Understanding Your Debt
Understanding Your Debt
Navigating your loans may seem like a daunting task. Many of us were sped through the Financial Aid process and had no real understanding of the various types of loans that we were taking out, let alone whether they were private or federally backed.
Federal Loans are those that are obtained through the United States government. These include Direct Subsidized Loans, Direct Unsubsidized Loans, Federal Family Education Loan (FFEL) Program, and Parent Plus loans. The Direct Loans are interchangeably referred to as "Stafford Loans."
- Direct Subsidized Loans have the lowest interest rates for borrowers and are given to undergraduates that demonstrate a financial need. The Department of Education pays the interest on these loans while the student is enrolled at least half time, during the 6 month grace period after graduation, and during periods of deferment.
- "Note: If you received a Direct Subsidized Loan that was first disbursed between July 1, 2012, and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. If you choose not to pay the interest that accrues during your grace period, the interest will be added to your principal balance"
- Direct Unsubsidized Loans are available to any graduate or undergraduate student and do not require that the borrower demonstrates a financial need. The interest is not paid for by the Department of Education during any period of the loan's life, whether the student is still enrolled or in deferment. There is no grace period for unsubsidized loans.
- Federal Family Education Loans Program (FFELP), although obtained through the U.S. government, are actually backed by private lenders like credit unions and banks. These loans are no longer given out by the Department of Education. The FFELP includes Direct Subsidized and Unsubsidized loans, Plus Loans, and Consolidated loans, which differ from the normal Direct Loan terms.
- PLUS Loans allow parents of students to finance their dependent undergraduate's education. These loans are also available to graduate students to cover the costs of their education, and are a part of the FFELP.
Private loans are often taken out after a student uses up their Federal Student Loan eligibility, and no longer qualify for aid through FAFSA, so that they can complete their education. The terms on many private loans are sub-prime, and the costs of the loans increase quickly and substantially, leaving many borrowers indebted for life. Many of these servicers have been investigated by the CFPB for abusive collections practices and misleading borrowers on repayment options. Private loans are extremely difficult to dispute or have discharged.
Disputing The Debt
- Federal Loans can be disputed by filing a Borrower's Defense to Repayment, or a "DTR," for short. The Borrower Defense to Repayment is an old, but rarely used, provision that allows students who were defrauded by an institute of higher learning to dispute the validity of their debts obtained for their education. The Department of Education has received over 4,000 claims to date, and has not cancelled any of the debts. They have also opted at this time to not include FFELP or Plus loans, despite the collective voice of students and activists who have demanded that ALL federal loans be included in the process. The DOE has stated that they are working on a streamlined process to allow students to assert their defenses, and have even appointed a "Special Master," to oversee the process.
If you would like to assert a Defense to Repayment, you can do so through the Debt Collective's Defense to Repayment App. Before filing, you will want to make sure to get your necessary information and evidence gathered.
Most of this information will be obtained from what you input into the DTR App, but the supporting document materials are things you would need to obtain on your own to upload into the application. You are legally entitled to copies of your unofficial transcript (even if you "owe" the school money), your financial ledger, your accounting paperwork, enrollment agreement, and other documents in your student file. You can also include any email correspondence that demonstrates fraud or misrepresentation. You can only upload a maximum of 25MB in your Defense Application, so it is recommended that you convert your files to PDF or place them into compressed ZIP folders before filling out the DTR. After you fill it out, you will want to make sure to download a copy of your form for your own records.
For more information on the Defense to Repayment, please see the DTR Wiki
- Private Loans are extremely difficult to get rid of at this time (The Debt Collective is working on strategies!). Most bankruptcy attorneys will not even attempt to have Private Student Loans included in bankruptcy proceedings due to the fact that they are almost never thrown out. A borrower must be able to prove an "Undue Hardship," which is extremely difficult, if not impossible, for most borrowers. For now, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) against both your loan servicer and your college and let them know about the fraud you encountered and to assert that these loans are the product of misrepresentation.