How To Go Back To College When You Owe Money

When Does It Make Sense To Go Back To College

There are the two best case scenarios where spending money on school makes sense as a young adult:

Scenario #1 is where most of us will land. We want to either go away to college for the experience or were just not ready yet to go to work yet. We also shouldnt expect teenagers to be ready for the workforce.

In scenario #2, you know what job you want and you know how to get there. You cant become a Nurse or Dentist or Accountant by just applying online for a job or by taking a course suggested by an influencer. You have to take the required courses, study, and then pass all of the required tests. This stringent testing makes sense because you dont want some random person working on your teeth.

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What If I’m Going To Grad School

For students who are going straight from undergrad to graduate school, and taking out loans for grad school, too, you have two options:

1) While you’re in school, your loans will be in what’s called student deferment. That means you have the option, while you’re in grad school, to defer those undergraduates loans and wait to start paying them off after you’re done with grad school.

2) You can also choose to waive that deferment while you’re in school and start tackling that debt as soon as possible.

“You can start paying on those undergraduate loans while you’re getting your graduate degree and be on a payment plan and be rocking and rolling,” Williams said.

How To Get Federal Student Loans Out Of Collections

If youre in collections, youll need to take action to get out. Ignoring the problem wont make it go away.

One simple way if youve just landed in default is to get caught up on payments quickly. If you make a qualifying payment on a federal student loan that will result in your being less than 270 days delinquent, you may be able to remove the default and collections status immediately. If not, you still have four other options for reviving federal student loans:

1. Rehabilitation means agreeing to a payment plan with the Department of Education. Once youve made the required number of payments on time, your loan may become rehabilitated.

2. Student loan consolidation can help by combining the balances of several loans into one, and this can include loans in default. However, the Department of Education says youll typically be required to make at least three consecutive, voluntary and on-time payments prior to consolidation.

3. Discharging student loans with bankruptcy may be an option, too. While it may be difficult to have your loans discharged in bankruptcy, its not impossible if you meet the right conditions.

4. Full repayment: You could just repay the entire amount of the loan. However, given the size of most loans, this probably isnt a feasible option.

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What Is Good Debt And Bad Debt

It may sound like a bad thing to owe money, but sometimes borrowing is a smart move. Good debt can help you build your earnings and wealth down the road. For example, taking out a mortgage can help you build equity in a home, while a student loan can help you earn a degree that may help increase your earning potential. Meanwhile, bad debt pays for things that dont create value in the long term. That includes high-interest credit card balances, a personal loan taken to pay for a vacation, or short-term payday loans that often come with sky-high interest rates. When youre tempted to borrow money, you may want to consider whether youre making an investment that will move you forward or getting mired in debt that will hold you back.

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What About High School Transcripts

High school transcripts tend to be a bit less formal, and dependent on the school itself. Most high schools will print transcripts regularly, as their students will often transfer or use the transcripts to apply to university.

If you attended public school, it is not very likely that youll still owe fees. If you attended a private school, you may owe some unpaid fees, depending on your situation. It will be dependent upon the school as to whether or not theyll hold the transcript until youve paid all debt.

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How To Apply For Loan Consolidation

Because you’re in default, you have two options when applying for consolidation.

To consolidate your federal loans, you can either:

• Consolidate immediately and agree to repay your loans under an income-driven repayment plan, or
• Agree to make 3 monthly payments under the IBR plan, then consolidate

In my experience as a student loan lawyer, there’s literally no benefit to the borrower to do the second option. All of my clients choose the first option.

With income-driven repayment, your monthly payment under that plan will be based on your family size and income. This can provide relief to borrowers who need their payments reduced in order to get out of default.

Important note: Youâll need to make payments while your application is being processed to avoid going back into default.

To apply for income-driven repayment:

Going Back To College When You Have School Debt

So you’re thinking about going back to college. There’s just one problem: You’re still paying off your first go-round. Should you wait until you pay off your school debt in full before you go back? Or is it a better idea to go back to school even if you’re carrying some school debt?

If you still have student loan debt, you’re not alone. According to the latest report from the Federal Reserve, 22 percent of American adults carried some outstanding school loan debt in 2017. The total U.S. student loan debt hit $1.56 trillion in 2020, and more than 10 percent of it is in arrears, according to Bloomberg, meaning that the borrowers have been unable to pay it back on timeor at all.

Further Reading: College for working adults: things to consider.

At least some of this problem can be attributed to lending practices that encouraged students to take out the maximum amount they qualified for. WGU has studied this issue in depth and has even created the Responsible Borrowing Initiative to help students make smarter choices when it comes to loans and other forms of financial aid as they look to complete their degrees.

So, what does all of this mean for you?

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How To Get Private Student Loans Out Of Collections

Private student loans unfortunately dont qualify for the federal loan-specific programs above.

If you have private loans in default, its important to take action right away to get your debt out of collections. If your account has already been sent to a debt collection agency, here are five steps you can take to get back on track:

How To Get Student Loans Out Of Collections: Federal And Private

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Use Private Student Loans

A private student loan could also help you pay off a past-due balance if youve exhausted all your federal student aid. Private student loans typically have lower interest rates and longer repayment terms than personal loans, plus higher student loan limits.

Tip:

Because of this, its a good idea to apply as far in advance as possible to give yourself plenty of time.

If you decide to take out a private student loan, be sure to consider as many lenders as possible to find the right loan for your situation.

Credible makes this easy you can compare your prequalified rates from our partner lenders in the table below in two minutes.

Learn More: How Long Does It Take to Get a Student Loan?

What If A Third Party Requests My Transcript

Sometimes a third party requests your transcript to be sent to them directly. This is the case often when transferring universities, or sometimes for you to qualify for jobs or fellowships.

Third parties will request the transcripts directly in order to ensure that you havent tampered with them.

While the transcript is sent to the third party directly, youre still responsible for paying the fees. For example, if your potential employer wants you to send them your transcript immediately, youll still have to pay the rush fee.

The transcript will simply be sent to them instead of to you.

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Negotiate With The College For More Financial Aid

• Potential savings: Varies

If you dont have enough financial aid to cover your education costs, you might be able to negotiate with your school for more.

For example, if you have financial need, have a unique background, or can show larger financial aid offers from other schools, your school could be willing to increase your financial aid.

How much can I ask for?

This will also ultimately depend on how much aid money your school has to give out. For example, while some schools have increased students aid by $120,000, others might not be able to provide as much.

While your school might not be willing or able to offer you more aid, its always worth asking. After all, the worst they can say is no.

Tip:

Treatment Of Title Iv Aid When A Student Withdraws

The law specifies how your school must determine the amount of Title IV program assistance that you earn if you withdraw from school. The Title IV programs that are covered by this law are: Federal Pell Grants, Iraq and Afghanistan Service Grants, TEACH Grants, Direct Loans, Direct PLUS Loans, and Federal Supplemental Educational Opportunity Grants .

Though your aid is posted to your account at the start of each period, you earn the funds as you complete the period. If you withdraw during your payment period or period of enrollment , the amount of Title IV program assistance that you have earned up to that point is determined by a specific formula. If you received less assistance than the amount that you earned, you may be able to receive those additional funds. If you received more assistance than you earned, the excess funds must be returned by the school and/or you.

The amount of assistance that you have earned is determined on a pro rata basis. For example, if you completed 30% of your payment period or period of enrollment, you earn 30% of the assistance you were originally scheduled to receive. Once you have completed more than 60% of the payment period or period of enrollment, you earn all the assistance that you were scheduled to receive for that period.

There are some Title IV funds that you were scheduled to receive that cannot be disbursed to you once you withdraw because of other eligibility requirements.

2. the entire amount of excess funds.

More information:

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Will President Biden Cancel Student Loan Debt

Think about when youre 18 years old and what you dont know about managing debt, said Dawn Medley, the associate vice president of enrollment management at Wayne State, who created the program. We had a lot of students who owed us these past balances they may have had veterans benefits or remaining federal aid money, but theyre caught. They cant enroll until they pay the debt, and they cant get aid until they enroll.

The program, like those at institutions like Ivy Tech Community College in Lawrenceburg, Indiana, requires extensive financial counseling and academic guidance to ensure that students can pay going forward and are on viable career paths.

Even before Ohio announced the new guidance, Cleveland State University had started forgiving up to $5,000 in exchange for re-enrollment and course completion. Administrators say they hope the forgiveness program can keep student debts from being sent to the attorney generals office in the first place so fees and interest dont pile up.

Our program helps, said Dean of Admissions Jonathan Wehner, Cleveland States vice president of enrollment management and student success, but really the dialogue we need to have is about affordability and how we make sure that every student who could benefit from a four-year degree can get a four-year degree.

Wehner and other university officials say they try to accommodate students as best they can, given the constraints of the law.

So for now, he is in limbo.

Start Saving Whatever You Can

If you dont have a healthy savings account to dip into for college costs, its never too late to start building one. There are relatively easy steps to opening a bank account. Your opening deposit could be as little as $1, depending on your bank.

From there, start contributing to your account a little bit at a time. If you have a job, save a cut of your paycheck. If you dont have income, consider starting a side hustle.

Dont worry about saving every cent of your future tuition costs. Its more important to get started. Set aside as much as you can without taking away from everyday expenses like food and rent.

Your savings, however small, could eventually help you afford secondary academic expenses like books and supplies.

And remember to deposit every cent you earn into your new or improved bank account. When youre ready to get started, here is a list of our favorite banks for college students.

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See If Your School Has An Emergency Student Loan Program

Many schools offer emergency student aid programs, which are designed to help college students dealing with financial hardship or other emergencies. The Dreamkeepers Emergency Financial Aid program was an early example of this, offering support for struggling students at 10 different community colleges.

Aid from these programs usually comes via campus vouchers that cover books, meals, and other supplies completion scholarships to help pay for outstanding balances emergency loans food pantries and grants.

According to a study from the National Association of Student Personnel Administrators, these programs usually serve fewer than 500 students per year. Students tend to receive the most aid from completion scholarships, with 77% receiving more than $1,000. With emergency loans, about three-quarters of students receive $999 or less.

The loan terms, interest rates, fees, repayment options and periods, and other details vary from program to program and school to school, so again, talk to your financial aid office for information on any emergency loan programs in which they might participate.

How Bad Is A Withdrawal On A College Transcript

An occasional class withdrawal on your transcript is not a cause for concern. But if you regularly withdraw from classes or a pattern of withdrawals starts to form on your transcript, that could raise red flags to someone who reviews it.

Use withdrawals sparingly and strategically, but dont worry if you only have one or two over the course of your college career.

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What Happens Once Youre Student Loans Are In Collections

If your student loan is in collections, there are a ton of potential consequences and several of them can cause real financial pain.

If your account goes to collections, youll be assessed collection fees in addition to the student loans you owe. These fees vary depending on who holds your loans, but they can be anywhere from about 18% to 40% of your outstanding balance. Just to put that in perspective, adding an extra 40% to a student loan balance of $30,000 would mean your new balance is $42,000.

And if these fees arent bad enough, it doesnt end there. As long as your loans remain in default, the following can also happen:

• Wages can be garnished and income tax refunds can be taken to repay debt.
• You can become ineligible for federal financial aid.
• You can become ineligible for a deferment on loans.
• You can lose subsidized interest benefits.
• Defaulted loans will appear on your credit report for up to seven years, negatively affecting your credit score and your ability to get other types of loans.

Student loan collection agencies will attempt to collect this debt from you. As youve probably heard, debt collectors sometimes use aggressive tactics to get you to pay the money you owe. If youre being contacted regularly, make sure you understand your legal rights under the Fair Debt Collection Practices Act.