Credit counseling agencies can help with student loans
By Allie Johnson
June 1, 2015
Even if you aced Calculus, Econ 401 or advanced Russian, you might have a hard time deciphering your student loan repayment options. But there’s good news for grads — some nonprofit credit counseling agencies now offer student loan counseling.
Student loan debt has surpassed credit card debt: Outstanding student loans total $1.3 trillion, and a significant part of that is falling 90 days past due, says Bruce McClary, vice president of public relations and external affairs for the National Foundation for Credit Counseling (NFCC).
Also, the 2015 NFCC Consumer Financial Literacy Survey found that nearly one in 10 consumers are currently paying on student loans and about one in four of those said they struggle to make those payments.
As a result, two major nonprofit credit counseling organizations are rolling out student loan counseling programs: the NFCC and the Financial Counseling Association of America (FCAA).
“Student loan debt is not something you can just walk away from — it’s going to follow you around until you repay it,” McClary says.
Student loan counseling 101
Counseling can take place online, on the phone or in person, depending on the agency that offers it and the consumer’s preferences, McClary says. And it might involve multiple counseling sessions, says Kevin Weeks, president of the FCAA.
Student loan expert and attorney Heather Jarvis says she can’t speak specifically about the programs being offered by the FCAA and the NFCC because they’re so new but, in general, it’s good for consumers to get personalized advice about their student loans. “Some people have rather complicated circumstances,” she says.
Here are five things typically included in student loan counseling:
1. A look at the big picture. A counselor should pull your credit report, go over it with you and help you create a monthly budget, Weeks says. “They should help you understand your complete financial situation,” he says.
2. An overview of your other debt. Many students graduate from college with auto loans and credit card debt, and repayment of that debt can affect their ability to make student loan payments, McClary says. “You have to think about how your student loan works with your other debt,” he says. For example, entering a debt management plan for your card debt might free up funds to make the student loan payments you thought you couldn’t afford. In many cases, interest rates can be reduced and late fees erased, McClary says. “It’s a fresh start,” he says.
“Student loan debt is not something you can just walk away from — it’s going to follow you around until you repay it.”
–Bruce McClary, National Foundation for Credit Counseling
3. Education on student loan programs. Depending on your profession and other circumstances, you might be able to sign onto a federal loan forgiveness program. For example, a teacher might be eligible for a teacher loan forgiveness program, Weeks says.
4. Help picking the right repayment plan. There are many repayment options for federal student loans. These include standard repayment, when you pay a fixed amount each month; graduated repayment, with payments that start low, then increase over the years; and income-based repayment, in which your payments are based on a percentage of your discretionary income. A trained student loan counselor can walk you through your choices and explain the ins and outs of each one. There are few options for private loans, but most consumers with private loans also have federal loans, Weeks says. “If you can help them with federal loans, it might free up money so they can pay both,” he says.
5. An action plan. You should leave counseling with a written plan that tells you what you need to do and when, Weeks says. For example, if you’re on an income-based repayment plan, you need to give your loan servicer updated information about your income each year, he says.
How to find a counselor
It’s important to get good advice about your student loans, Jarvis says. Here are three tips for finding good student loan counseling:
- Make sure the counselor is qualified and with a nonprofit organization. Ask what kind of training program the counselors go through, and make sure it’s student-loan specific, Jarvis recommends. Also ask how the counselor’s knowledge of student loans is kept up to date, McClary says. “The arena of student loans is rapidly changing,” he says.
- Know what you’ll owe. Organizations providing student loan counseling should tell you upfront how much the service costs, but you shouldn’t pay until after you get counseling, Weeks says. Fees vary by agency, but might range from about $250 to $350, he says, adding that most agencies offer a sliding scale for those who can’t afford the standard cost.
- Watch out for scams. Scammers are preying on grads, and they might be posing as student loan counselors. For example, the Consumer Financial Protection Bureau took action last year to shut down two student loan relief scammers. Red flags include illegally charging an upfront fee — sometimes $500 to $2,000 or more — and promising to erase your debt, McClary says. “That’s a clear sign of a scam,” he says.
Remember, it’s always best to seek help as early as possible, and definitely before you slip into default, McClary says: “There may be more solutions available for somebody who jumps in and gets help early.”