What is student loan consolidation?
Student loan consolidation is defined as a type of refinancing in which you can combine your existing student loan into a new loan that has a fixed rate of interest. The student loans are generally not eligible for the forgiveness programs.
Moreover, if you qualify for an IDR plan, then they may forgive your entire balance. Along with these benefits, there are many other benefits of debt consolidation, such as it makes the payment easy to manage.
The debt consolidation plans are of different types. There are some plans which lower the monthly repayment but increase the period of repayment. But if you become eligible for forgiveness, then you do not need to consider such things.
What is a fresh start program?
The Fresh Start program is a temporary program that helps students to get student loans. If the borrower misses more than 270 days of payment, then the loan is considered in default status.
In this, students have two options to get the loans out of default. The two options are student loan consolidation and rehabilitation. These methods are the best methods of getting the loans out of default.
Benefits to the borrowers
In this, the students do not get collection calls. Also, if the loans are moved out of default, the students do not need to worry about collection activities.
Your loans will be reported as current by the government, so your account will not be visible in collections on the credit report.
The students also may become qualified for financial aids.The borrowers also get access to other types of loans that are backed by the government, such as FHA loans.
What are the additional benefits?
The loans of the students will be taken out of the default and sent back to the repayment status.
Renewed eligibility for loan forgiveness
The loans that are restored will become eligible for the federal forgiveness program. These programs are public service loan forgiveness, teacher loan forgiveness, etc.
How to get student loan forgiveness?
Fresh Start can help you to get student loan forgiveness. A fresh start restores access to the student loan forgiveness programs. For each different type of program, there are specific eligibility requirements.
The requirements are working in public service for a certain fixed number of years, and after that, you have to pay your loan back, etc.
Along with this, you get other benefits, such as your remaining balance, which may get forgiven if you qualify for the income-driven repayment plan. There is another plan known as SAVE. This plan will offer you loan forgiveness after 10 to 25 years.
This depends on the original loan balance and the type of loan. There are other plans also, but these plans will forgive the loan amount after around 20 to 25 years of payment.
Along with these benefits, other various benefits are also provided by this plan. A major benefit is that their payment count does not start at zero. Also, they receive credits for months. Along with these benefits, they also get credit for qualifying the payments that were made before going into default.
Telling if loans are in default
The loan servicer is the person who manages your student loan and can tell you about the status of your loan. In order to find your loan servicer, you have to sign in to your Federal Student Aid Account from the website StudentAid.gov by using your FSA ID.
What loans qualify for this program?
Almost all federal student loans qualify for this program. This will help to replace the loan which is not eligible with a new direct loan. It is to be mentioned that consolidating the loan will get your loan out of default, but it will not remove the history that your loan was in default from your credit report.
To sign up for the Fresh Start Program online, you can log in to your account from the website. This is the easiest method of signing in to the Fresh Start Program.
The third method to sign in is by email. You have to write your name, email address, date of birth, social security number, etc., on the letter.
Missed the loan consolidation deadline?
If you missed the loan consolidation deadline and you are currently holding direct loans, they are still eligible for debt consolidation. You can consolidate your loans under any federal program that you qualify for. But in this case, you have to wait for a longer period.
Skipping student loan payments?
The students do not have to pay the student loan payments during the period of COVID-19. But after that, the government declared that this medical emergency was over, and the students had to restart paying their loans in October.
What is Biden’s latest plan?
Biden has proposed a loan relief plan for the students. If the loan gets implemented, then more than 25 million students will be forgiven their left-out loan amount.
This plan proposes two major changes. These are
In this, the student loan will be cancelled for those borrowers who are on repayment for 20 years or more.
And the second change is wiping out around $20,000 from the unpaid interest rate.
Under the plan, which is proposed by Biden, some students may have to pay a lesser amount of interest rates or instalments while some are forgiven the whole amount of instalments. But this is not for sure, sometimes, the students may have to pay their loans.
The students must find out whether they qualify for this plan or not. This is because many types of loan cancellation programmes are under this type of plan.
Runway interest would be cancelled?
According to this plan, the administration is targeting runway interest. Today, many borrowers have more money when they buy a loan. This is because they have not paid interest for several years.
So, this plan only allows the forgiveness of around $20,000 for each borrower. There is also a method to have your entire interest forgiven. Low and medium-income borrowers have used this plan. For this, you have to enrol on the income-driven repayment plan. For this process, no application is needed.
Thus, it is estimated that this plan would forgive the balance of around 23 million borrowers. There is another plan, which is known as SAVE. Under this plan, if you pay the full monthly income, then the government is all left out of interest.
Who gets the student loan relief?
The student loan relief will be given to those borrowers who have been paying their loans for 20 years or more than that. The remaining balance of such borrowers will be forgiven for the student loan. A person could easily qualify for this if he has started to pay the undergraduate debt before July 1, 2005, and graduate debt 25 years ago or more than that.
There is also an eligibility criterion, that is, you must have enrolled in the income-driven repayment plan. It is estimated that more than 2.5 million borrowers have been paying their student loans for two decades or more.
The process of automatic cancellation?
It is noticed that there are so many borrowers who are eligible but have not received the cancellation and are unable to enjoy the benefits of the plan just because of some reasons, such as being stuck in the paper or something else like bad advice.
So, in this plan, those people who are eligible for the SAVE plan have their interest rate automatically cancelled. The plan also promotes those colleges which provide low-value programmes and debt relief programmes. The administration said that the plans are in progress and provide relief to those people who are facing financial hardships.
Do BNPL plans affect credit scores?
With the help of the BNPL plan, you can purchase something in instalments; that is, you do not have to pay the whole amount in one instalment. These plans are interest-free. That is, you don’t have to pay interest on the instalments.
Due to this, it is highly liked by the customers and a good alternative to the use of credit cards in which the users have to pay high interest. The credit score is based on various factors such as your payment history, length of credit history, new credit, credit mix, etc.
Depending on your credit score, the lenders decide whether you qualify for the loan or not, and if you qualify to get the loan, what interest rate should be charged.
If you pay a balance down, that means you are using the credit card responsibly, and this will cause your credit score to boost.
Conclusion
In this article, we first studied loan consolidation. The process in which the old loan is transformed into a new loan with a fixed amount of interest rate is called loan consolidation. Moreover, your entire balance may get forgiven if you qualify for an IDR plan.
After this, we came to know about the Fresh Start plan. This plan helps the students to get a student loan. Then we looked at how loans fall into default and what are the ways to get loans out of default. After this, we studied the benefits of Fresh Start to the borrowers.
What to do if the student misses the debt consolidation deadline is also discussed. Also, what happens if the student skips to pay the loan is mentioned. The we came to know about Biden’s plan and how it is useful for borrowers who are paying their instalments for the past 20 years or more. At last, we discussed the BNPL plans.
