Depending on the type of loan; You may have the ability to defer your payments should you hit hard times.
For many families, particularly those facing layoffs and 401 (k) losses, the prospect of paying for college or university education is daunting. However, for families with teenagers dreaming of dorms and chemistry labs, tuition is an expense that likely can't be postponed until the economy turns around. If your family is in a tough spot, certain programs and loans may be able to help. However, it is important to understand that even student loans have limits and potential pitfalls.
Before even thinking about turning to student loans, your family may first want to look for "free" tuition money; this means looking for ways to cut down on the tuition bill and finding aid that you will not have to repay. The best place to start is actually with the prospective school itself. Call the school's financial aid office, explain your financial situation, and ask to see if the school is willing to reduce your child's tuition. In response to tightening family budgets, some schools have set aside funds to assist newly cash-strapped families. For example, Michigan State University created an Adverse Economic Circumstances Fund to help "students whose families have encountered serious financial setbacks."
Other options for "free" money involve scholarships or grants. Scholarships and grants may be available through ,m organization that your family is associated with: employers or other local companies, as well as religious or professional groups. Scholarships and grants are frequently based on merit; however, "merit" can be gauged by any number of factors, including academic performance, or athletic achievement, just to name a few examples. Other awards may be based on economic need, religious affiliation, heritage, minority status, or community affiliation.
Your next possible funding source is likely federal financial-aid programs. There are a variety of federal student loan programs, each with their own set of requirements, limits, and guidelines. Generally the federal government sets the upper limits for the interest rates and fees that can be charged. The differences and similarities among these loans are complex but are carefully explained on the Web sites for the Federal Student Aid program (www.studentaid.ed.gov) and SallieMae (www.salliemae.com), and are also discussed by leading banking and lending institutions such as Chase (www.chase.com).
There are also private loans available through financial lending institutions. Because these options are often more expensive than federal programs and have more rigid repayment requirements, they should be your last option for financing higher education. Interest rates, limits, and repayments vary depending on the type of loan, the individual student's circumstances, and whether there is a co-signer.
If your family must turn to private loans, the student may want to consider finding a co-signer. A co-signer is an individual who is willing to accept liability for the debts and financial obligations of a second person. For example, Mom and Dad can cosign for their son Sam's college loan. If Sam fails to pay back his loan, the lender could come after his parents for the unpaid balance. So why would someone co-sign for another person? Cosigning a student loan can help the student get a lower interest rate on the loan. Co-signers are useful for younger students who don't have extensive credit histories - or who do, but ones that aren't very good. However, if you are thinking about co-signing a student loan, you must make sure the student understands that he or she is taking on an important responsibility. The student must be firmly committed to making all payments when due; not only is the student's credit history on the line, but so is yours.
Another note of caution (this applies particularly to private loans, but also generally to federal loans): make sure the lending institution you deal with is one you know and trust. Although interest rates offered from online lenders can be lower than those offered by brick-and-mortar institutions, you should ensure that you are borrowing from one that is reputable and not some fly-by-the-night scheme. More often than not, if something seems too good to be true, it is.
Once you have your loan, be aware that you have certain rights and responsibilities. You have the right to get a copy of your repayment schedule and detailed information about the rates and fees you are being charged, as well as your balance. You also have the right to make prepayments (meaning you can pay more than what is due or before a due date) without penalty and to receive notification when you have fully paid off the loan. And, depending on the type of loan, you may have the ability to defer your payments should you hit hard times (deferments are discussed below).
On the flip side, you must live up to certain expectations. First, you must make every payment when due - even if you never graduated. You must also keep the lender up-to-date on any changes in your life, such as a change of residence or employer. Lastly if you do need a deferment, you must make the proper requests as required by the lender.
What to Do If You Can't Pay
If you have recently lost a job or had to take a pay cut and still owe on student loans, you
can't simply stop making payments. However, all is not lost. You should immediately look into deferment or loan forgiveness programs. Deferment programs allow you to postpone your repayment responsibilities for a certain period of time. The specific eligibility requirements and length of time for your deferment will vary depending on the type of loan and the lender. You must "qualify" for deferment. Qualifications can be based on a variety of circumstances, including economic hardship, national service, unemployment. taking on an internship, enrollment in school, and current military deployment. Loan forgiveness programs are different; they allow you to be forgiven for a portion of the loan, meaning you will no longer be responsible for it. In most common types of loan forgiveness programs, an individual with student loans goes to work in an industry that pays lower than average salaries. An organization or agency (sometimes the employer, other times a school or nonprofit organization) then pays off a portion of the employee's loan in exchange for his or her work. These programs are common among public interest agencies, volunteer groups, and the military.
If You Miss Payments: Handling Bill Collectors
If you are behind on student loan payments and are contacted by a debt collector, you should know that federal and state laws limit what the collector can say to you and when and how they can contact you. Under the Federal Fair Debt Collection Practices Act (FDCPA), a debt collector is someone, other than a creditor or its employees, who regularly collects consumer debts on behalf of creditors. This federal law does not cover creditors per se (unless the creditor uses a false name in attempting to collect the debt), although your state laws may govern them.
Debt collectors may contact you by mail, in person, or by telephone or telegram but cannot legally contact you at times they know are inconvenient for you (this doesn't apply if you agree to allow debt collectors to contact you during off-hours or a court specifically grants permission). Unless debt collectors have information to the contrary; they must assume that times before 8:00 A.M. and after 9:00 PM. are not convenient. Also, debt collectors are not permitted to contact you at work if they know or have reason to know that your employer forbids employees from being contacted by collectors at the workplace. You can tell the debt collector what times and places are inconvenient for vou. Debt collectors are also forbidden from contacting you if they know that a lawyer represents you in connection with the debt.
Assuming that debt collectors are contacting you during a permitted time ,md through a permitted way, there are still limits on what they can say. A debt collector may not harass, oppress, or abuse any person. For example, a debt collector may not use threats of violence to harm you, your property, or reputation; use obscene or profane language; repeatedly use the telephone to annoy you; or publish a "shame list" (though the debt collector can still report you to a credit bureau).
There are several steps you can take if you think a debt collector is breaking the law. Government agencies such as your state consumer protection office or the Federal Trade Commission can likely help you. Of course, you can always talk to your attorney about any unfair debt collection activities and work with your attorney to determine whether your best bet is to take legal action.
What to Do If You Have Problems
If your family is having problems with a lender of student loans (rather than a debt collector), know that you have rights. A good resource will likely be the Federal Student Aid Ombudsman (www.ombudsman.ed.gov). However, even the Ombudsman's Web site says that the most useful first step is often to try to resolve things yourself, so consider calling the loan servicer directly and expressing your concerns. Before calling, make sure you have all the necessary statements and account numbers. Write down any information you are given, induding names and phone numbers. The Ombudsman's Web site has links to online tips on how to work with the Ombudsman's office and how to avoid problems altogether.
As indicated above, there are many ways to find funding and help to cover tuition fees if you and your family ,are willing to take the initiative. Tough financial times don't necessarily mean your family has to sacrifice education opportunities, but they do mean that you must make sure that you understand any debt you take on.