Monday, November 10, 2014

Student Loan Borrowers in Default: Read On

By:  Carole L. Chiamp

New federal rules now in effect should make it easier for students who have defaulted on their government student loans to return them to good standing.

In the past, students could redeem themselves but many could not pay the new amounts necessary to get out of default and were confined by the definitions of what the new payment should be.

Many students “bury their heads in the sand” after default and the next thing that happens is garnishment of their wages and damaged credit ratings.

The new formula allows a payment of 15% of income after subtracting 150% of the federal poverty level.  For 2014 that is $17,505 for most states.  So a student with that income ($25,000 less $17,505) pays based on a reduced income of $7,495.  The payment calculated on that income is $94 per month.  Garnishments stop after a number of payments are made.

There is a good article on the subject with helpful information on various non-profits to help students.  A version of the article appeared on August 23, 2014 on page B6 of the New York Times with the headline: “For Student Loan Borrowers in Default, Redemption Just Got Easier”.

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