Everyday Cheapskate

Whether or not you know the statuses of the student loans you have, the lenders and the terms of repayment, it is certain that you owe the money; the debt will not go away; the lender will find you; and the consequences for nonpayment will be severe.

The good news is you can escape from student debt prison. If you're in over your head and can't make payments, do not hide. Contact Federal Student Financial Aid online (http://StudentAid.ed.gov) or by calling 800-433-3243. Another important contact is the Department of Education's default resolution group (800-621-3115).

Know your loans and your options:

—Federal student loans. The federal government guarantees these loans. The government will reimburse your lender if you default and will come after you aggressively.

—Private student loans. Banks and other financial institutions make these loans without government backing. If you default on a private loan, expect to hear from an aggressive guarantee agent.

—Subsidized. If your loan is subsidized, the government pays the interest while you are in school and during times of deferment. Subsidized loans are need-based. Private loans never are subsidized by the government.

—Unsubsidized. If your loan is unsubsidized, you pay interest from the moment the loan is funded. Because the lender doesn't require you to make payments while you are in school, the interest is tacked on to the loan balance and capitalized. Even though you are not borrowing more money, the balance is growing because of the interest.

—Loan cancellation. There are circumstances under which you might be able to cancel some or all of your student loans.

To determine whether you qualify for cancellation, call the Department of Education's default resolution group. The people there will send you a cancellation application and instructions on obtaining necessary documentation.

—Deferment. This is an authorized temporary postponement of your loan payments. Deferments are never automatic. You must apply for a deferment directly with the loan holder. Interest continues to accrue during deferment. However, if you are deferring a subsidized loan, the government pays the interest during deferment. To obtain a deferment, contact your loan holder for an application. Follow up to make sure your request is processed correctly.

—Forbearance. If you don't qualify for deferment but are facing hard times, your loan holder may allow you to postpone payment or temporarily reduce your payments. In forbearance, interest continues to accrue when you are not making payments, no matter what type of loan you have. The cost of default is more expensive than the extra interest that accrues during forbearance.

—Consolidation. This is when a lender combines many loans into a single new loan or refinances one loan with new terms. When you consolidate, you extend your repayment period and lower your monthly payments. You might consider consolidation if you are so deeply in debt you cannot keep up with your monthly payments. You should not consolidate if you can find any way to abide by the current terms. Consolidation is expensive over the long term.

Mary Hunt is the founder of www.DebtProofLiving.com and author of 18 books, including her latest, "Can I Pay My Credit Card Bill With a Credit Card?" You can e-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. To find out more about Mary Hunt and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2009 CREATORS SYNDICATE INC.