Student Loan Debt Settlement and Your Credit Score

Student loan debt settlement, like all forms of debt settlement, will cause an initial drop in your credit score. This is the penalty provided by lenders because they lost money on the loan. However, your credit may recover faster or slower depending on the type of debt you had and how you decide to handle the settlement.

Initial Credit Penalties

The lender will initially report you to the credit bureaus for settling the debt instead of paying it in full. This means two things. First, your score will drop as a result of a negative report. Second, the debt will reflect an unsatisfactory closing on your permanent credit score. This negative information could be removed from your score within five years, but the length of time differs from state-to-state. It is possible your settlement will remain on record for up to 15 years. This has a much more lasting effect on your credit than the initial drop in your score. Future lenders will see you settled the debt, and they will see you as a settlement risk in the future. They will be less likely to extend you flexible loan terms as a result.

Consolidation Penalties

Settling only one student debt will minimize the effect of this punishment. Settling multiple debts, though, will exacerbate the effect. Many student borrowers enter consolidation programs. These programs take all of the debts incurred, including living expense debts, credit card debts and tuition debts, and lump them together into one. During the process, the consolidation lender settles all of the loans. The result is one manageable loan that is lower than the sum of the debts that were once remaining. However, the penalty for this option is high enough to make it unattractive for most borrowers who are not facing severe debt situations.

Ongoing Credit Recovery

Recovering from student loan debt settlement can be a short process or a very long one depending on how you handled the settlement. If you paid off your debt with your own cash, perhaps through the signing bonus you received at your first job or through an inheritance, you will no longer have any debt on record. This makes for a faster recovery. Similarly, if you elected a settlement loan with recovery in mind, you may see your score rise faster. This means picking a loan with a short maturity date, unsecured with collateral and without a cosigner. Of course, this type of loan will be expensive in the short run, so it is not an option for all borrowers.

Penalties on Federal Student Loan Debt

If you prepay federal student loan debt, there is never a penalty. However, the same is not true if you settle the debt. In fact, most federal student loans cannot be settled for less than the remaining sum on the loan. They can be consolidated, refinanced and prepaid, but they cannot be closed unless you have met the legal obligations you have to pay the debts. The main exception is student loan forgiveness, but this is only an option for a small group of borrowers.

How Previous Credit History Impacts a Mortgage Loan Decision

Loan decisions are based on several factors, but few are quite as important as your previous credit history. This is true with mortgage loans. While in the past, you might have been able to get a mortgage loan with credit that would make you ineligible for other types of loans, the collapse of the housing bubble and the declining economy in general made mortgage lenders reluctant to give loans unless they are reasonably sure you will be able to pay it. Now more than ever, the better your credit is, the more likely you are to get a loan that has good terms and fits all of your needs.

Understanding Your Credit History

Your credit history is a record of your ability to pay your debt obligations on time. Credit score is the numerical value of your credit history. It ranges between 200 and 850. The higher the credit score, the better your credit history is. The credit scores are compiled by credit reporting agencies. Once the credit scores are compiled, these agencies will sell them to the lenders. Since the scores vary slightly between agencies, lenders will often try to get all three. Your credit score is compiled using several different factors. They include:

• Payment history – this is based on the number of times you missed your monthly payments on your credit cards and other loans, as well as how often you failed to pay your loan altogether and how long it took you to repay your existing debt.

• Credit utilization – this is the ratio of the amount of credit you use over your current credit limit. In order to maintain good credit score, you must spend no less than 10 percent and no more than 30 percent of your credit card limit. It is worth noting that closing your credit card accounts will make the score worse, since your spending from those accounts drops down to zero.

• Length of credit history – the longer you use credit while paying your bills on time, the better credit score you will be.

• Types of Credit Used – the more types of credit you use, the bigger your credit score will be. In other words, you should have several different types of loans and several different credit cards.

• Number of credit inquiries – this is based on the number of times you try to get new credit. Generally speaking, the more often you try to get credit within a short period of time, the lower the credit score will be. This does not apply to mortgage and auto loans – you can apply for them as often as you want.

Student Loans for Law School

If you are considering becoming a lawyer, but will need student loans for law school, there are 3 options to consider. Each of the options described below has certain advantages and restrictions that you should understand and consider when you are trying to figure out how to pay for school. For most students, a blend of two or three of these options is most appropriate, o required, because of the restrictions that exist. Understanding your options is the first step to planning for law school.

Subsidized Graduate Stafford Loans

A subsidized graduate Stafford loan is awarded based on your financial need. With this type of loan, you do not have to pay any interest while you are in school or during the deferment period. The deferment period typical extends for six months after graduation. During this period, the federal government subsidizes the loan by paying the interest for you. Once you enter the repayment period, interest begins to accrue to you as the borrower, but before this, the loan is interest free. All Stafford loans have principal guarantees provided by the federal government and carry maximum interest rates that vary based on the date the funds are dispersed.

There are restrictions on the maximum amount that a law student can borrow as a subsidized Stafford loan. You can borrow no more than $8500 per year, and no more than $65,500 total. The maximum debt amount for law students includes any subsidized Stafford loans that you took as an undergraduate as well.

Unsubsidized Graduate Stafford Loans

Unsubsidized graduate Stafford loans are not based on need. Any eligible student currently enrolled in school may apply for this type of loan. In this case, you take the loan and the interest begins to accrue immediately. It is still deferred until you graduate, but the additional amount is capitalized. This means that the interest balance that goes unpaid while you are in school is added to the principal balance upon graduation.

There are restrictions on the maximum amount that a law student can borrow on an unsubsidized loan as well. You can borrow up to $20,500 in any given year, including the $8500 than may be subsidized. The maximum debt amount for a law student is $138,500, which includes the $65,500 maximum of subsidized Stafford loans and any Stafford loans that were taken out while you were an undergraduate.

Private Loans

In addition to Stafford loans, as a law student, you may be eligible for private loans. This is usually the type of loan that students take to cover cost of living, as well as any shortfalls created by other loans. You should contact your school and determine the annual cost that they estimate for attending. This number will include tuition, books, and cost of living. This number is published as is usually the maximum a lender will approve you for without special dispensation from the school financial aid office. This is a universal number determined for all students and is meant to help you budget to a standardized and reasonable figure. Most students use a blend of all three types to meet all of their financial needs.

A Guide to Student Loans for Health Professions

Student loans for health professionals are a boon to financially needy students to pursue their degrees. Many students ambitious to become health professionals are daunted by rising college costs and wonder whether they can fulfill their dreams. Luckily for them, there are various federal and private loans available to help them complete their studies. These loans, which have varying eligibility requirements, terms and conditions, offer low interest rates and flexible repayment terms. The loan programs are provided by the Health Resources and Services Administration (HRSA), part of the Department of Health and Human Services (HHS).

The Health Professions Student Loan (HPSL)

This is a federal loan program offering loans with very low interest rates, and it is administered by the college or university where the student is pursuing a degree. The interest is subsidized during the school term, and the grace period and the repayment time is about 120 months.

The Primary Care Loan (PCL)

This provides long-term aid at more advantageous terms than all the other loans. Under this plan, the student has to enter a residency training program in one of the primary health care fields upon completion of his or her studies.

The Nursing Student Loan (NSL)

Financially needy students studying towards a graduate degree, a baccalaureate or an associate degree or a diploma in nursing are eligible for the NSL.

The Loan for Disadvantaged Students (LDS)

Through this program, students with disadvantaged backgrounds as per the HHS and who are eligible for the HPSL, PCL or NSL programs can get loans.

There are rules and regulations for all the above loan plans that must be strictly followed. The applicants themselves must meet certain requirements, such as being enrolled in certain medical disciplines, and their college or university must be among those deemed eligible. Dependent students are required to report parental data on the FAFSA (Free Application for Federal Student Aid). Documents like promissory notes and disclosure forms are duly to be filled out, and an exit interview is mandatory.

The U.S. Department of Education's Direct Loan Program can be explored via the Internet by students and parents for information about the Direct Loan Program.

The FFEL Program is a loan program that includes the following four loans: Stafford Loans, Unsubsidized Stafford Loans, Federal PLUS Loans and Federal Consolidation Loans. These are available with federal as well as private loan options like Federal Stafford Loans, Federal Graduate PLUS Loans, CitiAssist® Health Professions Loans, CitiAssist® Residency, Relocation and Review Loans. Medical School Loans, Medical Student Aid and Gradloans.com are a few premier loan providers also with federal as well as private loan schemes, consolidation, residency loans and board exam loans. Loans like Stafford loans are the most commonly chosen schemes to pay for medical school at very low costs. Another such loan is the federal Perkins loan program, which offers a low interest rate to help needy students in their post-secondary studies.

It is best to explore all opportunities for federal student loans by completing and submitting the FAFSA to avail any eligible federal loan first before venturing out to seek private loans, as they have higher interest rates, often requiring payments when in school and tighter repayment options as well more fees.

Reduce Your Car Loan Monthly Payments by Refinancing

Your monthly car payment is usually one of the biggest financial obligations that you have every month. Besides your mortgage payment, most of the time, the car payment is the second largest payment each month. One way that you could potentially address this is by refinancing. Here are the basics of refinancing an auto loan to lower the payment.

How it Could Help

Refinancing an auto loan could potentially lower your payment in a few different ways. When you initially take out an auto loan, the term is usually for around 5 years. Each and every month, part of your payment goes towards the principal and the interest on the loan. When this happens month after month, the balance that you owe on the loan will go down.

Although your balance is going down, the loan is still amortized on the original loan amount. Therefore, your monthly payment is set up based on the old loan balance. If you were to wait a few years and then refinance the loan, you could amortize the loan on the new loan balance. For example, instead of paying your monthly payment based on a $15,000 loan amount, you can pay your payment based on a $7,500 loan amount. This would increase the time that it takes to pay off your loan, but it would result in a lower monthly payment.

Another thing that could potentially help is if you can locate a lower interest rate for the loan. For example, depending on what rate you were able to secure for your initial loan, you may be able to get a lower rate in the market later. Therefore, instead of paying 5% on a car loan, you could find a loan for 4%. Even if you have not paid down your balance much, this will have the effect of lowering your monthly payment.

How to Refinance

In order to refinance your car loan, you will first have to locate a lender that you can work with. You need to shop around through multiple outlets in order to find the best rate. You need to check with banks, credit unions, and online auto lenders. There are a plethora of options available and checking them all out will ensure that you get the best rate available in the market.

Once you locate a lender that you can work with, you need to apply for the new loan. Filling out the application will be pretty simple. You will provide them with the basic information that they require, such as your name, address, and social security number.

The lender will then pull your credit report and decide whether you are worthy of a new loan. If you are approved, they will give you the money that you need to pay off the old loan. You will pay it off and then start making payments to the new lender.

Why Are Suprime Car Loan Interest Rates So High?

Getting a subprime car loan could be an option for you if you have been turned down by a traditional car lender. Subprime car loans provide loans to those that have less-than-perfect credit at a higher interest rate. Here are the basics of why subprime car loans have a higher interest rate than other loans.

Subprime Car Loans

In order to fully understand why subprime car loans have such high interest rates, you first need to understand what these types of loans are. A subprime loan means that the lender is dealing in the riskiest part of the market and makes the loans separate from traditional loans. Those with a 640 FICO score or lower will be potential clients for this market.

Increased Risk

The lenders are going to charge more for the interest rate on these types of loans because of the increased risk. When you are dealing with people that have a credit score of less than 660, this means that you are taking on a great risk. Those with low credit scores got those scores because of their disregard to paying their debts. Regardless of what happened to cause them to not pay their bills on time, the fact remains that they are a bigger credit risk than those with higher credit scores.

Lending money to someone for a car loan is an investment for the lender. They do it so that they can make a return on their investment. One of the first rules of investment is that when you take on higher risk, you should be able to get a higher reward. Therefore, when the lender works with someone that falls into a high risk category, they are going to be asking for a higher return on their investment.

Lack of Options

Another reason that these lenders charge so much is because they know that they can and still have plenty of business. There are quite a few people that fall into the category of not having a good credit history. These people can not get a normal car loan and therefore, they have to deal in the subprime market. When the lenders know this, they can charge a higher rate of interest and still have a steady stream of applicants that have been turned down elsewhere. Almost everyone needs a car these days and therefore, they will be willing to take any interest rate that they can get in many cases.

Risk of Default

Another factor that goes into the high interest rate is the risk of default. Many borrowers that fit into the subprime market have a high debt-to-income ratio. This combined with a bad credit score means that they are a high risk of default. As a subprime lender writes loans, they know that there is a certain amount of loans that will go into default. With this information, they have to charge the group as a whole enough money in interest so that they can still make money even with the defaults.

How College Loans Can Turn into Bad Debt

Normally, taking college loans is a great way to both increase your earning potential in the future and build your credit score early in life. Since you will need to take mortgage loans and auto loans after school, taking and paying off a large installment loan can be helpful. However, college loans can quickly become a toxic debt if you do not work to pay them off fast enough. If you are not responsible with the debt, you can find that student loans plague your financial stability for years to come.

Missing Payments in School

While you are attending college, it is easy to lose track of your finances. Most college students do not contribute significant sums toward their student loans while attending school; interest-only payment options are popular during this period of time. Even if you are only responsible interest-only payments, though, missing a loan payment can result in a number of problems. First, there will be financing fees for the missed payment. Second, the missed payment will go against your credit score nearly immediately, and it can remain on your report for years into the future.

Electing Deferment and Grace Periods

Student lenders tend to be very flexible when it comes to grace periods on the debt. They will often allow you to continue to defer loan repayment if you cannot find a job or go to graduate school. While these options appear helpful, they can actually end up costing you thousands of dollars in excess interest. The longer you go without repaying your debts, the higher your debt balance will become. Many student borrowers find they are facing hundreds of thousands of dollars in debt when they are finally done with school and ready to start the process of repaying.

Defaulting on Student Debt

If you find you cannot meet your student debt obligation after graduation, you face defaulting on one of the few large installment debts you will likely take in your entire lifetime. Many students simply assume they will locate a high-paying job after they receive a college degree. Most do go on to earn stable salaries, but many will have different futures. You may choose to work for a non profit company and earn a low salary, or you may elect to go into public service. Federal student loan debts can be reduced in these situations, but private debts will not be. You can easily face default if your income does not cover your payment in a given month.

Carrying Debt for Too Long

Even if you make your payments on time and manage your debts well, taking such a large sum of debt at a young age can be detrimental to your ability to get new loans in the future. This is the biggest risk to those students who will pay back loans slowly through extended or income contingent options. They may carry their debts into midlife, when they are being considered for mortgage loans or other debts. If you have a big student debt balance, your mortgage limits can be reduced significantly.