If you are having trouble paying back your student loan debt, you may be relieved to hear that the Department of Education has created new rules that will give you more protection from debt collectors collecting on federal education loans. These new regulations should make it easier for you to get your loans out of default.
These rules do not apply to private student loans, only to loans made or guaranteed by the federal government. If you are in default you can”rehabilitate” loans by making nine “reasonable and affordable” on-time payments. This will allow you to get out of default and become eligible for further federal student aid or other repayment programs.
Some private debt collectors who were collecting on federal loans were failing to offer payments that borrowers could afford; instead offering payments based on a percentage of the borrower’s total debt. Such payments meant increased commissions for the collection agencies, but were unworkable for borrowers. Debt collectors were also demanding minimum monthly payments without telling people about the more affordable alternatives, even though the laws of federal student aid does not require those minimum payments.
The new rules require that borrowers who want to rehabilitate their loans must first be offered a payment amount similar to what would be offered under the federal income-based repayment program. That option would cap a borrower’s monthly payments at 15% of their monthly income.
These new rules also allow borrowers who have been delinquent at least nine months to request “forbearance” on their loans. This request must be done in writing. Forbearance means you do not have to make monthly payments, but the interest continues to be added to your loans and this can leave you further in debt.
The new rules will take effect July 1, 2014, but lenders and schools have the option to start helping borrowers right now instead of waiting.