As tuition fees continue to rise throughout the country, more students are taking out loans to pay for school. Scholarships, grants, and work options may not be sufficient to cover their full education expenses. In this case, student loans can be additional sources of financial assistance.
Student loans are devised to help students pay for education fees, such as tuition, books, school supplies, and living expenses. There are various types of student loans being offered by both the government and private sectors. If you avail of a student loan before, it is advisable to consult a reliable Louisville bankruptcy attorney to know how it can affect your bankruptcy filing.
The federal government offers student loans in the form of Federal Direct Loans and Federal Family Education Loans (FFELs) or also known as “indirect loans”. Furthermore, private entities such as banks, credit unions, or private lenders also offer private student loans. This type of loan is similar to other loans offered by banks such as an auto loan or housing loan.
Federal direct loans are provided by the United States Department of Education. It is categorized into four types: direct subsidized, direct unsubsidized, Direct PLUS, and direct consolidation loans. A qualified Louisville bankruptcy lawyer can help explain to you what type you availed of and what you should do given the type.
A direct subsidized loan is intended for students who require financial assistance. The interest of this loan plan will be paid by the government during the period when you are enrolled at school for at least half-time, during a deferment period of a loan payment, and during the grace period.
On the other hand, direct unsubsidized student loans are offered to all graduate and undergraduate students, irrespective of financial need. With this loan type, you are responsible for the payment of the loan interest during the whole period.
Direct PLUS student loans are offered to professional or graduate students currently enrolled for at least half-time at the school taking a course or program that leads to obtaining a certificate or degree. It is also intended for the parents of dependent undergraduate students enrolled for at least half-time at a qualified school. Unlike other student loans, students are required to undergo a credit check upon application.
In the past, the government has guaranteed indirect loans or Federal Family Education Loan (FFEL). On January 1, 2010, the federal government submitted legislation to end this type of loan. After it was approved, the FFEL loans have officially ended on June 30, 2010, and all loans made after this date are considered as a part of the direct loan program.
Another type of loan that was previously available was the Federal Perkins Loan. It was intended for graduate and undergraduate students who are really in need of financial aid. This loan officially ended on September 30, 2017, and the final payouts were given until June 30, 2018.
A federal student loan offered by the government has a flexible and generous student loan repayment plan that can help reduce your monthly payments. Students are entitled to forbearance, deferment, and several cancellation options. If you decide to pay your student loan debt early, you will not be charged a prepayment penalty fee. From 2006, all the federal loans granted to students have fixed interest rates. You can consolidate multiple loans into one, through the federal direct loan consolidation. Unlike private loans, federal student loans do not require an applicant or a co-signer with an impressive credit history. These are the reasons why student loan borrowers prefer to apply for federal loans over private loans.
In the event of defaulting your loan, the government has several ways to take the borrowed money from you compared to private lenders. They tend to garnish wages even without a court order. This loan does not have any statute of limitations.
Students consider the benefits of a federal loan first. In case it will not be enough to cover their education expenses, only then they will apply for a private loan for additional student aid to pay for college. Statute of limitations (ranging from 3 to 10 years) applies when you default on a private student loan. If it expires, the lender or the collector will have several methods of taking money from you to repay the full loan amount.
Private student loans typically have high interest rates, non-flexible repayment options, and unavailability of options for forbearance, deferment, or cancellation. Borrowers of this loan often experience difficulties in making student loan payments, such as dealing with a loan servicer that is repeatedly losing payments, misapplying the funds when loans are being paid quickly, engaging in certain practices that undermine a borrower’s ability to pay back their loans, and failing to inform customers when their accounts were assigned to new loan servicers.
If you applied for a student loan and are filing bankruptcy, it is important to know how the different types of loans being offered by the government and private institutions will affect your filing. You need to understand how loan repayment terms will influence the way you manage your finances and the monthly payment in your would-be payment plan. For legal help in declaring bankruptcy given your student loan, contact our experienced Louisville bankruptcy attorneys at Farmer & Wright, PLLC. Our lawyers will guide you in choosing the best option.