loans, co-signers might still be required to pay the loan off if the primary borrower dies. Check with your lender to find out if they have any protections in place to discharge a loan when the borrower dies.
8. What happens if my co-signer dies? Or goes bankrupt?
For private student loans, you’re screwed. For federal loans, co-signers aren’t an issue.
Michael Estabrook of Campus Debt says: “This is true with private loans but is not the case with Federal loans. If the client was to pass away, their debt would not be handed down to the family. So in the case of the co-signer being deceased, then it would just result in the debt still being owed by the client.”
The Consumer Financial Protection Bureau (CFPB) has spotted a disturbing new trend: Private student loan lenders are placing borrowers in default when their co-signer dies or files for bankruptcy. If your co-signer files for bankruptcy or dies, you’re stuck paying your entire loan all at once — even if you’ve been responsible.
If you refuse to pay and go into default, or your credit gets ruined, they too will suffer the consequences.
So should you stop paying off your loans when you can’t afford to anymore? Not before asking your lender for an extension.
If you or your co-signer can’t afford to pay back the loan, buy time – ask your lenders for forbearance, a fancy word for having your repayment temporarily suspended. Then, if your co-signer is struggling, take them off the loan.
9. If I get married in college, is my student loan debt split up in a divorce?
YES, but it’s complicated.
If you make more than your spouse after you earn your degree, you could get saddled with their debt. Here are the scenarios…
- If you live together: If the loans were used for living expenses, it’s considered marital debt and a court may order the debt split.
- If you live in a marital/community property state: You and your spouse both own the debt. In a divorce, assets (including debt) are split. After earning your degree, the marital property laws in your state will determine whether it’s marital property or not.
- If you sign a prenup: You can dictate who the loans belong to before saying I do and save a whole lot of time in the event of a breakup.
- If you get married before you take out a loan: After getting married and before taking out student loans, you might consider a “postnup” detailing how these debts will be paid if your marriage crumbles.
- If you make more money than your spouse: If the degree you earned also earned you a higher paycheck, you may be ordered by the court to pay your spouse’s debt.
So keep records of everything you or your spouse used your student loans for.
10. If I become disabled and unable to work, does my loan go away?
YES, but the process isn’t automatic. You have to prove to the U.S. Department of Education that you’ll never be able to work again, which qualifies you for a Total and Permanent Disability (TPD) discharge for the following federal loans…
- Direct loan: These are federal loans that eligible students and their parents borrow directly from the Department of Education. They include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct Consolidation Loans.
- Federal Family Education Loan (FFEL) Program Loan: These are guaranteed by the federal government for students and their parents but were provided or paid out by private lenders. These include: Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.
- Federal Perkins Loan (Perkins Loan) Program Loan: This is one made by your school and is awarded to undergraduate and graduate students who are struggling financially.
- Teacher Education Assistance for College and Higher Education (TEACH) Grant: This is an annual $4,000 grant provided to students who agree to teach for four years at an elementary school, secondary school, or educational service agency that serves students from low income families.
Here are the three ways you can claim disability…
- Veteran: If you’re a veteran who was injured in the line of duty, the VA can deem you unemployable.
- On Social Security: If you’re receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can claim disability, but you must state that your next disability review will be within 5 to 7 years.
- Medically diagnosed: If you have been diagnosed physically or mentally impaired by your doctor or physician, you must get a note or certification from your physician citing that you’re unable to work.
Your physician must complete Section 4 of your student loan debt discharge application and state…
- Your disability can be expected to result in death.
- Your disability lasted more than 60 months or expected to last for more than 60 months.
Then, mail your application with supporting documents to…
U.S. Department of Education
P.O. Box 87130
Lincoln, NE 68501-7130
Read more about student loans…