Economic hardship deferments and new legislation that sucks for residents

I got a letter a few days ago from Great Lakes about my grace period that is about to expire on my loans. This made me think that there are a bunch of you folks that might be out in residency that are in the same situation. Remember that there is a 6 month grace on federal loans that are going to be placed into repayment unless you apply for economic hardship deferment. Take care of it right now before you forget.

If you were a full time student and recently graduated and did not work you qualify for Economic hardship deferment. This allow subsidized loans interest rate to be paid by the government. Unsubsidized loans interest is accrued. However, the sweet part about deferment is that in most cases it does not get capitalized. This means that the interest does not compound. If you miss the application time line you will end up paying thousands of dollars more because all your interest that you have accrued will have been capitalized.
new legislation “Higher Education Access Act 2007″ that was signed to be effective 10/1/07 basically implements an income based repayment system that screws residents. The Ramen report has an excellent table to the pros and cons of this new legislation

What’s New	Who Loses/Who Benefits	Requirements	Effective Date
Pell Grant Increases $490 for 2008-09 and 2009-2010 $690 for 2010-2011 and 2011-2012 $1090 for 2012-2013	Benefit — undergraduate students with financial need.	Pell Grant awarded based on need analysis; includes an income maximum.	7/1/2008
TEACH Grants Introduced Grants of up to $4000 per year Not to exceed $16,000 for undergraduates and $8000 for graduate students	Benefit — undergraduate and graduate students who commit to full-time teaching for at least four academic years at a high-need school in a specific field of study.	Student must complete teaching service within eight years of graduating or grant aid becomes Federal Direct Unsubsidized Stafford loan.	7/1/2008
Subsidized Stafford Interest Rate Reductions 6.8% for loans disbursed 7/1/2006-7/1/2008 6% for loans disbursed 7/1/2008-7/1/2009 5.6% for loans disbursed 7/1/2009-7/1/2010 4.5% for loans disbursed 7/1/2010-7/1/2011 3.4% for loans disbursed 7/1/2011-7/1/2012	Benefit — undergraduate Students.	Only for undergraduates Must be in repayment or forbearance to benefit Only temporary decrease, rates increase to 6.8% for loans disbursed after 7/1/2012 (unless government finds a way to continue to pay for the costs).	7/1/2008
Elimination of Debt-to-Income Ratio for Full-Time Employment Borrowers	Loss — high-debt, low- to mid-income borrowers (e.g. medical residents).	Borrower working full-time must earn the federal minimum wage of $5.85 per hour or less, or their annual income must be equal to or less than 150% of the federal poverty level (based on family size).	10/1/2007
Introduction of Income-Contingent Repayment	Benefit — students with high debt and a career path with low to average income.	Loan payments are established at 15 % of the borrower’s income that is more than150% of the poverty line depending on the borrower’s family size Borrower must qualify for plan each year	7/1/2009
Loan Forgiveness Availability	Benefit — borrowers with Federal Direct Loans may qualify	Make 120 monthly payments after 10/1/2007 as part of an income-based repayment plan, standard repayment plan, or income-contingent plan (starting 7/1/2009) based on a 10-year repayment schedule Must work in a public service job for the entire 120 monthly payment period	10/01/2007

Some info about loans: A number of financial consultants like loan calculator assist their clients getting a variety of secured loans regardless of unsecured loans over some fixed asset and also, secured loans that do not require the borrowers to own any assets. Recently, bank loan market has seen a boom because of countless international students applying for student loans that combine the benefits of easy and quick cash with the facility of a consolidated loan, incurring the minimal interest rate as compared to other banking loans.

Bottom Line: Take advantage of your option to forbear if you need to. Most of us will not be able to pay back our loans but most loan companies still take forbearance options. If its your first year and you made less than minimum wage last school year because you didn’t work, congratulations you qualify for deferment. If you are a 2nd year resident, forbearance is the only option left.

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Pingback by Student Loans » Blog Archive » Economic hardship deferments and new legislation that sucks for residents

[…] Loans | Student, Consolidation Program, College, Private, Federal wrote an interesting post today onHere’s a quick excerptI got a letter a few days ago from Great Lakes about my grace period that is about to expire on my loans. This made me think that there are a bunch of you folks that might be out in residency that are in the same situation. Remember that there is a 6 […] […]
Comment by Chris Smith

Coming out of college and only having 6 months before you have start re-paying your student loans is a bummer. But, it’s a reality. You knew that it would happen. You only get 36 months of Economic Hardship Deferment. They can only be used 12 months at a time, so you have to apply for it every year if you want to use it again. Once it’s gone, you have more debt and probably higher payments if any part of your loan is unsubsidized. No one thinks to actually make payments (even if they are smaller then the monthly payments!) Why not make payments?! Yes I am sure you need those new shoes and you have to have that Wii and HD TV but repay your obligation…nah I’ll put that off as long as I can! Don’t get into that way of thinking, you’ll probably end up with payment sso high that you can’t afford them and then you will have used up all of the options they let you use so then if you can’t pay, you default. You defualt, 15% wage garnishments and tax interception. Bottom line be smart with your debt and don’t fall into the traps of putting it off. Any loan you have should be your top priority to pay it back.
Comment by Piter Thmith

The best bet for your financial aid needs is the US government. The application process is more complicated than that of a traditional bank or private agency, but government funding has a set interest rate and the stability of the US Treasury to back up its funds. Government loans like Stafford Loans, PLUS Loans and other such programs are the safe bet in today’s economy.

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