Education is a priority for every student, so when it comes to services like Student Loan Ranger, it becomes a topic of interest, since the nonprofit is deemed as a supportive instrument for students, which helps deal with school debt.
While reading loan terms and conditions for student loan repayments, an individual may encounter a good deal of confusion when trying to interpret between the jargon used and its actual meaning. The area where this issue is most evident is that of involuntary payments and forbearances. To be able to make the right financial choices, you need to understand what such terms entail – which brings us to our topic today.
A comparison between obligatory and optional forbearances
Forbearances are a form of instrument accessible to countless students (available for either private student loans or federal student loans) by which they can potentially pay off their educational loan liability once they have finished their education, also known as postponing payments. However, it is often advisable to acquire the option of loans’ defaulting rather than forbearances.
Nevertheless, forbearances can be used in cases where students already have past due loans or have previously defaulted on their loans. However, the debts vary with creditors and may allow moderate installments and elapsed time. In case of student loan, the loan has to be paid back generally within three years..
There is another form of forbearance, recognized as excessive debt forbearance, which can be availed upon rejection of discretionary forbearance by creditors. This form is recognized as mandatory forbearance, which states that the debt should be paid off once the debtor has achieved adequate financial standing.
The excessive debt forbearance must be paid off in case of federal student loans, the prearranged compensation for which increases by 20% or above. This forbearance can be requested at a particular time annually when the total time period of loan is three years.
Voluntary and involuntary payments: The rundown
Defaulting has typically become part of the process for certain debtors, as indicated by an eminent member of the higher education sphere. Debtors sometimes exhibit the bad characteristic of overlooking the merits and free resources associated with the loan through which they can avoid defaulting and be able to deal with repayment of federal student loans smoothly.
To deal with such circumstances, a student loan rehabilitation program was pioneered by Congress. This program enables debtors to pay off their loan in nine consecutive, voluntary installments. This ensures there is no negative mark on your credit history and the status of default is eliminated, diminishing the collection charges.
Nonetheless, the main concern reported regarding voluntary payments is that very few people understand precisely what it entails, myths being aplenty. Many think, wrongly so, that the rehabilitation program is accommodated through garnished wages.
Rehabilitation will indeed put a stop to garnishments that creditors might use; those from a person’s wages, tax refund, federal or social security compensations, and the default status of the debtor. But, do note that the rehabilitation program does not consider garnishments as voluntary payments.
In case of loan rehabilitation, voluntary payments entail payments given monthly and on a timely basis, without any delays from the debtor’s side. Garnishments will persist throughout the time the voluntary payments are being made, but once the 5th consecutive voluntary payment is made right on time, the wage garnishments will cease.
After the rehabilitation program is complete and the debtor is on track for normal loan repayment, all other garnishments will cease too.