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Debt Management

Budgeting and Loan Debt Management

At this point in your life, you may have had little or no personal experience with loans, credit cards, living expenses, or budgeting. However, understanding and practicing effective money management now will help you manage your money more efficiently after you leave school. Budgeting is the process of planning the most effective use of your financial resources by defining your expected monthly expenses (such as rent, food, telephone bills and student loan payments) and the resources you expect to have available (income) to pay these expenses. Your goal is to balance your income and expenses. To get started, photocopy the worksheet on page 25 and fill in your monthly and yearly cost estimates in each of the categories under" Budgeted." Make a photocopy for each month of the year. Then each month during the coming year track your actual costs. By comparing your actual expenses with the amounts you budgeted, you can create a realistic guide for managing your expenses.

If you borrow from the Direct Loan Program, the U.S. Department of Education (ED) is your lender and will remain your lender until the loan is paid in full. ED provides information at its website and in their publications to help you manage and repay your loans. Copies are available on the direct loan website or by calling their toll free number.

Avoiding Default

Default occurs when you become 180 days delinquent in making a payment on your loans. If you miss a payment, the Servicing Center will mail you a letter reminding you that your payment is due and may add late fees to the payments due. If your account remains delinquent, the Servicing Center will mail you warning notices regularly to remind you of your obligation to repay your loans and the consequences of default.

If you fail to make loan payments on time or if you default on your loans, the consequences are very serious. At the option of the Department of Education, the entire unpaid balance and accrued interest on your loan can be due immediately. In addition, you can be subject to these penalties:

  • You would lose your deferment options
  • You would not be eligible for further Federal Student Aid
  • Your account could be referred to a Collection Agency
  • Your account would be reported as delinquent to Credit Bureaus, which can damage your credit rating
  • The Federal Government could take your federal tax refunds
  • Late fees, additional interest, court costs, collection fees, attorney's fees and other costs could increase your total debt
  • Your employer, at the request of the Federal Government, could withhold (garnish) part of your wages
  • The Federal Government could take legal action against you

Record Keeping

Although the Servicing Center keeps records of all your Direct Loan transactions, you should also keep accurate records. As you repay your loans, you should not throw out items such as canceled checks and letters you receive from your School or the Servicing Center. You might need those records if you ever have to prove to a potential lender that you have managed your loans responsibly. You should keep:

  • All "borrower" copies of loan documents from the University and the Servicing Center, such as promissory notes
  • Bank account statements or copies of money orders used to make payments on your loans
  • All loan correspondence that you receive from the University
  • All correspondence you receive from the Servicing Center, including letters confirming that your loan has been repaid in full
  • All entrance and exit counseling materials from the University and Servicing Center