Essentially, TBH, student “loans,” under IBR, are more of a loan/grant hybrid, the terms of which change as your income changes. This should probably be kept under wraps. 
Credit ratings are privately managed. There is no law which dictates what does and doesn’t effect your score. If actuarial data supports it, the credit rating bureaus will negatively grade your credit. Credit scores simply quantify risk, and the credit agencies determine that on their own using all data available to them.
Sorry, I didn’t mean to imply there’s some kind of legal force to this. I was just saying that AFAIK it’s not treated as a “bad thing” by any relevant power.
Is it?
ETA: It is not
It’s new, right? Then it’s not treated as anything until there’s data on it. Once people start doing it rating agencies will start making decisions about it. It’s impossible to predict what those decisions will be. Any time financial data is recorded about you the agencies record it. This isn’t necessarily good or bad, it’s just data. If that data displays a trend which leads to defaults then yes, it becomes bad. I suspect the type of people who carry a debt for 20 years and never repay it are going to be more likely to default on other loans, so it’ll eventually end up being bad even if it’s not yet.
There are no free rides.
Read this part carefully.
Those organizations have the ultimate say. They have the data and will evaluate it. The DoEd will advise, but if these codes display a negative trend the credit agencies are under obligation to adjust their reporting to their customers accordingly.
To the contrary, a more reasonable suspicion would be that the “type of people” who make 240 timely payments on a loan and by doing so pay every penny that they agreed to pay will be les likely to default on any loans, so it’ll eventually end up being good even if it’s not yet.
Notice the following:
It is unclear why they go on to say anything about “working with credit reporting organizations” etc etc, but here it is explicitly stated that information about the debt forgiveness is not disclosed to the company that determines your credit score.
Presumably, the data provided by the DoEd will say that the loan has been paid as agreed even if it actually was forgiven. The credit reporting agencies just won’t know the truth.
It’s not a technical definition, it’s the definition that will be used by politicians complaining about the cost of the student loan programs and by the taxpayers who will be voting. Public money going out that doesn’t come back will be viewed as a default politically. And voters and politicians will decide how much foregiveness they’re willing to support.
Would that be legal? And isn’t the DoEd already reporting the total of the loans outstanding with the monthly payments? If the balance suddenly disappears at the forgiveness date, wouldn’t that be effectively reporting the loan was forgiven?
I think this infographic (read it thoroughly) spells out the issues with student loans (of particular note and as noted above this is, I think, the only debt which cannot be reased via bankruptcy…this debt will literally follow you for life until it is paid off).
While there may be some OWS folks wanting to erase their loan obligations I think it is safe to say the overall message is it is a racket and needs to be fixed.
Also, if the government can see fit to give subsidies to oil companies making record profits perhaps that money could be spent on education (in a variety of ways including mitigating the debt students have).
That last part is probably a question for Great Debates.
No. **Default **means you did not pay what you were obligated to pay. Loan forgiveness, or cancellation, or whatever terminology they use (expired?) means the loan is considered paid in full even though it may not have actually been paid.
One is your issue, and should result in a negative credit rating score.
The other is a feature of the loan system and part of the payment plan; so you have fulfilled your obligations. The government considers it a benefit to society for you to have an education, even if it is not reflected in yor income level.
This is what happened years back with those “Debt Service Agencies”. They worked to negotiate lower rates, lower debts and lower monthly payments with credit card agencies with a promise that it would not adversely effect your credit score. The reality was that it effected your credit score almost as negatively as if you’d just declared bankruptcy.
What a plans intent and what it’s actual effect is can vary greatly and there’s no binding obligation for the rating agencies to not score this adversely. Of course if you pay your agreed upon amount every month and still have say 15% of the total loan left after 20 years you’ll probably be fine. If you sporadically repay the loan with varying amounts and with repeated deferments/forbearances due to hardship and after 20 years have 65% of the loan forgiven the agencies will know.
Way more goes into determining a credit score than just “paid on time” and “default”. Those are just the monthly reports filed with the agency, the total loan amount, income, interest rate and everything else is factored in. Having a loan “forgiven” might not be given a specific negative multiplier, but taken as part of the whole it’ll be factored in somehow. I can’t imagine banks will look upon it favorably.
Yes, but when you defer your loan or reduce your payments, the interest continues to accrue. And because these loans are on your credit report, they affect your ability to get a mortgage, buy a car, or get a credit card.
The real problem is the explosion of tuition costs. In some states, tuitions for public schools have doubled over the past ten years. The push to get more kid into school couple with the easier access to larger loans amounts has increased the overall student debt enormously.
And programs like IBR don;t apply to private loans, which are becoming a sizable piece of the pie.
Private lenders are bastards. It’s also really hard (or impossible) to consolidate private loans. My sister has a bunch, so I’ve heard about it from her. Thankfully, I only had to take out federal Stafford loans (and one Perkins). Mine were able to be consolidated my the government under an income-contingent plan. I’m paying $84 a month right now, on a current balance of almost $12k (my interest alone is like $50 a month so I’m ahead of it, but barely).
But those private loans… they benefit from the inability to be discharged under bankruptcy, but can have extremely predatory terms. Like they may not provide a grace period or deferment/forbearance options. Some people will literally pay on them until they die, if their payments don’t outstrip the interest accumulation.
Not only is it not automatic, lenders apparently don’t even have to bother to inform borrowers about it. Mine didn’t, and I pay about 20% of my income (without regard to the federal poverty limit, that’s for damn sure. Most years I haven’t made much more than 1.5x the fpl.) towards student loans. I never even heard of IBR until I had to apply for a deferment in August.
I came to mention the same thing. It isn’t possible to make a blanket statement about student loan repayment terms. There numerous options available through the federal government, state governments, and private banks and organizations, none of which has any requirement to work with each other or consider any other agreement a borrower might have made.
I don’t know what the percentages are, but I imagine most students have a loan package made up from a combination of all the options out there. I graduated with about 85% of my debt owed to the state of Texas, and the rest owed to two different private banks. The Federal programs didn’t even come into play for me (my state offered better terms overall). My brother went to school out of state, and though we graduated with approx the same amount of debt, he ended up having to pay significantly more than me both in monthly payments and the overall life of the loans. Student aid can be really complicated.
Guess I got lucky or something?
The only kinds of student loans that have ever been made available to me through a school’s financial aid department have been stafford loans, (to my recollection anyway?).
And all of them were eligible for consolidation. I know this to be true because they are consolidated.
I guess I just assumed this was basically the same for everyone.
What exactly happens to other people that makes them ineligible for consolidation?
My recollection is that one has to have loans from more than one lender, for one thing. But I may be wrong or out of date.
Only the government loans are eligible for the government consolidation programs. So again, there aren’t any favorable options for dealing with private student loan debt.
Your loan money all came from the federal government. That’s not true for everybody. There are annual limits on the amount of federal loan money you can take out. And people who attend more expensive schools than yours (like private schools, or any schools that aren’t “need-based”) have to take out private loans to make up the difference between their EFC, their grant/maxed federal loans package, and the official “cost of attendance.”
I was checking out the cost of attendance for some relatively cheap community colleges in my area, and including everything for an independent undergraduate–tuition, housing & food, transportation, books–it’s over $20,000 for one academic year! And the federal loan limit (like $10k-12k-ish, depending on what year you’re in) doesn’t even come close to covering that. I don’t know whether the cost of attendance includes the summer too, or just fall/spring semesters. More expensive schools have a cost of attendance in the $40k+ range. And grants don’t cover it all for most people.