Images by Getty Images; Illustrations by Bankrate
Whether or not to pay?
That’s the problem with my soul.
Would I make Sam a benmo?
And will you put your hopes of forgiveness on hold?
These lyrics came to my mind. Forgiveness of student loans. The more you look for researching this topic, talking to experts and caring about the data, the more you notice. Federal student loans are fundamentally different from other types of debt. In fact, it may have more common in common with predatory mortgage products from the early 2000s than you would speculate.
- Approval is not based on your credit score. Almost every other type of credit depends on your credit score to determine your eligibility and set a fee.
- The lower your income, the more you are usually eligible to borrow.. With other types of loans, low income often means you are not eligible for the loan (or only get small amounts).
- Repayment will be postponed until after graduation. Most loans must begin repayment when you receive the loan fund.
- Your monthly payment may depend on your income after graduation. Usually, when you sign a loan agreement, you agree to the monthly payment amount and are based on the repayment period.
What, Denny? Why is it all important? I’m glad you asked.
Federal Student Loans Basically, it’s a no-income, no-credit loan. My last break-in with that type of credit was in my time as the founder of a mortgage. At the time, loans that did not require income verification were considered predatory, and one of the proposed solutions was “major forgiveness.” Does it sound familiar?
Question of the month: Is student loan forgiveness a sign that the loan is predatory?
It’s a loaded question so let me provide some context. In the aftermath of a home meltdown, one loan product in particular captured the rage of regulators. No lower payments were required, and income was confirmed and not confirmed.
a Bad Credit Score It wasn’t an obstacle. Lenders charged higher fees to compensate for increased default risk. Also, higher payments did not interfere with your chances of approval, as income was not taken into consideration. LAX’s lending standards allowed consumers to easily buy expensive homes until everything collapsed.
Similarly, a poor credit score (or no score at all) is not a hindrance to federal student loan eligibility. In fact, low income actually helps you qualify for more borrowing, as federal loans are needs-based. When reviewing an application, the lender does not consider its ability to pay off the debt. The generous lending standards make it easier to pay for tuition surges and the suspension of payments has ended, causing the reality of paying millions of student loan borrowers to collapse.
A conversation about “repayment ability” about student loans is necessary
With Smoke and Miller’s mortgage products being replaced by the Mortgage Reform Act, a key by-product was a new focus on examining borrowers’ ability to pay off loans. Given the similarities between NO-DOC mortgages and some student loans, it’s probably past time to talk to student borrowers about their repayment plans.
Since student loan repayments often don’t start for four years, it’s very easy to run around the can and say, “find a way to pay off when you graduate from college.” I challenge future student loan borrowers to plan now. Before you’ve been in debt for more than 10 years, ask yourself the following questions:
- How realistic do you plan to make money when you graduate? Don’t want to rely on the top edge of your future career pay band. Consider the average revenue. Funding Survey It consistently shows that graduates are overestimating their earnings potential. Being realistic can help reduce the low revenue shock for graduates entering the workforce.
- What is your full amortization payment? Use a Student Loan Calculator Understand your future repayment obligations. If your job hunting is not successful, income-based repayments can be a difficult option, but as Plan A, don’t rely on it.
- Rather than banking for federal loan protection, we will focus on budgeting repayments. One of the opposing arguments Private student loans That means they don’t provide federal student loan protection. As a former lending officer, I have doubts. Why are we focused on protecting students from these loans? Instead, focus on creating a realistic repayment plan. It probably involves paying while still at school.
- Measure your ability to prequalify for private student loans and pay off. The general advice is to apply for federal student aid before considering private loan options, especially since gift support (such as scholarships and grants) will also be provided via federal aid awards. But before jumping into a federal loan, explore your personal loan options to better understand your ability to decide which option is most affordable and pay off your debts. (If you don’t have a Cosigner, there is also a private loan option.)
- Schedule annual check-in with your financial advisor at your school. Not only can they help you plan your career and discuss changes in your financial goals, but this regular touchpoint will also serve as a reminder for your first loan payment countdown.
Final Words from Denny of your BFF (Best Financial Friend)
According to the U.S. Department of Education, as of April 2025, over 5 million borrowers were defaulting on student loans, and an additional 5 million borrowers were hanging over the edge of the default. How did you get here?
The original intention behind student loan forgiveness was to reward borrowers who have careers in public services, providing relief to those experiencing financial difficulties and victims of fraudulent university schemes. Unfortunately, it seems that many students will borrow money for the university.
A loan forgiveness bank without a solid plan to repay is neither financially healthy nor responsible. Before borrowing, understand your repayment obligations, consider realistic future revenues, and plan for post-graduation. Otherwise, your first foray into the world of credit and debt as an adult could fail.
