Student loans are a complex issue. You’ve got loan forgiveness, deferment, forbearance, settlements, different repayment plans, and even the pandemic-related student debt relief.
On Reddit, people ask their peers all sorts of questions about student loans. But most Reddit users aren’t experts. They’re well-meaning, but they’re not lawyers.
Enter me: Stanley Tate, student loan attorney, here to answer the most common questions I’ve seen on the r/StudentLoans subreddit.
How do student loans work?
This is one of the most common questions on Reddit for student loans.
Let’s talk about how borrowing money for college works in the first place:
First, fill out the FAFSA.
Then, college(s) will send you Financial Aid Award letters, listing all the federal student loans you qualify for.
Accept or decline a school’s student aid offering.
If you need more money after outside scholarships, consider private student loans or PLUS loans taken out by your parents.
6 months after you graduate or leave school, that’s when your first student loan payment is due.
Getting student loans is a surprisingly complicated process with infinite branching pathways. No wonder people turn to Reddit to ask fellow student loan borrowers for advice.
What is the interest rate on student loans?
The average interest rate for federal student loans is around 4.2%. The range of interest rates on most federal student loans is 3.75%-5.30%. The rate for Parent PLUS Loans is a bit higher at 6.28%.
Interest rates for private student loans might range from 1% to 13%, depending on your credit history and other factors.
Most loans allow you to choose between fixed interest and variable interest rates. Fixed interest rates are more predictable, but variable interest rates might be lower overall. It’s a little bit of a gamble.
How much does the average American owe in student loan debt?
Deferment — To put off student loan due dates, you can request an economic hardship deferment. You may even get 0% interest accrual during deferment.
Forbearance — Forbearance is similar to deferment in that it stops collections for a time. The main difference between deferment and forbearance is that some periods of deferment stop interest from accruing, while periods of forbearance do not stop interest accrual.
Settlement — If your loan is in default, you may be able to negotiate a lump-sum settlement to pay off your student loan debt altogether. It’s almost impossible to settle a federal loan. You’re more likely to settle a private student loan, especially if it’s gone to collections. You might expect to settle for 40%-70% of the remaining loan balance. (Hire a student loan attorney to help you get the best deal.)
Consolidation — You can consolidate federal student loans into one loan for a single monthly payment. Consolidation pulls your student loans out of default, but it will not remove the default from your credit history. You won’t get a lower interest rate. You cannot “consolidate” private loans (but you can refinance them).
Refinancing — A refinance loan is a popular option for debt relief. Refinancing means you’re combining multiple debts into a single private loan. I recommend refinancing private student loans for a better interest rate. However, I would not recommend refinancing federal student loans because you lose access to loan forgiveness programs and income-driven repayment plans. Beware, to get the full advantage out of a refinance loan, don’t miss payments and fall into the same trap as before.
When you’re 270 days late on a student loan payment, that loan goes into default. Defaulting on your student loans will likely lower your credit score by a lot. If this is your first time, you can enroll in student loan rehab to pull your student loan out of default.
Remember, because of the COVID pandemic, payments on federal student loans have been paused through Sept. 1, 2022.
Is Biden going to cancel all student loan debt?
President Joe Biden has made a lot of moves to expand student loan forgiveness, particularly for borrowers who are disabled or were preyed upon by for-profit schools. Ultimately, it’s unlikely that any president could wipe out all (or most) student loan debt.
Nevertheless, Senator Elizabeth Warren and other activists continue to push for complete student loan forgiveness. For now, Warren and her allies would be happy with $50,000 in student loan forgiveness for each student.
For a while, Biden entertained the possibility of wiping out $10,000 of student debt per borrower with an executive order. Now, Biden claims he would be happy to sign a student loan forgiveness bill passed by Congress. He’s also “still reviewing” his legal authority to cancel student debt.
Speaker of the House Nancy Pelosi has admitted voters may not want to foot the bill if they or their children chose not to further their education and rack up student debt. She wants forgiveness to be viewed in a “fair” way.
Braxton Brewington, press secretary for the Debt Collective, speculated that Biden might be waiting to forgive student debt till right before the midterm elections in 2022 to help Democrats win more seats. (Thanks, u/Do_I_Use_Reddit, for bringing this to the subreddit’s attention.)
Lots of people wonder if they should wait for loan forgiveness — possibly by requesting deferment when the COVID payment pause ends in May 2022, even though interest will continue to accrue. At the end of the day, it’s a gamble.
What is Public Service Loan Forgiveness?
Public Service Loan Forgiveness (PSLF) is a federal loan forgiveness program that forgives student debt for qualified non-profit and public service workers who already made 10 years of on-time payments under income-driven repayment plans, such as PAYE or IBR.
Before 2021, a lot of applicants were denied loan forgiveness due to miscommunications or even loan servicers misleading borrowers.
With 2019’s TEPSLF (Temporary Extended Public Service Loan Forgiveness) and 2021’s Limited Opportunity Waiver, the federal government is trying to rectify the mess made by PSLF.
Notably, the new waiver means many payments made under the wrong repayment plan are now eligible towards PSLF!
A cosigner should have good credit. A debt-free cosigner is probably the best choice for any undergrad.
You have to make on-time payments after your grace period, or both you and your cosigner’s credit will be negatively impacted. (Your 6-month grace period begins after you graduate or drop from full-time enrollment. Sometimes, you can go part-time for a single semester.)
If you want to release a cosigner, you may have to refinance your student loans. A few lenders do offer a cosigner release, but not many.
Should I pay someone to help me with my student loans?
Most of the time, you should not have to pay someone to help with student loans. There are scammy businesses who promise to lower your monthly payment or request deferment on your behalf, only to take your money and run.
You can technically do those things for free by yourself.
On the other hand, you may choose to go to an attorney for guidance on your student loan questions. A lot of what I do are things that people don’t need a lawyer for, but do want a trusted advisor that’s obligated to put their client’s interest before their own.
While my clients can do these things on their own, I often help people review their IDR applications, request economic hardship deferments, and apply for Public Service Loan Forgiveness.
Sometimes, it’s worth paying an expert for the peace of mind that something was done right the first time.
If you’re trying to discharge student debt during bankruptcy or need support negotiating a settlement for your loans, it’s worth hiring an actual student loan lawyer.
Schedule a call with me and see how I can help you. I choose to offer this free call to start our relationship because I am not the right fit for many people; many borrowers don’t need a student loan attorney. But plenty of people do need my legal expertise.
You can identify a student loan scam if they call you out of the blue and do not represent your loan servicer.
You should always be able to work with your loan service provider to try and get student debt relief, deferment, cancellation, forbearance, or forgiveness. Asking for help from a third party, like an attorney, is always an optional choice that you never have to make.
As u/horsebycommittee puts it so eloquently, “You should never have to pay for help with your student loans. Nobody on the planet can get you a better deal, or access to a benefit or program, that you can’t get yourself, for free, by working directly through your loan servicer.”
Should I get federal or private student loans?
Most people should get federal student loans before private student loans.
Benefits of federal student loans:
Access to income-driven repayment plans
Typically lower interest rates than private loans
Access to certain loan forgiveness programs
Potential for federal student loan cancellation by an act of Congress or executive order
Benefits of private student loans:
Higher maximum to borrow from compared to federal student loans
Much lower risk of wage garnishment or tax refund offset if you fail to pay
Higher chance of lump sum settlement (only if you default)
Might be used for expenses not directly related to education, such as rent, while in school
How much is the average student loan debt for a college graduate in the United States? A US college graduate’s average student loan debt is about $37,000 in federal loans or $55,000 in private loans.
When do student loan payments resume after COVID deferment?
Student loan payments resume after May 1, 2022. While interest begins to accrue right away, borrowers likely won’t have to make their first student loan payment until June, or maybe even July.
This is why you saw people talk about January 31, 2022 as the end to the COVID payment pause, and some people talk about the first payment due in March 2022. (Before the government extended the pause once more.)
What is the payoff date for a student loan?
The payoff date for your student loan is the date (or month) you completely pay off your student debt, based on your current repayment plan.
However, if you have a lousy debt-to-income (DTI) ratio, you are less likely to qualify for a mortgage loan. This means mortgage lenders don’t like you having a lot of debt compared to your income. Self-employed borrowers have particular difficulty achieving a good DTI.
If you have missed student loan payments, this can negatively impact your credit score. To attain a mortgage, you need a pretty good credit score.
Check out my step-by-step guide of everything you should know about clearing CAIVRS (Credit Alert Verification Reporting System) with a defaulted federal student loan. A CAIVRS determines whether you have any federal debt currently in default — a significant obstacle to mortgage approval.
This is important to keep in mind during loan repayment. If you also have credit card debt, a car loan, or other debt, these all combine to determine your DTI.
Not all Reddit advice is good.
The r/StudentLoans subreddit is a great place for borrowers to share their personal experiences.
However, few Reddit users are legal experts. There’s definitely a place for Reddit, but it shouldn’t be your only source of information and advice.
I’m a student loan attorney with years of experience helping people like you navigate student debt, loan forgiveness, and settlements. Schedule a call with me to see what I can do for you.