The Student Loan Payment Option Recommended by Your College Can Further Increase Your Debt
According to a CNBC report , student loan repayment options promoted by colleges could double or even triple the amount owed by borrowers.
According to the Government Audit Office , $ 149 billion of the nearly $ 1.4 trillion in federal student loan debt outstanding as of September 2017 turned out to be outstanding. access to financial assistance programs. And it forces the school-hired counselors to urge students to be patient, not defaulting, the GAO said. In fact, nearly 70 percent of those who paid off student loans in 2013 have been on deferral for some period of time, according to CNBC.
“Abstinence is bad because interest continues to accumulate and will capitalize, burying the borrower in a deeper hole,” student loan expert Mark Kantrowitz told CNBC .
But since students do not know what they have, they trust their schools to accommodate their interests. This means that percentages continue to rise – for the benefit of the school. “Borrowers with long-term defaults are more likely to default in the fourth year of repayment, when schools are not liable for default, which implies deferral rather than prevention of default,” the GAO said.
The cost of rehabilitation also inflates the price that borrowers pay. Rehabilitation occurs when borrowers try to get out of default. Basically, you enter into a new loan agreement that adds a collection cost to the new loan balance , which can be up to 16 percent of the outstanding principal and accrued interest. This results in an unexpectedly high balance for many, and the Consumer Financial Protection Bureau reports that more than 40 percent of people who rebuild their loans become insolvent again.
Whenever possible, the best option for students is to enroll in an income-based repayment plan. There are four different types that we will discuss here . (Note: This is not the same as the Public Service Loan Forgiveness program, although you must be enrolled in an income-based plan to qualify for PSLF.) With these plans, you may not receive the lowest possible monthly payment, but remainder the loan is forgiven at the end of the repayment period, which is 20-25 years.
Most importantly, make sure you know what options you have and what your payments will result in.