Managing Education Debt

Awareness is the First Step

Before taking out a private education loan, invest some time to make sure you understand your loan and your total education debt burden. This means you should know the amount you are borrowing, the interest rate and fees, repayment options, deferment and forbearance eligibility, and consolidation options. Calculating the anticipated monthly payment amount for all of your loans is also wise. Check out our Monthly Payment Calculator tool to estimate your monthly payments.

Communication with the Loan Holder Is Vital

It is important to keep track of correspondence from your lender and its designated loan servicer. The lender or its servicer should be contacted if you change your name or address, have billing statement or repayment questions, or need a deferment or forbearance. Keeping in touch with your lender or its servicer is vital to keeping your loan in good standing.

Late Payments

If you fail to make a loan payment when due, a late fee will often be added to the loan. If additional payments become past due, you will be subject to collection action by your lender or its servicer, or by a collection agency. In many cases, you will be required to pay the costs of collecting any past due payments. Delinquency on education loans is reported to national credit bureaus, and can have a significant negative impact on your ability to obtain credit.

Forbearance

If you are unable to make regular principal and interest payments, the lender or its servicer may accept interest-only payments or you may be able to defer all payments for a period of time. If any payments are forborne, the interest is added to the principal (capitalized). If you anticipate a temporary difficulty in your ability to make payments, you should promptly contact your lender or its servicer to find out about forbearance. Forbearance may be granted at the Lender’s discretion.

TERI guaranteed loans may qualify for forbearance for a minimum of 1 month, up to a maximum of 6 months. Forbearance may be extended if you reapply for it, but total forbearance granted may not exceed 12 months during the repayment period.

Forbearance may be granted for the following reasons:

  1. Unemployment
  2. Partial disability
  3. Other documented hardship

What is Default and How it Happens

Default occurs when a borrower does not meet certain requirements set forth in his/her credit agreement. In most instances, default is caused by the borrower’s failure to make a required loan payment for more than 180 days.

Consequences of Default

If your loan is in default, the lender has the right to “accelerate” your loan and declare the entire loan balance immediately due and payable. The lender or TERI may hire a collection agency or a lawyer to collect the loan from you. You may also be required to pay collection fees, attorney’s fees, and court costs. In addition, when your loan is in default the following may happen:

  • You may no longer be eligible for further financial aid, such as grants and student loans
  • You lose your right to deferment and forbearance
  • Your default will be reported to credit reporting agencies and your credit history will be damaged making it more difficult for you to get any other type of credit, such as a credit card, car loan, home mortgage or business loan
  • Your damaged credit may hinder your employment opportunities
  • If the lender pursues legal action, your employer may be required to deduct payments from your wages and pay them directly to the lender

How to Prevent Default

The simplest way to prevent default is to manage your money wisely. You should:

  • Develop and maintain a realistic personal budget
  • Review your current and projected income
  • Minimize your credit card debt
  • Know what your approximate monthly loan payments will be
  • Send in loan payments when due each month, in the full amount, even if you do not receive a bill
  • Communicate with your lenders and/or servicers

Bankruptcy

The bankruptcy laws provide that, unlike other commercial debt, a loan guaranteed by TERI can not be discharged or forgiven in a bankruptcy proceeding unless the borrower proves that repayment of the loan will cause him/her undue hardship.

Death of the Borrower

In the event of the death of a student or co-signer, the estate is responsible for repaying the remaining amount of the loan. If there are two names on the credit agreement, the surviving borrower (i.e., co-applicant, co-borrower, or cosigner) continues to be responsible for the payment of the loan unless the estate pays the balance owed.