Mellody Hobson answers some of the “Text Tom” questions our listeners have sent in.
Today, let’s focus on the ones that came up around saving for college.
“How do companies work that help with student loans in default and back taxes owed? They’re very popular and I am wondering if they’re real or a scam and possible alternative solutions.”
Let’s start with the bad news: Recent college students are defaulting on federal loans at the highest rate in nearly two decades, reflecting “crisis” levels of student debt and a weakened economy with limited employment prospects.
One in 10 recent borrowers defaulted on their federal student loans within the first two years, the highest default rate since 1995, according to annual figures made public last month by the Department of Education.
Default can trigger serious debt-collection methods that include fees, wage garnishments, and withheld tax refunds from the IRS.
When it comes to companies that work with loans in default or back taxes owed, it really depends. There are many who are reputable, but the bottom line is that private companies who deal with debt consolidation are not non-profits: They’re charging fees and/or interest to help you, so if you have the wherewithal to attack the red tape on your own, buckle down and do it. You can consolidate your loans on your own if you contact the Department of Education. It’s just about getting organized and communicating, and it starts with a simple phone call.
As for alternatives, a lot of people aren’t aware that the government has programs that cap monthly payments based on borrowers’ incomes. The two-year default rate on student loans has doubled since 2005, and millions of potentially eligible borrowers appear unaware of programs that help borrowers manage debt burdens and avoid default.
The administration’s three debt-relief measures are called Income-Based Repayment, Income-Contingent Repayment and Pay As You Earn. These programs shouldn’t be expected to avert every default, but many of the 600,000 borrowers who defaulted last year should have been able to benefit. Contact the Department of Education for more information about how to enroll.
Mellody Hobson Answers Your Student Loan Questions was originally published on blackamericaweb.com