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Have You Ever...- 10-10-07

Had to Take Out a Loan?

By ChaChanna Simpson

For all of you out there who are stressed over student loans -- don't be. Surprisingly enough Mike O'Brien, CEO of financialaid.com in San Diego, CA says it's “good debt.” Have you ever heard of such a thing? Not me either, but there are three reasons why student loans are a “good debt:”

Student loans are federally guaranteed. If you can't pay back your loans for financial reasons, the government will pick up the tab. So lenders are not overly concerned about getting their money back.

However, just because the lenders can get the money from the government, doesn't mean you will get away without paying. In the event you go into default of your student loans it will go on your credit report. In addition, the lender might turn your student loans over to a collection agency and you will lose your federal benefits such as interest rate reductions, deferment and forbearance options. Also, you will no longer be eligible to receive any additional financial aid until the loans in default are paid.

Let's face it, by the time you graduate college there is a pretty good chance your credit will be messed up. But now with student loans you can show creditors that you actually know how to pay a bill, and on time. "It’s a good way to build good credit," says O'Brien.
If you lose your job, you can write a lender for a forbearance of the difference. In other words you can "temporarily postpone making payments on your federal student loans. Interest continues to accrue during periods of forbearance but you are not required to make interest payments," says O'Brien.

There are many requirements set by the government for forbearance or deferment. But before we go any further, I’ll explain what each are: Forbearance allows you to either temporarily postpone payment for a limited amount of time or make payments for less than the regular monthly amount. "There are different types of forbearance, some are mandatory like internship or residency, national service, debt exceeds monthly income, and others are at the discretion of the lender like financial difficulties," says O'Brien. You are eligible up to three years of forbearance, however, there are no guarantees that you will get three years. The length of time allotted depends on the generosity of the lender. Deferment can happen if you’ve re-enrolled in college, at least part time, defined by the college. You’d have to send in proof to your loan company that you are attending college, they won’t automatically know. And you won’t have to begin repayment until six months after graduation.

If you want to consolidate your loans to pay them off that is a great idea. But don't consolidate any loans that can be forgiven. It's easy to find a consolidating company because they are always sending information through the mail — unless they are only coming to me. When you consolidate your loans it can reduce your payment by fifty percent, the best thing for you to do is take that extra money and pay off your high interest credit cards.

And in case some of you are in college right now, you can’t start paying back the principle balance until you have graduated, but you can pay the interest.

Now that you have finally paid off those student loans and rebuilt your credit, you can start saving for that car or house you have always dreamed of.

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