Some companies promise to help you reduce your student loan debt for a fee. But there’s nothing those companies can do for you that you can’t do on your own for free. And some companies that promise to relieve your student loan debt are scams. It is illegal for companies to charge you before helping you. Here are some other things to know about how student loans work and how to avoid scams.
How to pay for school
There are several types of financial aid available to help you pay for your education after you finish high school. This includes grants and scholarships, federal work-study programs, and student loans. If you’re trying to determine if a financial aid offer will cover enough of your education costs to make college affordable, the CFPB’s financial aid offer search tool can help.
Grants and scholarships
Grants and scholarships give you money to study and you don’t have to pay it back. So they should be your first choice to pay for your education. The simplest way to apply for a grant is to complete a form called the Free Application for Federal Student Aid (FAFSA ® ). To find other grant and scholarship opportunities, you can also explore these other sources:
- The financial aid office of a college or vocational school.
- Your high school counselor or a TRIO counselor .
- The US Department of Labor’s free scholarship search tool .
- Federal agencies.
- Your state educational agencies .
- Searches on the internet and in your library.
- Foundations, religious or community organizations, local businesses, or civic groups.
- Organizations related to your field of interest, such as professional associations.
- Organizations and groups dedicated to the preservation of ethnic and cultural heritage.
- Your employer or the employer of your family members.
Federal Work-Study Jobs
Federal work-study jobs are another way to help pay for college. This type of employment is a needs-based subsidy that requires you to work part-time while you are in school. In order to access the work-study program, you must complete the FASFA ® form and meet the need-based criteria. You will only be paid for the hours you work. For more information, talk to your school’s financial aid office.
Student loans fall into two categories: federal loans and private loans.
Federal loans include:
- Direct loans made directly by the US Department of Education.
- PLUS Loans, which are federal loans that can be used by graduate or professional students and parents of dependent undergraduate students to help pay for college or vocational school.
- There are two types of federal loans that are no longer available, but people may still be able to repay:
- Federal Family Education Loans (FFELs), which are loans made by private lenders but backed by the federal government.
- Federal Perkins Loans, which are low-interest federal student loans for undergraduate and graduate students with exceptional financial need.
Private loans , sometimes called “alternative loans,” are offered by private lenders, such as banks and credit unions. They are not backed by the federal government and do not include the benefits and protections offered by federal student loans. These loans may also require a cosigner (an endorsement from someone else who will also be responsible for repaying the loan) and a credit check (a review of your credit history).
|federal loans||private loans|
|loan application||In most cases, you won’t need a co-signer or a credit check to get a federal student loan (except for PLUS loans).||You may need a co-signer and a credit check. Your credit score, and the scores of your cosigners, will influence the interest rate on your loan.|
|Interest rates(the cost of borrowing money)||Federal loan rates are usually fixed and lower than private loan rates.||Private student loans may have variable interest rates.|
|Loan repayment terms||You won’t have to start repaying federal student loans until you graduate, drop out of school, or change your tuition hours to less than half full hours.||Many private student loans require you to pay while you are still in school.|
|Generally, undergraduate students with financial need are eligible for a subsidized loan. The government pays the interest while you are in school with a minimum hourly load of 50% of full time.||Private student loans are not subsidized. You must pay the interest on your loan.|
|Federal loans can be consolidated into a Direct Consolidation Loan for free. Learn more about your consolidation options .||Some lenders offer options to consolidate loans, but they will usually charge you a fee.|
|You will not be charged if you pay off your loan faster. This is called a penalty charge or prepayment penalty.||Prepayment penalty charges may apply.|
|If you are having trouble repaying your loan, you may be able to temporarily postpone your payments or reduce your installment amount.||Private student loans may not offer you options to temporarily postpone your payments or reduce your payment amount.|
|There are several payment options, including options that link your monthly payment amount to your income level.||Private providers are unlikely to offer payment options based on your income.|
|sector, you may be eligible to have a portion of your loan forgiven.||A private lender is unlikely to offer a loan forgiveness program.|
|If you work in the public|
How to apply for financial aid
FAFSA ® stands for Free Application for Federal Student Aid . It is the only way to apply for federal student aid. The application is free. Complete your FASFA ® form at fafsa.gov every year you are in college, university, or vocational school, including the year before you start college, which could be the year you graduate from high school high school.
Many states and colleges use the data from your FAFSA ® form to decide if you are eligible for state and school aid. Some private financial aid providers may also use data from your FASFA ® form to determine if you are eligible for their aid.
How to complete your FASFA ® form
When you complete your FAFSA ® form , you will also create your Federal Student Aid identification, known as an FSA ID. The FSA ID consists of a username and password that allows you to do the following:
- Log in to your Federal Student Aid account to view your loan, grant, and enrollment history.
- Complete your FAFSA® form.
- Learn about the repayment plans that suit your situation and compare those plans.
- Complete your Master Promissory Note , which is a legal document, also known as a promissory note, that you complete to promise to repay the Department of Education for your loan(s) and any interest earned.
- Apply for income-based payment plans or loan forgiveness, and complete other related loan documents.
Only you can create and use your FSA identification or FSA ID. Do not share your FSA ID with anyone, no matter who asks or what they tell you. There are dishonest people who could use your FSA ID to get into your account and steal your personal information.
How to pay your loans
Student loans are debts that you must pay back, even if you don’t finish your degree. However, depending on your situation and the types of loansyou have, you may be eligible for a different repayment plan or loan forgiveness. Some companies may contact you to say that they can work to pre-qualify you for a special government payment reduction or forgiveness program. But when it comes to qualifying for repayment and forgiveness programs, there’s nothing a private company can do for you that you can’t do for yourself for free. You don’t have to pay anything to enroll in these programs, and you can do so by calling your loan servicer, the company that handles your student loan billing, or at StudentAid.gov .
If you decide to use the services of a company to lower your payment amount, remember that it is illegal for them to charge you before helping you.
How to pay off federal student loans
If you have federal loans, the Department of Education has free programs that may help you, including:
- Income-Based Repayment Plans: Your monthly payment is based on the amount of money you earn.
- Deferment or forbearance: You can postpone your payments if there is a good reason why you can’t pay right away, although interest may increase your debt.
- Forgiveness or discharge of debt: In some circumstances, you do not have to pay some or all of your loans. You may be eligible if, for example, you work for a government or nonprofit organization, if you have a disability, or if your college or school closed or committed fraud. Also, under certain income-based repayment plans, any balance remaining after 20 or 25 years is forgiven. But in some cases, you may owe income taxes on the amount forgiven or discharged.
These options are free. More information can be found at the Department of Education’s StudentAid.gov/repay website or by contacting your federal student loan servicer .
How to pay off private student loans
With private student loans, you generally have fewer options for loan forgiveness or cancellation. To explore your options, contact your lender directly. If you don’t know who your provider is, check your last billing statement.
How to avoid blackberry
Are you behind on your federal student loan payments? Here are some things you can do on your own, and for free, to get up to speed.
- If you missed a few payments, take steps to avoid being late and limit the amount of late fees you’ll have to pay.
- If you missed payments for 270 days, you may be in default , but you still have some options to get out of default .
With private loans you can default for a few reasons. You could become delinquent if you miss three monthly payments (120 days), file for bankruptcy, or miss another loan payment. If you think you are delinquent, or at risk of becoming delinquent, contact your lender to find out what your repayment options are.
If you’re concerned that you’re about to default, carefully review your private loan contracts to better understand your rights. If you did not receive a letter from your loan servicer and believe you may be in default, contact your loan servicer immediately to discuss your repayment options and determine if default can be avoided.
When you consolidate your student loans , you are combining several loans into one. You may be able to consolidate your loans to simplify your monthly payments, to extend payment terms, or to lower your interest rate. When you consolidate your loans, you get a new loan with new terms and conditions.
If all of your education loans have fixed interest rates, consolidation may not make much of a difference. If some or all of your loans have variable interest rates, consolidating them into a fixed-rate loan can save you money on the total amount of interest you’ll pay over the life of the loan.
How to consolidate your federal student loans into a Direct Consolidation Loan
Consolidating federal loans directly with the federal government is free. Some companies may offer you help consolidating your federal loans with the federal government for a fee. But you do not have to pay for this service. Consolidating your federal student loans with the federal government is a process you can do on your own. Contact your student loan servicer at no additional cost to you.
When you consolidate your federal student loans, you get a Direct Consolidation Loan. That is a loan with a fixed interest rate for the remainder of the loan term.
Before you consolidate your federal student loans, consider the type of loans you have. It may not make sense to consolidate certain loans. For example, Perkins Loans give you exclusive deferment and cancellation rights that you could lose if you consolidate. And if you work in public employment, you could lose any progress you’ve made toward public employee loan forgiveness. Once your federal student loans are combined into a Direct Consolidation Loan, they cannot be separated again. Therefore, consider the advantages and disadvantages of consolidation.
Reasons to consolidate your federal student loans into a Direct Consolidation Loan
- Make monthly payment easy. Consolidating multiple loans from different servicers into a single loan gives you the ease of having a single loan with a single monthly bill.
- It gives you more time to repay your loans. If you consolidate your loans, you can get up to 30 years to repay the consolidated loan, which means your monthly payment will be lower (but see the downside below).
- You can access different repayment plan options. If you consolidate your federal student loans, you may be able to access other income-based repayment plan and loan forgiveness options for public sector employees . But not all federal loans are eligible. For example, the FFEL program is not eligible for this benefit.
- Allows you to change from variable rate loans to fixed rate loans. This can offer you greater certainty for your monthly budget.
Reasons not to consolidate your federal student loans into a Direct Consolidation Loan
- In the end, you will end up paying more. Having a longer term to repay your loans means more (but lower) monthly payments, which means you’ll pay more in interest than you would without consolidating your loans.
- You could lose any borrower benefits you currently have. Certain types of federal loans have benefits for borrowers, such as interest rate discounts, loan principal reductions, or certain loan cancellation benefits, that you may lose if you consolidate your loans.
- You can lose what you have advanced. Consolidating loans with a repayment plan based on your income, or in the case of making payments for loan forgiveness for public sector employees , means that you will lose credit for the amount of payments you have made under these systems.
Not sure if consolidating your loans is right for you, but having trouble meeting your monthly payments? Consider contacting your loan servicer to find out about deferment or forbearance as options for short-term payment relief, or consider switching to an income-based repayment plan.
Consolidation of your private loans
If you want to consolidate your private student loans, your only option is a private lender. You may have to pay a fee to consolidate your loans, but avoid companies that tell you to pay that fee up front.
Make sure you understand all the terms of your consolidated loan before agreeing to consolidation, especially if you have private and federal student loans. Some debt relief companies and lenders offer the option of consolidating private loans with federal loans. What they offer is a new loan to lower the amount of your monthly payments or the interest rate. Do not do it.
If you consolidate your private loans with your federal loans, your loan becomes a single private loan. That means you’ll lose your federal repayment benefits and protections, like payment deferment or forbearance, and you’ll no longer be able to access income-based repayment plans and potential loan forgiveness programs.
How to decide whether or not to consolidate your loans
Before you consolidate your loans, take your time. Find out what consolidation could mean in your specific case. If you have private loans, talk to your lender. For federal loans, call the Department of Education’s Loan Consolidation Information Center at 1-800-557-7394.
How to Avoid Student Loan Debt Relief Scams
You’ve probably seen ads for companies promising help with your student loan debt. But you need to know that there is nothing a debt relief company can do for you that you can’t do on your own for free. And some of the companies that promise debt relief are scams.
Here are some ways to avoid student loan debt relief scams:
- Never pay a fee in advance. It is illegal for companies to charge you before giving you help. If you pay up front to reduce or get rid of your student loan debt, you may not get any help or you may not be able to get your money back.
- Don’t sign up for any service that offers quick loan forgiveness. Before knowing the details of your situation, scammers may say they can make your loans disappear. They may be able to offer you a debt forgiveness program that most people can’t access because they don’t qualify. Or they might tell you that they can erase your loans by disputing those debts. But they can’t enroll you in a forgiveness program if you don’t qualify, and they can’t make your loans disappear.
- Do not trust a seal from the Department of Education. Scammers use official-looking names, seals, and logos. They promise special access to repayment plans, new federal loan consolidations, or loan forgiveness programs. Is a lie. If you have federal loans, go directly to the Department of Education’s StudentAid.gov website .
- Don’t be rushed. To get you to act fast, imposters tell you that if you don’t sign right away, you could miss out on qualifying for repayment plans, loan consolidation, or loan forgiveness programs. Take your time and check it out.
- Do not share your FSA ID with anyone. Some scammers say they need your FSA ID to help you, but don’t share your FSA ID with anyone. There are dishonest people who could use that information to get into your account and steal your identity.
You do not have to pay to get help with your student loans. There’s nothing a company can do for you that you can’t do yourself for free. If you have federal loans, start at StudentAid.gov/repay . If you have private loans, contact your lender directly.
What to do if you paid a scammer
Scammers often ask for payment methods that will hinder your chances of getting your money back. Regardless of how you paid a scammer, it’s best to act as soon as possible. See more information on how to get your money back .
Report student loan scams to:
- The FTC at ReportFraud.ftc.gov .
- The attorney general of your state .