to grace periods. Federal loans overwhelmingly grant a six-month reprieve after a less than half- time school status is observed or forbearance and deferment (postponement of payments) rights. Tose choices, if available to private student loans at all, are detailed in the specific private loan agreements and borrowers are not protected by federal regulations like borrowers of federal loan debt.

4. Default and Credit Score Compromise Risk – Private student loans are considered to be in default after 120 days past due with little or no programs to cure the default. Aggressive collection tactics normally follow, adding penalties and higher interest rates. Inability to cure default can result in state license seizure and garnishment of income tax refunds.

Federal loans extend default to 240 days and then offer a variety of rehabilitation programs to cure or reinstate the loans.

5. Loan Consolidation Risk – Private student loans, in general, are not eligible for consolidation. Since private loans are predominantly based on a borrower’s credit score, consolidation may not be an option if creditworthiness has not improved since origination of the loan. Interest rates are dictated by private lenders and consolidation may include loan origination fees. If consolidation is available, interest rates are often not determined at time of application due to market constraints (waiting for the loan to be securitized and bought) and/or offer a weighted- average rate of existing loan interest rates, which have a nominal effect in

lowering monthly payments. Federal consolidation loan programs help borrowers lock in lower interest rates.

6. Life After Death Risk – For federal loans, the borrower’s death is cause for discharge. Private loans are subject to the terms and condition of the specific loan agreement, but predominantly live on with the co-signer obligated to make all remaining payments and subject to the terms of the agreement should default occur.

For information of what type of loans a borrower has incurred, visit the National Student Loan Data System at www.nslds.ed.gov.

jean kates, Asst. VP, david stanley, Exec. VP, & scott cravens, VP Wealth creation without wealth

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