The Checkout

Student Loan Aid May Be on the Way

Winter break is drawing to a close at many colleges and universities and there's movement afoot to lower the cost of higher education.

For the 200,000 people the U.S. Department of Education estimates put off or give up on going to college because they can't afford it, the newly installed Democratic majority in the House may work to cut the interest rate on need-based student loans and expanding Pell Grants and tax credits, according to Gannett News Service's Maureen Groppe. Whether any of those proposal will survive in the Senate or a presidential veto remains to be seen.

For those who went to school and are still paying for it, the Department of Ed is considering limiting the fees universities charge ex-students who default on their loans.

According to the Boston Globe, universities typically charge collection fees of between 33 and 50 percent (and as high as 66 percent, according to U.S. PIRG) of the unpaid tuition or loan. In other words, collection fees can add $6,600 to a $10,000 student loan, sticking the borrower with $16,600 in debt.

Such fees are far greater than those added onto many other types of debt, including the plastic variety. The schools, which set the collection fees, say they need the money to cover their costs and to fund loans to other students.

(Frankly, I'd like to see a breakdown of the collection costs for student loans versus other kinds of debt, especially given that declaring bankruptcy often doesn't release you from student loan debt. You would think that universities have a better shot at recouping costs than Bank of America or a hospital does and thus have collection costs that weren't so far out of line. If anyone out there cares to enlighten me, please do.)

The Department of Ed is considering a cap closer to the 16 percent average it charges on government-administered student loans. The cap would apply to the Perkins loan program which distributes $1 billion a year or more to low-income students. Under the program, borrowers who fall behind on their payments can be charged "reasonable" collection costs, but reasonable is in the eye of the school that sets the fee.

The proposal is expected out by May 1, followed by a public comment period. The cap could be in place by Nov. 1, the Globe reported. The cap would apply only to Perkins loans, but schools usually follow the Perkins guidelines for other loans they administer.

Have you been hit with high student loan collection fees?

By Annys Shin |  January 8, 2007; 9:30 AM ET Credit Issues
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Comments

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I haven't been hit with high collection fees, but I have been billed twice for the same month.
My student loan carrier switched their billing cycle without telling me (the person who pays the bills) and I was sent two bills for September. Being a naive recent college grad I paid both of them (luckly I had some extra income to do this) and then I was confused when I didn't get a bill in October. After one phone call I was able to figure out what had happend and I haven't had a problem since, but that was slightly annoying. As is the calls I get from other student loan companies telling me to consoladate my loans (which I have already done!) and switch companies. Can you even switch you student loan carrier after you've graduated?

Posted by: Melissa | January 8, 2007 10:26 AM

"Can you even switch you student loan carrier after you've graduated?"

I don't know, but mine got sold so many times I lost track! And all the companies are on my credit report!

Posted by: Columbia, MD | January 8, 2007 10:47 AM

I'm a little confused... is this only in reference to schools that loan money to student? I wasn't aware that universities and colleges had any role in the loan process besides verifying that you're a student and then happily receiving that big fat check from the loan agency. I know that the schools that I have attended did not do this. I have loans through AES, Citibank and Access Group. Why would the schools be involved with that?

Posted by: Grad in debt | January 8, 2007 10:55 AM

Student loans, more than any other debt I have, are killing me financially, because they are non-negotiable. But they aren't through the school at all. If I skip a month (or in many cases, the payment doesn't go through because the company is so mismanaged) they call my parents first! My parents are co-signers and I am the borrower. But I bet they know it's better to go to the parent!

Posted by: mfd | January 8, 2007 10:59 AM

Despite the fact that the balance left on my loans is small and the interest low- I am contemplating paying them off before my remaining higher interest card debt from marriage just so I have a headache or two less to deal with.

Posted by: Chris | January 8, 2007 11:34 AM

Chris: no, no, no. Pay off your credit card debt first--then keep it off. Set up an automatic payment for your student loans, after consolidating if you haven't already. That should lessen the headache considerably.

Posted by: Erin | January 8, 2007 12:15 PM

Here is my unsolicited advice: If your funds are limited and the choice is either paying the student loan or the credit, the student loan should get priority. That is because, unlike MBNA America and other credit card companies, student loan companies have free reign to terrorize deliquent borrowers. They can prevent them from ever having government employment, revoke professoinal licenses/certifications, capture IRS income tax refunds, raid SSI checks, garnish wages, and take on large collection fees. This is one creditor that you do not want to have bad terms on.

Posted by: NW DC | January 8, 2007 1:19 PM

Right now the single most important and empowering thing you have at your disposal is the right to consolidate. You can lower payment, and total interest paid with consolidation. The key is getting a quality benefits package as alot of incentive is rate drops offered during consolidation.

Posted by: Nick | January 8, 2007 1:43 PM

NW DC's comments are true. However depending on who you got the loan with or who holds it, they will work with you. Many banks and credit unions try to work with the loan holder more often than not. If you are constantly late with payments or missing payments, the banks can go after you the way any creditor would.

Sounds fair to me.

The problem is that they can follow you for a very long time and affect you ability to get credit for a house later on.

The rule of thumb is pay on time. If you are going to be late, let the bank know why and when you intend to pay. If you are constantly late and don't have good reasons, expect the bank to come after you and your credit.

Posted by: UFO (Unidentified Flying Opinion | January 8, 2007 1:48 PM

To Melissa,

Yes you can switch your student loan carrier after you've graduated. I waited until 5 years after I graduated (when interest rates were at their record lows but close to what they are now) to consolidate and move my loans. It dropped my payment in half, but extended through another 10 years (total of 15 years). I continued to pay at the same amount as before the consolidation (since I could afford to) and ended up paying off early and less than I thought I would. Just make sure to check out the company that you switch to, to make sure they are legit.

Posted by: Tina | January 8, 2007 1:52 PM

My father-in-law's girlfriend received a notice for me that I hadn't been paying one of my loans for several months. I have no idea how they thought that I lived at that address, and they wouldn't tell me what address they had tried to reach me at. I have left a forwarding address everytime I have moved, and the University that I graduated from had my correct address. Despite the fact that I had never received a bill from this company that I had never heard of (the university had sold a certain type of loan that I had to a private company), it has marked up my good credit and I had to pay twice the sum of my bill to straighten it out with them. They refused to take it off my credit report for 12 months.

Posted by: CEB | January 8, 2007 1:54 PM

To Melissa,

Yes you can switch your student loan carrier after you've graduated. I waited until 5 years after I graduated (when interest rates were at their record lows but close to what they are now) to consolidate and move my loans. It dropped my payment in half, but extended through another 10 years (total of 15 years). I continued to pay at the same amount as before the consolidation (since I could afford to) and ended up paying off early and less than I thought I would. Just make sure to check out the company that you switch to, to make sure they are legit.

Posted by: Tina | January 8, 2007 2:03 PM

To answer Grad in debt: The schools act as a lender when a student gets a need-based Perkins Loan. Most people are familiar with Stafford Loans, which are not need-based and are loans from private lenders.

Posted by: TYD | January 8, 2007 2:08 PM

I want to consolidate my non-federal/private student loans (federal are already consolidated). I was half-way through the application when I learned it would lower my payments by $15/month and extended the repayment by 10 years. It made absolutely no sense! I hate the private student loan people. They use the benefits of being a student loan lender and a private loan lender to really screw the student.

Posted by: mfd | January 8, 2007 2:11 PM

After 4 years of paying double and sometimes triple payments, I finally paid my student loans off in full last year! That is the only way to avoid paying exorbitant interest; of course consolidation is a MUST after graduating. The problem with the *system* is not the interest on the loans..it's how much the tuition is nowadays!! If the democrats want to make a difference, they should talk about how to stop the rampant inflation of college tuition!

Posted by: paidinfull | January 8, 2007 2:39 PM

To Tina:
Thanks for the advice! I didn't even know you could switch companies! Right now I am happy with my loan company and my payment etc., but I will keep your information in mind for the future. I consolidated in 2004-2005 shortly after I graduated to lock in low interest rates too and I try to pay a little bit extra each month just to get them over with faster. So far, so good (keep your fingers crossed.)

Posted by: Melissa | January 8, 2007 3:56 PM

You bet. I have, and the likelihood of ever paying it off is pretty slim. I have 60k in loans, College and Grad School, and I am no doctor. I pay $800 month, which is a huge amount for my 60K salary (which is parenthetically higher than the median salary in Atlanta, so I'm not slacking). I have NO IDEA who owns my loans now, only that I have been hit with a brutal amount of fees when I got behind in my loans.

Here's the rub. I thought I was borrowing from the Federal Goverment (Stafford Loan right?). Not so, as I am told now. Loans sold, collection people (see:thugs) threatening me - its a disaster.

I have to say, if a kid came to me and said, "I can only go to college if I get loans", I'd be hard pressed to tell him to go. I'd probably say, "Go to some local state school and work. Get a general business degree and take as long as you need."

Posted by: Frustrated | January 8, 2007 4:01 PM

You bet. I have, and the likelihood of ever paying it off is pretty slim. I have 60k in loans, College and Grad School, and I am no doctor. I pay $800 month, which is a huge amount for my 60K salary (which is parenthetically higher than the median salary in Atlanta, so I'm not slacking). I have NO IDEA who owns my loans now, only that I have been hit with a brutal amount of fees when I got behind in my loans.

Here's the rub. I thought I was borrowing from the Federal Goverment (Stafford Loan right?). Not so, as I am told now. Loans sold, collection people (see:thugs) threatening me - its a disaster.

I have to say, if a kid came to me and said, "I can only go to college if I get loans", I'd be hard pressed to tell him to go. I'd probably say, "Go to some local state school and work. Get a general business degree and take as long as you need."

Posted by: Frustrated | January 8, 2007 4:01 PM

You bet. I have, and the likelihood of ever paying it off is pretty slim. I have 60k in loans, College and Grad School, and I am no doctor. I pay $800 month, which is a huge amount for my 60K salary (which is parenthetically higher than the median salary in Atlanta, so I'm not slacking). I have NO IDEA who owns my loans now, only that I have been hit with a brutal amount of fees when I got behind in my loans.

Here's the rub. I thought I was borrowing from the Federal Goverment (Stafford Loan right?). Not so, as I am told now. Loans sold, collection people (see:thugs) threatening me - its a disaster.

I have to say, if a kid came to me and said, "I can only go to college if I get loans", I'd be hard pressed to tell him to go. I'd probably say, "Go to some local state school and work. Get a general business degree and take as long as you need."

Posted by: Frustrated | January 8, 2007 4:01 PM

You bet. I have, and the likelihood of ever paying it off is pretty slim. I have 60k in loans, College and Grad School, and I am no doctor. I pay $800 month, which is a huge amount for my 60K salary (which is parenthetically higher than the median salary in Atlanta, so I'm not slacking). I have NO IDEA who owns my loans now, only that I have been hit with a brutal amount of fees when I got behind in my loans.

Here's the rub. I thought I was borrowing from the Federal Goverment (Stafford Loan right?). Not so, as I am told now. Loans sold, collection people (see:thugs) threatening me - its a disaster.

I have to say, if a kid came to me and said, "I can only go to college if I get loans", I'd be hard pressed to tell him to go. I'd probably say, "Go to some local state school and work. Get a general business degree and take as long as you need."

Posted by: Frustrated | January 8, 2007 4:04 PM

Do not pay off your student loans before higher interest rate credit card debt. Not only because of the lost money from the higher interest rate, but student loan debt is considered differently than credit card debt in some circumstances. Especially when you are first out of school.

While student loan debt might not be a "positive" when seeking financing, it is not viewed as negatively as credit card debt. Student loan debt suggests a greater ability for increasing future income and does not speak to your "money management skills" the same way as credit card debt.

Posted by: Still Paying | January 8, 2007 4:22 PM

its personal because your talking your money, i have to start out saying that.
the colleges have to pay the mortgage on their buildings, sorry, but true, and if thats connected to college loans, i have no idea.
to complain about a contract? i feel sorry for you that you didn't read the contract,if you agree to a loan, the interest rate is stated. thats why a person has to be careful.
good luck!

Posted by: parent | January 8, 2007 4:29 PM

I'm confused about how this is supposed to help students get into college? Cutting interest rates on student loans will help graduates (and that's a laudable goal), but how will it encourage students who are thinking twice about the price of education to go to university. Isn't there a bigger problem of university costs that we should addressing, rather than just reducing costs on the financing of higher education?

Posted by: Jeff Morrison | January 8, 2007 4:57 PM

No loans here. Got through on merit scholarships covering 80% and work study and parental donations covering the other 20%. I will attend grad school on my employer's dime. I am forever grateful.

I have thought about accepting subsidized loan aid offers for grad school, even though I won't need them, and using them to pay off credit card and car loan debt. The debt would then become a tax break and be at a lower rate. But I'm not sure if that's allowed...or a good idea.

Posted by: CyanSquirrel | January 8, 2007 5:37 PM

I've been in the student loan business for 10 years now and thought I might respond to some of the many concerns you've all expressed. Please see my comments...

To Melissa, the reason you keep getting consolidation information and receive numerous phone calls is because Consolidation companies have purchased your information from credit bureaus. They will continue to call and when they do you need to tell them you've already consolidated and please take your name off their list.

Also lenders that participate in the federal student loan program are REQUIRED to send correspondence when they sell you loans. Generally your original lender will sell to another lender once you graduate from college. The second lender, your new loan holder, is called a secondary market. There are strict federal guidelines that require lenders to notify the borrower of the sell and during lender program reviews by several parties, a lender is checked to make sure they are following these rules.

For those of you who've asked if you can switch to another lender...for federal Stafford loans, you can consolidate one time only. For private (alternative) loans you are stuck with that lender for the life of the loan.

MFD - you need to visit with you loan holder about different payment options for you. You might be eligible for a forbearance or deferment. It sounds like, from your comments, that you have private loans, though. Unfortunately, these lenders aren't governed by the federal government and aren't required to give you deferments and forbearances. You might be stuck and sometime they truly are hard to deal with. Pay these loans off as soon as possible. Generally these private educational loans have variable interest rates and as interest rates continue to increase, your rate will continue to go up.

Chris it is a toss up on whether you should pay your loans off before your credit card debt. However, if it's a private education loan, you DO want to pay this off ASAP right along with your credit card bill...you'll need to make sacrifices to do this, but it will pay off down the line.

To NW DC, borrowing through the federal Stafford loan program is pretty safe as long as you don't go into default. That's 270 days of delinquency and many, many letters and phone calls from the lender, school and guaranty agency to help you get current. Only after your loan goes into default does things get nasty. Just keep your loans current and you'll be ok. If you are having trouble paying off your federal loans, give them a call and most companies will be willing to work out a better repayment arrangement. Believe me, they would rather you not go into default.

To all, if you don't know who your loan holder is you can go to this website: http://mapping-your-future.org/services/locator.htm You have 2 ways to find out where your loan is. I encourage you to find out and keep in touch with these people. They really do want to help you be successful.

Posted by: Natalee | January 9, 2007 9:43 AM

I have two private loans that came from my university that are now controlled by AES totalling about $12k. I've been told there's no way to consolidate them. The kicker is that the interest rate on them is variable, and has skyrocketed to almost 9%. I've been making mostly interest-only payments for the past 2 years and little progress decreasing the loan. It's lousy because my goverment loans (about $16K), which I COULD consolidate only have an interest rate of about 2.8%! There's no way for me in increase my loan payments anytime soon (no help from family available), so in the end I will probably end up paying more for the smaller private loans than I do for the government ones. Has anyone found a way to save some repayment money with AES? If you have, I'd sure like to know!

Posted by: Going broke in DC | January 9, 2007 10:50 AM

To TYD: I'm sorry but you don't quite have student aid correct. Perkins loans are need based and so are Subsidized loans which are a type of Federal Stafford loan. Unsubsidized loans are another type of Federal Stafford loan that are not need based. The difference between Sub and Unsub is that the government will pay the interest for you on a sub loan while you are in school and you are responsible for paying the interest yourself on an unsub loan. If you qualify for a sub loan, take it... it is the ABSOLUTE best loan deal you can get.

To whoever is paying student loans off before credit cards: Bad move. Chances are your student loan interest rate is a third or more lower than your credit card rate. Your best move is always to pay off your most costly debt (your 20%+ credit cards). And you have more flexibility with your student loans if you are unable to pay. You can request a deferment or a forbearance if you can prove financial hardship to your student loan lender.

Posted by: In the biz | January 9, 2007 12:30 PM

I would urge everyone who is having problems with their loans to go to www.studentloanjustice.org

This American crisis has grown to amazingh proportions, and it's time for American's to respond.

Posted by: Alan Collinge | January 10, 2007 2:19 AM

Consolidation is a federal program that applies to all federal student loan programs. Private (alternative) loans that are used to bridge the gap between federal student aid and a student's ability to pay are not eligible for consolidation. While federal loan servicers can be flexible about deferrments and forbearances, maybe private loan terms are not as flexible so be sure to shop around before taking out a private loan.

You can consolidate more than once as long as you have a federal student loan outstanding that was not included in your original consolidation. Depending on the interest rate your consolidated loan carries, consolidating again may or may not be a good idea.

Posted by: Consolidation | January 10, 2007 5:50 PM

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