What to Do if Your Student Loan Cancellation Application Is Denied

This post is the last of a week-long series of articles about how to qualify to get student loans canceled.

By Lynnette Khalfani-Cox, The Money Coach

I’ve already warned you about how difficult it can be to get a student loan discharged. Unfortunately, part of what makes it tough is that for most discharges, the ultimate authority on the matter is the holder of your loan.

The loan holder has the final power to say yes or no to your request for a discharge and you don’t have the right to appeal the decision to the Department of Education, except in two instances: with false certification and forged signature discharges on FFEL and direct student loans.

Ask for a Review
If your claim for a discharge for these types of loans is rejected, you can take your case to the department and ask officials there to review your denial.

Other than that, your best bet in handling a rejected application, if you truly feel you have a valid and worthy claim, is to be persistent in your pursuit of a discharge and to provide as much documentation to your lender as possible in support of your case. This may mean making multiple financial disclosures about your personal situation, explaining your argument time and time again to different people at your lender’s office, or writing letters to supervisors or an ombudsman within a bank or lending institution.

Since the ultimate decision rests with the lender, that’s the place you have to target your efforts.

Get Tips from Loanholders
You should also try to find people who’ve been successful in getting the type of discharge you’re seeking. Ask them for tips and tricks they learned along the way. That firsthand advice from someone who’s been through what you have—and received a hard-fought discharge—could be just the prescription you need to turn a rejection into an approval.

For more information on paying off your student loans, check out my book Zero Debt for College Grads: From Student Loans to Financial Freedom. Get the book now at Amazon.com.

Student Loan Cancellation and Discharge for Military Service

By Lynnette Khalfani-Cox, The Money Coach

Effective Oct. 7, 1998, all borrowers of Perkins loans are entitled to have those loans discharged if they served in the U.S. armed forces. This cancellation privilege applies to Perkins loan recipients regardless of when the loan was made or what the terms on the original promissory note are. Military personnel qualify for loan cancellations in an amount up to 50 percent of their Perkins loans if they serve in areas of hostility or regions of imminent danger.

For other ways to qualify for a loan cancellation, read:

• Student Loan Cancellations for Teaching and Community Service
• Student Loan Cancellations for School-Related Issues and False Certification
• Student Loan Cancellation Due To Disability
• Student Loan Cancellation Due to Death
• A Student Loan Cancellation Success Story

My book “Zero Debt for College Grads: From Student Loans to Financial Freedom” has even more helpful information. Get the book now at Amazon.com.

Student Loan Cancellation Due to Death

In honor of graduation season and the people who are thinking about how they’re going to start paying off their college student loans, I will post a series of articles this week about how to qualify to get student loans canceled.

By Lynnette Khalfani-Cox, The Money Coach

I can already guess what many of you are thinking about getting a student loan cancellation or discharge for reasons of death. You’re thinking, a) I’m reading this information, Lynnette, so I’m obviously alive and not dead! and b) I don’t have any plans on dying anytime soon, nor do I want to die, so I’m sure a death discharge doesn’t apply to me and can’t benefit me.

Well, I believe you when you say you’re alive—and trust me, I’m glad that you still have a pulse and the wherewithal to read this information and benefit from it! But just because you’re still breathing doesn’t mean you or someone you love can’t benefit from a death-related disability discharge of your student loans.

Here’s how: federal law provides for discharge of student loans in the event of the death of the borrower or the death of the student for whom a parent obtained a PLUS loan [a Parent Loan for Undergraduate Students].

Who’s Eligible?
So let’s say your mom took out a PLUS loan for you and unfortunately she later died. As a PLUS loan recipient, your mom was the borrower, not you. Even if you and she had an agreement by which you would actually pay back the loan, legally she’s the one obligated to do so. Moreover, if your dad co-signed the application, he wouldn’t have to pay the loan back either, as the law says that in the event of the student’s death or the borrower’s death, the obligation of the borrower and any endorser is discharged.

So here’s the bottom line for any of you with parents who took out PLUS loans on your behalf: just know that the death discharge is available not just if you die, but if your parents pass away. By the same token, you should let your parents know that if you die, any PLUS loans they may be repaying can be cancelled.

Lastly, some of you may be married or may have previously consolidated student loans with your spouse when that was possible, under old federal rules. Let your partner know that in the event of your death, he or she doesn’t have to continue paying off those old student loans.

How to Apply
To secure a death discharge, you (or a loved one) have to apply for it. You’ll need to get an original or certified copy of the death certificate and send it to the loan holder for FFEL or direct Stafford loans. For federal Perkins loans, the death certificate must be presented to the school(s) where you obtained your degree.
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This post is an excerpt from my book Zero Debt for College Grads: From Student Loans to Financial Freedom. Get the book now at Amazon.com.

Tip #7: Seven Smart Ways to Pay Off Student Loans Fast: Consolidate Them

By Lynnette Khalfani-Cox, The Money Coach

Anyone with student loans receives lots of offers in the mail from lenders seeking to consolidate your student loans. To learn more about this option, read below for my last tip in a series of “Seven Smart Ways to Pay Off Student Loans Fast.” Read also Tip #1, Tip #2, Tip #3, Tip #4, Tip #5 and Tip #6.

Tip #7: If you consolidate your loans, do so wisely.

Be careful which loans you roll into one bigger loan. For instance, let’s say you took out federal Perkins loans while you were in school. In most cases, you wouldn’t want to combine a Perkins loan with other types of loans. The reason: Perkins loans have better “loan forgiveness” benefits for people who go into teaching, and you can lose those benefits if you consolidate them.

Also, you’ll have to keep your private loans and federal loans separate; you can’t consolidate those two groups of loans.

The major advantage of consolidating student loans is that your monthly payment will be reduced, freeing up some of your cash flow each month. You can even put the extra cash saved each month toward a higher interest rate loan in order to pay it off faster.

The biggest drawback is that, because consolidated loans are stretched out over a longer repayment period – up to 30 years, you’ll wind up paying two to three times as much as you would’ve paid had you not consolidated your loans.

Bonus Tip: For more info on loan consolidation, visit: http://www.loanconsolidation.ed.gov. For more information on paying off your student loans, check out my book Zero Debt for College Grads: From Student Loans to Financial Freedom. Download a PDF excerpt from the book about student loans or buy the book now at Amazon.com.

Tip #6: Seven Smart Ways to Pay Off Student Loans Fast: Negotiate Down Your Rate

By Lynnette Khalfani-Cox, The Money Coach

Did you know that you could negotiate loan rates and terms on any new federal student loans? To learn more, read below for my Tip #6 in a series of “Seven Smart Ways to Pay Off Student Loans Fast.” Read also Tip #1, Tip #2, Tip #3, Tip #4, and Tip #5. Check back tomorrow for the last tip.

Tip #6: If you’re willing to negotiate and ask for more favorable rates and loan terms than you’re first offered, you can find many lenders that will agree to charge a lower rate than the federal maximum interest rate.

Every July 1st Congress adjusts the interest rate caps charged on federal student loans. However, contrary to popular belief, Congress doesn’t “set” the rates for federal student loans. Instead, the feds impose a “maximum” interest rate that lenders can charge, then lenders set their own rates based on what the market will bear.

Interest rates are currently being reduced for federally subsidized Stafford loans. (With subsidized loans, the government pays the interest on the loans while the student is in school). As of this writing, the interest rates on new subsidized Stafford loans are:

• 6.0% for loans first disbursed July 1, 2008 to July 1, 2009
• 5.6% for loans first disbursed July 1, 2009 to July 1, 2010
• 4.5% for loans first disbursed July 1, 2010 to July 1, 2011
• 3.4% for loans first disbursed July 1, 2011 to July 1, 2012

Bonus Tip: Ask a lender for lower interest rates based on:

1. having payments automatically deducted from your checking or savings account,
2. making a set number of ‘on time’ payments (24 to 48 months of on time payments often qualifies you for a rate cut, and a few lenders will give you a break even sooner), or
3. earning good grades, or qualifying for any other incentive programs a lender offers