Benefits with Commonwealth of Virginia Members

Student Loans (Part 2)

Loan Repayment and Forgiveness

Student loans are debt you have to pay back, even if you don't finish your degree. However, depending on your situation and what kind of loans you have, you might be eligible for a different repayment plan or to get your loans forgiven. When it comes to qualifying for these programs, there's nothing a private company can do for you that you can't do yourself for free.

Federal Loans

If you have federal loans, the Department of Education has free programs that could help, including the following:

• Income-driven repayment plans—Your monthly payment is based on how much money you make.
• Deferment and forbearance—You can postpone making payments, if there's a good reason you can't repay right away, though interest might cause what you owe to increase
• Loan forgiveness or loan discharge—In some circumstances, you don't have to repay some or all of your loans. You might qualify if, for instance, you work for a government or not-for-profit organization, if you become disabled, or if your school closed or committed fraud. Also, under certain income-driven repayment plans, any balance that remains after 20 or 25 years of payments is forgiven. In some cases, you may owe income taxes on the forgiven or discharged amount.

These options are free. You can learn more at Link opens in a new windowhttps://studentaid.gov/h/manage-loans or by contacting your federal student loan servicer: Link opens in a new windowhttps://studentaid.gov/manage-loans/repayment/servicers. You also can find out how to get out of default here: Link opens in a new windowhttps://studentaid.gov/manage-loans/default.

Private Loans

With private student loans, you typically have fewer repayment options, especially when it comes to loan forgiveness or cancellation. To explore your options, contact your loan servicer directly. If you don't know who your private student loan servicer is, look at a recent billing statement.

Loan Consolidation

Consolidating your student loans means combining multiple loans into one loan. Typically, people consolidate their loans to simplify monthly payments or get new repayment terms. When you consolidate your loans, you get a brand new loan with new terms.

If all of your education loans have fixed interest rates, it may not matter when you consolidate. If some or all of your loans have variable interest rates, when you consolidate into a fixed loan may affect the interest rate of your loan.

Federal Loans

Consolidating federal loans with the federal government is free. There are companies that may offer to help you consolidate your federal loans with the federal government, for a fee, but you don't have to pay for this service. Consolidating with the federal government is a process you can do on your own, at no cost.

When you consolidate your federal student loans, you get a Direct Consolidation Loan, which has a fixed interest rate for the life of the loan. The fixed rate is the weighted average of the interest rates on the loans being consolidated.

You should make sure that it makes sense to consolidate your loans. Consolidating a low-interest Perkins loan may not be in your favor. Perkins loan borrowers have unique deferment and cancellation rights that may be lost when consolidating.

Consolidation has important pros and cons to consider, especially since once your loans are combined into a Direct Consolidation Loan, they cannot be separated. Find out more here: Link opens in a new windowhttps://studentaid.gov/app/launchConsolidation.action.

Reasons to Consolidate Loans

• If you currently have federal student loans that are with different loan servicers, consolidation can greatly simplify loan repayment by giving you a single loan with just one monthly bill.
• Consolidation can lower your monthly payment by giving you a longer period of time (up to 30 years) to repay your loans.
• If you consolidate your federal student loans, you might get access to additional income-driven repayment plan options and Public Service Loan Forgiveness. (However, this is not true of Direct Loans, which are from the William D. Ford Federal Direct Loan Program.)
• You'll be able to switch any variable-rate loans you have to a fixed interest rate.

Reasons Not to Consolidate Loans

• Because consolidation usually increases the period of time you to have to repay your loans, you might make more payments and pay more in interest than you would if you don't consolidate.
• Consolidation also may cause you to lose borrower benefits associated with your current loans.
• If you're paying your current loans under an income-driven repayment plan, or if you've made qualifying payments toward Public Service Loan Forgiveness, consolidating your current loans will cause you to lose credit for any payments made toward income-driven repayment plan forgiveness or Public Service Loan Forgiveness.

If you are having problems making your monthly payment but are concerned about the impact of loan consolidation, you might want to consider deferment or forbearance as options for short-term payment relief, or consider switching to an income-driven repayment plan.

Private Loans

Private loans have to be consolidated with a private lender. There might be a cost when you consolidate, but avoid companies that tell you to pay upfront. Make sure you understand all the conditions of your consolidated loan before you agree to consolidate.

Some debt-relief companies and lenders offer to consolidate federal and private loans together into one new loan to lower your monthly payments or interest rate. Don't do it. Consolidating private and federal loans turns it into a private loan, which means you will lose the federal repayment benefits and protections of your federal loans, such as deferment and forbearance, income-based repayment plans, and loan forgiveness.

Before you consolidate your loans, find out what it could mean for your specific situation. If you have private loans, talk to your loan servicer. For federal loans, call the Department of Education's Student Loan Support Center at 800-557-7394. Take your time to determine whether consolidating is right for you.

Signs of a Student Loan Debt Relief Scam

You've probably seen ads from companies promising to help with your student loan debt. Here's what you should know: there's nothing a student loan debt relief company can do for you that you can't do yourself for free, and some of the companies that promise relief are scams.

Student Loan Debt Relief Scams

You've probably seen ads promising help with your student loan debt. Some are scams—here are tips to avoid them:

• Never pay an up-front fee. It's illegal for companies to charge you before they help you. If you pay up front to reduce or get rid of your student loan debt, you might not get any help—or your money back.
• Only scammers promise fast loan forgiveness. Before they know the details of your situation, scammers might say they can quickly get rid of your loans through a loan forgiveness program—programs most people won't qualify for. They might say they will wipe out your loans by disputing them, but they can't do either.
• A Department of Education seal doesn't mean it's legit. Scammers use official-looking names, seals, and logos, and tell you they have special access to certain repayment plans, new federal loan consolidations, or loan forgiveness programs. They don't. If you have federal loans, go to the Department of Education directly at Link opens in a new windowStudentAid.gov.
• Don't be rushed into a bad decision. To get you to act fast, scammers tell you that you could miss qualifying for repayment plans, loan consolidation, or loan forgiveness programs if you don't sign up right away. Take your time, and check it out.
• Don't give away your FSA ID. Some scammers claim they need your FSA ID to help you, but don't share your FSA ID with anyone. Dishonest people could use that information to get into your account and take control of your personal information.

Reporting Scams

If you think you've responded to a scam, tell the Federal Trade Commission (FTC) at Link opens in a new windowhttps://www.ftccomplaintassistant.gov, and your State Attorney General via Link opens in a new windowhttps://www.naag.org/current-attorneys-general.php.