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College Students and Recent Grads

Student Debt Confessions: How I Got Kicked Off My Income-Driven Repayment Plan

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Liz Stapleton wrote about her experience getting kicked off her income-driven repayment plan for MagnifyMoney. Overnight, her monthly student loan payment skyrocketed from $365 to nearly $2,000.

I graduated from college at the onset of the recession in 2008 and graduated from law school just in time for the recession to hit the legal market in 2011. By the time I finished with both my degrees I had $193,000 of federal student loan debt, which has since grown to over $250,000. Needless to say, I’ve never been financially able to make student loan repayments under the standard repayment plan.

Once my six-month student loan grace period ended in 2011, I immediately signed up for an Income-Driven Repayment Plan with each of my three loan servicers.

Every borrower enrolled in one of these plans has to renew their eligibility through their loan servicer every year. Since I have three servicers, that means at this point I have been through the renewal process 18 times. The first 17 recertifications went off without a hitch.

So I was stunned when I found out my 18th and most recent submission for recertification through one of my three loan servicers was denied. That was it — I was kicked out of the program. Suddenly, my monthly payments of $362 were going to balloon to nearly $2,000.

I got on the phone with the lender right away, determined to find out why I was booted from the program. In the end, I was able to successfully re-enroll.

Why my income-driven repayment renewal was denied

It turns out my status as a self-employed worker was to blame.

After I was laid off from my job as a solutions consultant at the end of 2016, I started a business as a freelance writer in 2017. One of the requirements to recertify your eligibility for income-driven repayment plans is to submit proof of income. When I was working full time, that was no problem. I just used records of my pay stubs to verify my income.

But now that I was self-employed, I didn’t have pay stubs. Early in 2017, when my deadline to recertify with one of my loan servicers was approaching, I called them and asked what documents I could use to verify my income.

I was told that all I needed was a self-certifying letter stating that I’d been laid off and was now self-employed as a freelance writer. I also needed to include my gross monthly income. I wrote the letter and stated what my approximate monthly income was thus far, and my submission for recertification on the Income-Driven Repayment (IDR) Plan was approved, no problem.

But remember that I have three different loan servicers. So I had to go through the same process with the other two as well. Unfortunately, when I tried to use the same strategy to renew my certification with my second servicer, I was denied.

I was shocked and stressed out, to say the least.

Resubmitting my application

I called this loan servicer and asked why I had been denied. At first, the representative I spoke with told me there wasn’t sufficient documentation of income. When I asked why my self-certifying letter wasn’t enough, the representative on the phone explained that it usually was enough. I pressed her to find out what exactly was wrong with my letter that had resulted in a denial. It turns out, they didn’t like that I used the word “approximate” when stating my gross monthly income. They needed a firm number. Additionally, they wanted a work address.

I rewrote the letter to take out the word “approximately” and explained that as a self-employed freelance writer I worked from home and had no additional company address. I submitted my forms again and crossed my fingers.

In the meantime, my loan servicer agreed to put my loans into deferment for one month. That would ensure that I wouldn’t get hit with my new larger payment the following month.

Here’s what the application looks like to re-certify your enrollment in an income-driven repayment plan. Download a copy at https://studentaid.ed.gov.

The long wait for news

After I resubmitted my IDR Plan recertification application, I was told I would hear back within 10 days. It was nearly a month before I heard back from them in June. It was good news – my documents were approved, and I would be enrolled in my new IDR Plan starting in August.

But the celebration was short-lived.

Since I had only been granted a one-month deferment, which covered me for June, and my new IBR Plan wouldn’t kick in until August, that meant I would have a gap in July. And I’d have to pay my new, larger monthly payment. I couldn’t afford the payment of nearly $2,000 and to miss it would mean defaulting on my loans. Defaulting on federal loans could mean losing access to the income-driven repayment plans as well as forbearance and deferment options, not to mention it would wreak havoc on my credit.

Once again I was caught off guard and stressed out. And, once again, I called my loan servicer to find out why the new plan wasn’t being applied sooner. Apparently, the billing cycle had already passed for July.

To solve the problem, I requested another month of deferment for July, which I was granted.

Asking for a forbearance or deferment is never fun, but it is always better than defaulting on your loans and losing access to those options and flexible repayment plans.

What to do if your recertification is denied

  1. Be proactive. One of the biggest lessons I learned from this ordeal is that it pays to be proactive. Don’t count on the loan servicer sending the paperwork you need to fill out; you can find a recertification document here. If you are struggling with payments, you have to take action. Ask your loan servicer questions to find out what might work best for you, a new payment plan or a temporary forbearance or deferment. If your loan servicer is being stingy with answers, persist, do not hang up the phone until you have the answers you need.
  2. Don’t be shy about requesting deferment or forbearance. Loan servicers won’t necessarily anticipate that you may need a deferment or forbearance if your repayment plan is denied. So be sure to ask.
  3. Resubmit your application. It isn’t unusual to have your recertification denied for a number of reasons. For example, if you are a salaried employee, paid biweekly, and only submit one pay stub, you could be denied for not demonstrating an entire month’s worth of income. But remember, you don’t have to accept that denial as final; you can usually resubmit if something was wrong with your original submission.

The Bottom Line: Not all loan servicers are created equally

As I learned the hard way, some loans servicers are pickier about the language you use on your renewal forms than others.

“For those that are self-employed, some [servicers] will have specific requirements in the phrasing of the documents used to certify income,” says Columbus, Ohio-based financial advisor Natalie Bacon. “What works for one loan servicer may not work for another.”

The biggest lesson I learned was not to assume that just because one loan servicer accepted my documentation, the other loan servicer would as well. It’s always important to communicate with each of your student loan servicers.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Liz Stapleton
Liz Stapleton |

Liz Stapleton is a writer at MagnifyMoney. You can email Liz here

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College Students and Recent Grads

Can You Really Get Rid of Student Loans by Leaving the Country?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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A college degree that didn’t lead to your ideal job. A stack of student loan bills you can’t afford. A collections agent blowing up your phone.

For any of these reasons, you might be seeking a way out — even out of the country. Leaving the U.S., however, might not solve your education debt.

Can you escape debt by leaving the country?

The short answer is no. The debt will still be there.

There’s no statute of limitations on federal loans, meaning that you’d be responsible for repaying your debt when or if you return to the U.S.

For private loans, on the other hand, state laws do put limitations on lenders’ ability to sue over your old loan debt. However, these statutes last years and won’t stop collections agencies from contacting you, regardless of where you reside.

If you abandoned your debt, you would need to establish an income and credit report in your new country and otherwise lay down roots.

But just because you could abandon your American debt doesn’t mean that you should.

For one, you have a moral dilemma on your hands: You borrowed money to fund your education, and although the borrowing and repayment process might seem unfair, you did agree to repay it.

But even if that’s not an issue, you still have to ask yourself whether you’re willing to face the consequences of creating zombie debt that will hang over your head.

Consequences of a move overseas to escape student loans

It’s impossible to say whether you’d need to look over your shoulder, wary of creditors on your tail. They might not have the willingness or the wherewithal to track you down.

You also can’t be arrested for your debt, and, no, your passport isn’t at risk. Still, the punishments of ignoring your debt can be severe. Some effects include:

Your loan balance will balloon

Just because you disappear doesn’t mean your debt will too. Quite the opposite — it’ll continue to grow. Interest will accrue and capitalize onto your balance each month that passes without payment.

If you skip town $40,000 in the hole at 7.00%, for example, your balance would collect about $16,000 worth of interest after 10 years, and almost $35,000 after 20 years.

Your credit score will tank

Although your credit score won’t follow you overseas, it will only worsen while you’re away.

After all, more than a third of your score’s composition rests on your payment history. By ignoring your payment due date, your score will take a nosedive. And when you default, the status will show up and stay on your credit report for up to seven years.

With such poor credit, you’ll have a hard time after your stateside return borrowing money in any form, including a home mortgage, car loan or credit card.

Your wages could be garnished — and worse

Once you default on your federal loans — that is, fail to make a payment for more than 270 days — your servicers could send your debt to a collections agency, where it will incur more fees.

The Department of Education could then take the following measures to collect your debt:

  • Treasury offset: The government could withhold any federal money you were set to receive, such as income tax refunds and Social Security benefits. Your driver’s license and/or other state-issued licenses could even be forfeited.
  • Wage garnishment: Your collections agency could require your employer to hand over 15% of your paycheck to put toward your defaulted loan. If it’s unable to take your income — perhaps because you’re self-employed — then you might face a lawsuit from the Department of Justice.

Private lenders vary in their practices, but you can bet they’ll farm out delinquent loans to their debt collection agencies. They can also sue you to secure a percentage of your income.

Your cosigner could be left hanging

Federal loans are borrowed in the student’s name, so you — and only you — are on the hook for them. The family you leave behind in the U.S., however, might have to deal with phone calls or mail from collections agencies.

Private loans are a different story. In all likelihood, you asked a family member to cosign your loan as an undergraduate, since about nine of 10 private loans are cosigned.

By leaving your debt and country, however, you’d be passing the buck to your cosigner. Mom, Dad or whoever else could be legally responsible for repaying your debt, potentially putting a stranglehold on their finances.

Can you even move to another country with student loan debt?

Just because you shouldn’t leave the U.S. to flee your student loans, however, doesn’t mean you’re trapped inside the country until your debt is repaid. If you’re motivated to live abroad for reasons other than escaping your education debt, consider that you could take your debt along for the ride.

You might make progress in repayment, for example, if you can earn an American salary but reside in a country with a lower cost of living.

No matter where you decide to shack up while repaying your education debt, consider these tips.

Explore repayment plan options

Whatever ails your loan situation so much that you’re considering quitting your repayment, know that there are debt relief options, including:

Income-Driven Repayment (IDR)

On the federal loan front, consider switching repayment plans. IDR would allow you to limit your monthly payment amount to a percentage of your discretionary income, making it a good option if you’re out of work or climbing the career ladder from the bottom. Keep in mind though that when you lower your payments and extend your loan term, your debt grows because of accruing interest.

Unfortunately, private lenders generally don’t offer IDR, but they could be willing to adjust your repayment if you fall on hard times.

Deferment or forbearance

There are more than a dozen types of eligibility for deferment and mandatory forbearance on federal loans. These measures pause your payments while you get back on your feet. To cure your wanderlust, you could even defer your loans for up to three years by joining the Peace Corps.

Private lenders’ protections are typically less comprehensive, so talk with your lender about what it offers.

Student loan refinancing

You’ll need good credit and steady income (or a cosigner) to qualify, but student loan refinancing could solve several of your repayment problems simultaneously. It could consolidate your debt into one new loan, potentially lower your interest rate and give you the power to choose your new (private) lender.

Just be aware that by refinancing federal loans, they’ll be stripped of the federal safeguards that come with them, such access to IDR and some loan forgiveness programs.

Budget for travel — and loan payments

Once you know how much you need to spend to keep pace with — or, better yet, attack — your loan balance, it’s time to budget. This step is crucial if you’re planning to live abroad. A budget will serve as your roadmap, helping you to estimate the affordability of the life you want to lead and the debt you’re due to repay.

Cutting U.S. expenses like apartment rent and utility bills is a great start. You can also maximize your money by choosing the right country. You might have designs on visiting Scandinavia, for example, but then find that Southeast Asia is more in your price range. Nomadlist is an excellent resource to help plan for potential monthly costs on a city-by-city basis.

Increase your income

You can budget until you’re blue in the face, but eventually you’ll run out of expenses to trim. Give yourself more wiggle room by increasing your income at home or abroad.

If you’re fortunate enough to work remotely and take your American salary with you, you might already have the cash flow necessary to travel cheaply and still pay down your debt. You might also seek side gigs like teaching English as a second language in another country.

Keep your American bank account

Even if you’re not sure when you’ll return to the U.S., keeping your American bank account will ease your student loan payments. You won’t want to deal with foreign transaction fees, for example.

Additionally, by keeping your domestic checking account, you can score an interest rate reduction with some lenders and servicers by signing up for autopay.

You can repay your debt and still wander the world

Leaving your home country for a clean slate elsewhere is an age-old strategy. But unless you’re planning to leave the U.S. permanently, it could wreck your student loan debt situation.

Before you book a flight, consider the consequences of wandering the world without a repayment plan. Whether you choose to live in the U.S. or abroad, there are plenty of ways to get back on track. You just have to look for them.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Andrew Pentis
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Andrew Pentis is a writer at MagnifyMoney. You can email Andrew here

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Review: SunTrust Custom Choice Loan

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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SunTrust offers students a good option to finance their education with its Custom Choice Loan. Interest rates are fairly low, students may apply with a cosigner, and it comes with several repayment options. As a bonus, SunTrust offers graduates a 2% principal balance reduction as long as students graduate with at least a Bachelor’s degree.

 

Details of SunTrust’s Custom Choice Loan

The minimum amount you can borrow is $1,001 and the maximum amount you can borrow is $65,000. The total amount of Federal and private student loan debt you take out per year can’t exceed $150,000. You can choose a 7- or 10-year repayment term, and a 15-year term is available for borrowers taking out $5,000 or more.

Fixed APRs range from 5.35% to 14.05%, and variable APRs range from 4.37% to 13.38%.

You have four choices of repayment plans:

  • Immediate Payment – There’s no grace period as you begin full payments while in school
  • Interest-only Payment – You pay the interest that accrues on your balance while in school
  • Partial Payment – Available on loans $5,000 or more, you can make payments of $25 per month while in school
  • Full Deferment – You get a grace period of six months when you choose this option, and you’re eligible for deferment as long as you’re enrolled in school part-time at an approved school (this option is the closest to how Federal student loans function)

The interest rate you get approved for is based on your credit history, loan term, amount requested, and other information provided on your application.

A 0.25% interest rate reduction applies if you set your loans to autopay, and SunTrust customers benefit from an additional 0.25% reduction if they pay through their SunTrust bank account.

How Does the Custom Choice Loan Compare to Federal Student Loans?

Before applying for the Custom Choice Loan, you should exhaust all of your federal student loan options first. Make sure your family fills out the FAFSA form to see what you might be eligible for. Federal student loans have lower fixed interest rates, and come with more benefits than private student loans do. These benefits will help in case you hit a rough patch with your money.

For the 2018 – 2019 Academic year, Direct Subsidized and Unsubsidized Loans have a fixed interest rate of 5.05%. That makes the 5.35% fixed APR and 4.37% variable APR of the Custom Choice Loan comparable. However, those are the lowest possible APRs available, and if you don’t have excellent credit, you may not be eligible to receive them. Variable rates are also subject to change, which means they can increase over the life of your loan and become more expensive.

SunTrust doesn’t have an origination fee with its loan, but the Direct Subsidized and Unsubsidized Loan has a 1.062% disbursement fee from October 1, 2018 through September 30, 2019.

SunTrust’s APRs aren’t horrible, though. If you can, apply with a cosigner who has better credit, as you’ll be eligible for lower rates. You want to get as close to Federal interest rates as possible to get the best deal.

[7 Things You Need to Know about Private Student Loans]

Eligibility Requirements

You must be a U.S. citizen or permanent resident to apply. A majority of four-year public or private colleges are eligible – you can check eligibility on the first page of the application.

If your credit history isn’t sufficient enough, you can apply with a cosigner, and there’s a cosigner release option available after 36 consecutive, on-time payments.

You must also be the legal age of majority when completing the application. Applicants residing in Iowa or Wisconsin aren’t eligible for this loan.

[How to Tell if Your Loans are Federal or Private]

Application Process and Documents Needed

You can apply online by yourself or with a cosigner. After your application and credit (a hard credit inquiry is used) are reviewed, you’ll be presented with your loan options. If you choose to move forward with the loan, you’ll be provided with a list of documents you need to upload.

Once you’ve submitted everything, an Approval Disclosure will be sent to you for acceptance. You have 30 days to accept the terms of the loan before they expire.

Upon acceptance, SunTrust will contact your school to request certification of the loan, as you’re only allowed to borrow enough to cover your education expenses. This also ensures you don’t take out more student loan debt than necessary.

Once everything is complete, you (and your cosigner, if you applied with one) have three days to back out of the loan. After that, the loan is finalized, and the funds are sent directly to your school.

Have these documents ready to submit when applying:

  • Proof of income – the student or cosigner must show proof of positive income in the form of a recent W2, paystub, or tax return
  • Photo ID
  • Proof of residency may be required if Photo ID isn’t sufficient

The Fine Print

There are no origination, application, or prepayment fees for this loan. If you’re 10 days past due on a payment, you’ll be charged 5% of the unpaid amount as a late fee.

The minimum loan amount is different in certain states: $5,001 in Alaska, $3,001 in Colorado, $2,501 in New Mexico, $5,101 in Oklahoma, $5,001 in Rhode Island, and $3,701 in South Carolina.

[Student Loan Disbursement 101]

Repayment Assistance Options

American Education Services is the loan servicer for SunTrust. If you experience any difficulty repaying your student loans, you’ll have to contact them for repayment assistance options. You may be able to apply for a deferment, forbearance, or interest-only payment for an extended period of time.

Pros and Cons of the Custom Choice Loan

Pro: If the borrower dies, then the balance of the loan may be forgiven as long as SunTrust is contacted and provided with proof of death. (If the cosigner dies, the student remains responsible for the loan.) Students who become permanently disabled can apply for a loan discharge as well.

Con: The loan isn’t available to those living in Iowa or Wisconsin, and minimum loan amounts differ in six states. Make sure that doesn’t apply to you in case you’re not looking to borrow a large amount.

Pro: The Custom Choice Loan fittingly gives you a few choices when it comes to loan repayment options. Choosing partial payments or interest-only payments can help lessen the amount of interest you’ll pay over the life of your loan, and are easier to manage than going into immediate repayment.

Pro: SunTrust offers a Graduation Reward where 2% of your principal balance will be reduced, provided you graduate with at least a Bachelor’s degree. The principal balance is based off the net total of all disbursements you receive from SunTrust.

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Private Student Loan Alternatives

Not eligible for a loan with SunTrust? There are many other private lenders offering student loans, such as Citizen’s Bank and Sallie Mae.

Citizens Bank: You can borrow up to $90,000 and your combined Federal and private student loan debt can’t exceed $120,000. Fixed APRs range from 6.39% to 11.65%, and variable APRs range from 6.14% to 11.40%. Repayment terms offered are 5, 10, and 15 years.

Citizens Bank (RI)

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Sallie Mae: One of the most well-known private student loan lenders, Sallie Mae has a Smart Option Student loan with fixed APRs ranging from 6.25% to 9.16%, and variable APRs ranging from 4.00% to 9.04%. You can borrow up to the cost of attendance, and this loan comes with a Graduated Repayment option.

Sallie Mae Bank

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It’s also worth checking with your bank or local credit union for their rates. If you or your cosigner have an existing relationship with a bank, that could help you secure lower rates.

Are you afraid of your credit being negatively affected if you apply with too many lenders? As long as you complete applications within a 30-day window, then the credit bureaus will count all inquiries as one inquiry, ensuring your credit doesn’t take a huge hit. Shopping around for the best deal is worth the effort with student loan debt being such a burden. Lower interest rates will make your loan more affordable.

A Solid Option if You Have to Use a Private Lender

The SunTrust Custom Choice Loan is a solid option for students requiring more financial assistance than what the Federal government can provide. SunTrust customers benefit more with the 0.50% interest rate deduction, and no one can complain about receiving a 2% principal reduction on their loans upon graduating.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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