Counseling Options Which Are Objective
The student loan landscape is “extremely complicated” and navigating federal government loans can be difficult, said Sara Ruiz, the director of housing and student loan counseling at Take Charge America, a NFCC member agency based in Phoenix which provides national assistance.
“Borrowers really do want to address their student loan debt situation while private ‘predator’ companies often focus on people who are not familiar with their options, which can make it worse,” she said. “No one wants to default on their loans even if they stuck their heads in the sand for awhile. People are ready to accept responsibility, but they just want to have manageable payments each month.”
The majority of borrowers who work with counselors at Take Charge America are paying $500 to $1,000 per month for their student loans. Most of them wind up participating in income reduction programs, which reduce their payments by 10% to 15%, allowing them to utilize the money to pay down other debt or save for an emergency.
Student loan counselors work in tandem with the borrowers and act as their advocate when they are discussing options with the servicer on the phone and provide a plan of action, Ruiz said.
“Non-profit counselors will act with an unbiased interest for the borrower unlike collections agencies,” she said. “We know if they are past due on their student loans it is a symptom of a larger issue and we are helping them seek long-term solutions, not just stopping the collection agency from calling again this month.”
The counselors determine what a client can afford to pay each month, identify the client’s federal loans and recommend the best options for repayment depending on their employment situation.
In 2015, Take Charge of America counseled 836 people, saving them an average of $465 a month. The individuals either paid $49 for the initial counseling and $250 for a more intensive follow-up counseling session, but the fee is reduced or waived for people who can not afford it.
“Many borrowers do not know these programs from the federal government are not based on their creditworthiness and their credit score is not taken into consideration unlike private student loans,” Ruiz said.
Consumers should limit their credit card and student loan debt to 20% of their income, excluding their auto and mortgage loans. Many people are spending 20% of their income alone to repay their student loans, said McClary. A NFCC survey in 2015 found that 50% of student loan borrowers are unable to save money for an emergency fund and 38% are unable to save for retirement. The survey also revealed that 26% struggled to make monthly payments because of their student loans and 19% struggled to pay rent and mortgage because of their student loans. Another 16% of borrowers struggled to pay for basic necessities such as food and utilities.
“Many student loan borrowers are at or near the default rate, which is 270 days for federal loans,” he said. “People who are burdened with student loan debt never have a chance to establish a significant amount of personal savings for a secure retirement.”
Borrowers who are seeking assistance with repayment options can contact the NFCC’s nearly 60 member agencies at www.studentloanhelp.org or 877-406-6322.