Tips For Doctors: Loan Debt Lingo Before You Talk

Tips For Doctors: Loan Debt Lingo Before You Talk.

Here are some tips you should know before dealing with lenders. Don't agree to anything until you understand their language.

At a glance:

• Getting a deferment or forbearance on your student loan

• Getting your student loan cancelled

• Consequences of defaulting on your student loans

• Summary of student loan deferment, cancellation, and default

If you've graduated college and are having trouble paying back your student loans, you have the option of changing to a new payment plan or consolidating your loans into one single loan, which may offer you a lower monthly payment.

But sometimes that isn't enough. You might have fallen on hard times that make it hard or impossible to keep paying. In these cases, you can try deferring or even cancelling your loan.

Each method comes with requirements. The final option is default, which is not to be taken lightly — there will be serious consequences with default.

Getting a deferment or forbearance on your student loan

If you have trouble making payments on your student loans, the last thing you should do is just stop paying.

Not paying will damage your credit and subject you to late fees. It can also result in you being sued and having your wages and tax refunds garnished. You might qualify for postponement instead.

Let's look at the two forms of postponement.

Deferment

A deferment lets you out of making loan payments for a certain length of time for a specific reason, such as economic hardship, unemployment, or being enrolled in school.

To get one, you must contact the lender of your loan and fill out some forms. If you are currently in default, you cannot qualify for a deferment unless you first pay off a certain amount of the outstanding balance.

What qualifies you for a deferment?

Here are a number of situations that can get you a deferment on a federal loan (and some non-federal loans):

• Economic hardship. Most loans offer deferment for economic hardship. The lender will look at your income and your loan payments to make a decision on this. If you receive public assistance, you are automatically entitled to a deferment.

• Enrollment in school or disability rehabilitation program. Returning to school at least half-time will allow you to defer payments. Enrolling in a disability rehab program can also get you a deferment.

• Unemployment. If you are unemployed but looking for work, you can qualify for a deferment.

• Disability. If a temporary but total disability occurs with you, your spouse, or a dependent, you may qualify for a deferment. Not all loans apply, however.

• Public service. Perform community service and get a deferment. There are many opportunities available, from local activities such as assisting low-income people to volunteer opportunities on the national level. Serving in the military or certain other federal services can qualify you for a deferment also.

• Your job. You may qualify for a deferment if you work as a teacher serving certain needy populations, such as the disabled. Also, certain healthcare and medical workers can get deferments.

These are general guidelines. Some of them are based on specific requirements that you must first meet. Contact your lender for more information.

Forbearance

Forbearance on a student loan is similar to deferment. Your payments are postponed (or reduced) for a period of time due to financial or other difficulty. Generally, you can get a forbearance if you aren't eligible for a deferment.

With a forbearance, the interest on your loan will continue to accrue, meaning that you are responsible for paying it. With a deferment, interest does not accrue. You must pay the interest on a forbearance; if you fail to pay any amount of it, that amount will be added on to the principal of the loan, a process called capitalization.

Contact your lender if you want a forbearance. They are easier to get than deferments.

Getting your student loan cancelled

Deferment of a student loan is nice, but getting it cancelled is a dream come true for a lot of graduates.

But it's not as easy as a deferment, and you can't always get the entire loan balance cancelled. In most cases, the government wants something from you in return.

What qualifies you for a cancellation?

Here are a number of situations that can get you a cancellation on a federal loan (and some non-federal loans):

• Disability. If you have a disability that prevents you from working, and it is permanent, you can cancel your loans. You will have to prove that you are permanently disabled.

• Public service. Performing community service can get your loans cancelled. There are many opportunities available, from local ones such as assisting low-income people to volunteer opportunities on the national level. Serving in the military or certain other federal services can qualify you for a cancellation also. (But this is not guaranteed).

• Your job. If you work in law enforcement or corrections, you can get some loans cancelled. You may also qualify for a cancellation if you work as a teacher serving certain needy populations, such as the disabled. Also, working in certain healthcare and medical workers can get you a cancellation.

• School closings. In some cases, if you are enrolled in a school that closes before you can get your degree, you can cancel your loan. (But this is also not guaranteed).

• September 11. Certain victims and their relatives can qualify for cancellation of their loans.

• Bankruptcy. This is a long shot and is very hard to do because student loans are normally exempt from bankruptcy. But if you can demonstrate to a court of law that the loan would cause a major hardship for you, you might get it discharged. But first, your financial state and your past efforts to repay the loans will be scrutinized by the court.

• Death. If you die, your loan can be cancelled by the executor of your estate.

These are general guidelines. Some of them are based on specific requirements that you must first meet. Contact your lender for more information.

Consequences of defaulting on your student loans

Some people who never think of defaulting on a mortgage, a car loan, or a credit card payment might feel okay with defaulting on their student loans, especially if it becomes a choice among several necessities. But if you are considering default, know what the consequences of your choice will be.

Interest charges and late fees

If you default, interest will continue to accrue on your debt. There will be late fees as well.

Damaged credit

Credit bureaus will be notified of your default. This harms your credit rating, and with a bad credit rating, getting a car loan or mortgage or other loan will become difficult.

Collections and collection fees

Both the government and private lenders may hire collection agencies to come after you to collect on defaulted loans. You may have to pay collection fees.

No more eligibility for more aid

If you default on your loans, you will not be eligible for further federal aid. You will have to begin making payments again up to a sufficient amount before you can get more aid.

Loss of professional license

Some states allow professional boards to take away, suspend, or refuse to grant vocational/professional licenses to people in default of student loans. This action is not taken without first notifying the person of it and giving him or her a hearing.

Federal benefits can be garnished

If you are getting federal benefits, they may be subject to withholding. A portion of Social Security disability and retirement benefits can be taken to pay off your debt load. However, Supplemental Security Income cannot be taken. A certain amount of money—$9,000 per year or $750 per month—is first excluded from that garnishment.

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