Money Coach Advises "Defer, Defer, Defer"
MICHEL MARTIN, Host:
This is TELL ME MORE from NPR News. I'm Michel Martin.
For the next few minutes we are going to talk about money. We'll talk about the latest round of Wall Street bonuses. Goldman Sachs is poised to pony up $23 billion to its executives. What did they do to earn all that? We'll ask.
But first, we turn to our money coach Alvin Hall about a money issue that will hit close to home for many recent college graduates.
Earlier this summer, thousands of college grads donned their robes and put on their mortar boards only to face a barren job market. Now it's fall, which means many of those grads will have to face something else - their first student loan payments. The six-month grace period on student loans for the class of 2009 is about to expire. But what do you do if you still haven't landed a job? We'll ask Alvin Hall, our regular contributor on matters of personal finance and the economy. He joins us from our studios in New York. Welcome back, thanks for joining us.
ALVIN HALL: I'm very glad to be here. This is a topic that I've been talking a lot about lately.
MARTIN: So what should you do if your first student loan payment comes through and you don't have a job and the bank of mom and dad is kind of tight too?
HALL: Get on the phone with your lender as soon as possible. Talk to a real person. Explain your situation to them. And generally, they are very kind and open. I've been dealing with two friends who have exactly this problem, and when they approached the two lenders, both of them said, fine, we can extend this for another six months or nine months. So they gave them forbearance during this period of time.
MARTIN: Now, are these loans issued through the government or are they issued through private lenders? And is there a difference in the standard for getting additional forbearance?
HALL: These loans were all made by the government through banks. And because it's the government, the government has greater latitude. When it's a private loan, you're either dealing with an individual or a consortium of individuals who really are making that loan either looking for cash flows or out of altruism and negotiating those loans - or forbearance on those - can be a little bit more tricky.
MARTIN: Let me just ask, though, do you have a right to forbearance after six months if you are unemployed or you have other pressing financial circumstances like medical bills or is this optional? Is this up to the lender?
HALL: From everything I've read, it appears to be up to the lender. But it's becoming a widespread benefit that they offer everybody. I think the lenders really know that people are having a hard time. And it's not in their benefit at all to put black marks on people's credit rating to make them look terrible. After all, the people are invested in themselves. And if the lenders can help them pay off the loans or find reasonable ways to do that, then when the people start to earn money, they will view this as a positive and live up to their obligations.
MARTIN: Is there some documentation that you would have to provide to demonstrate your financial circumstances or do you think your self-reporting is enough - to say I continue to be unemployed and, therefore, I can't pay this back or I have some other circumstances like medical bills or something else?
HALL: That's a very, very good question. In all the cases I've seen lately, the people simply called up on the phone, dealt with a real person. The person asked them a couple of questions - have you been looking for work? How much money are you earning if you're working part-time? And they took their word for it and gave them a year in one case not having to make any payments on that loan.
So I've not seen a case, in my own personal experience, where they had to provide the document. On the other hand, another friend of mine said that his situation was a little bit more difficult, because he had lost his job and they wanted to ask him what happened, how did you lose your job? What were you earning before? Did you have any savings? But still they arranged for him to have a period when he would not have to make any loan payments.
MARTIN: So let's say people disregard your advice and just chuck the bill in the trash can - just saying, look...
HALL: Oh, no.
MARTIN: ...I just can't deal with this right now. What are the consequences for that - saying the heck with it?
HALL: That's so wrong. Putting your head in the sand, acting like an ostrich about this is just the complete wrong action. First of all, you will go delinquent. Then you will default on the loans. Then the lender has no other choice but to notify the credit agency about this and then to pursue you.
Your best action is to be proactive. Let them know what's going on with your employment or lack of employment. Let them know if you have medical bills. Keep them informed, and they will work with you. I know of so few cases, in my own experience and those of the circle of friends, where proaction has not resulted in a decent solution.
MARTIN: And finally, we keep hearing about the credit crunch which remains real...
HALL: It's real.
MARTIN: ...for particularly, you know, for individual consumers, for small businesses. What about the student loan situation? Let's say you haven't finished your education, what is the availability right now of student loans for people who are still in school?
HALL: The government is trying to make loans available because they recognize that the next generation also will need even more education than the current generation, given the globalization of the world. So, I tell everybody if you're applying to college or university, one of the first things you need to say to that admission director is let me talk to the financial aid director of the school.
Tell them the truth of your situation. And generally, again, they will try to work with you to put together a series of loans, grants and other funding sources that will help you avoid coming out of school with this onerous amount of debt. And if this school can't do it for you, look at another school. I tell people today, it's good to have one or two options if you're looking for funding because one school may not have the resources or the depth of experience to give you that information.
MARTIN: Alvin, just to tie a bow on our conversation about student loans...
MARTIN: How long can you continue to ask for forbearance on repaying student loans assuming that your job situation remains precarious or you have other sort of pressing financial concerns?
HALL: One friend of mine has had it for up to three years. He has occasionally made loan payments over that period of time when he was working. But this is his third forbearance. Another situation I know, they've had it for two years and finally they cannot get another extension at all.
MARTIN: Well, it's our understanding that one can apply for up to 36 months of forbearance on government-sponsored student loans at least. But from what you're telling us is that the loans issued through private lenders may have different...
HALL: ...shorter time period.
MARTIN: ...shorter time period. So it's best to check. But I guess your word of wisdom, Alvin, is don't throw the envelope in the drawer.
HALL: Don't throw it in the drawer. Be proactive. Call the lender. Talk to a real person. Get them on your side. And generally, they will be so warm and gracious to you. They're not your adversary. They're your friend to help you find a solution to this problem.
MARTIN: Alvin Hall is TELL ME MORE's regular contributor on matters of personal finance and the economy. He joined us from our studios in New York. Thanks, Alvin.
HALL: You're most welcome.
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