Ask Liz Weston

Get smart with your money

Student Loans

Q&A: What to consider before giving money for law or medical school

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Dear Liz: Our daughter is in medical school using scholarships and student loans. We are now in a position to help her out, but worry that financial help might work against her sources of aid. Would it be better to pay some on her outstanding loans, give her money, pay some of her living expenses or put the money into a savings account to give her when she graduates to use towards paying down her debt? The amount we could give her would not be enough to pay for everything each semester, just something to ease her burden. We don’t want to jeopardize her ability to receive aid.

Answer: While nearly all graduate students qualify as independent — which means that parent financial information isn’t required to get aid — some medical and law schools do consider parental assets and income in their calculations.

Your daughter should call her school’s financial aid office anonymously to ask about its policy regarding parental aid, said Lynn O’Shaughnessy, a college financing expert at TheCollegeSolution.com. If your help would hurt, you can use the savings account route but you needn’t wait until she graduates to give her the money. Once she files financial aid forms for her last year, she should be able to accept your largesse without consequence.

Q&A: Watch out for shady companies promising to help you repay student loans

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Dear Liz: I’m 32 and have a little over $100,000 in student debt from undergraduate and graduate school. I’m trying to get my professional life on track, and I can’t figure out how to pay the loans off. Everything I see online seems shady. What are the questions I need to be asking myself? What are the things I should be searching for on the Internet to help me get control of my financial situation?

Answer: “Shady” is exactly the right word to describe many of the companies promising student loan debt relief. They’re making false promises and charging troubled borrowers fat fees for government help that’s available for free. Many of these outfits get disciplined in one state, only to pop up in another.

If you’re struggling to pay federal student loans, you have several options for making the payments more manageable. You can research income-based repayment programs at StudentLoans.gov. Private student loans don’t have the same consumer protections or numerous repayment options, but you can contact your lenders directly to see what they offer.

The amount of debt you have is large but not insurmountable, especially if it qualified you for a well-paying job.

You don’t have to rush to pay off the federal student loans because those offer low, fixed rates, but you may want to prioritize paying off variable-rate private loans.

Also, don’t let your concern about your debt prevent you from saving for retirement. That, too, will be expensive, and the longer you wait to contribute to a retirement fund, the harder it will be to catch up.

Q&A: When student debt payoff becomes complicated by identity theft

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Dear Liz: I went back to school in 2002 to get my teaching credential. I took out several student loans and set up a repayment plan upon graduating with automatic deduction out of my checking account. Several years ago, the IRS started garnishing my bank account stating that there was a lien but I never received any other type of indication what was going on.

After contacting the IRS, we found that someone took out a fraudulent student loan using my former married name. I also got my credit reports, which showed the loan. I was able to get the signed loan documents from the U.S. Department of Education but now the department does not respond to my certified letters or phone calls.

I’m at a loss at what to do at this point. I filed a police report and notified the credit reporting agencies. I’m out almost $10,000. Is there any other advice you could give me?

Answer: First, follow up with the credit bureaus to make sure the fraudulent loan has been removed from your credit reports. Consider setting up credit freezes at all three bureaus to reduce the chances of being victimized again. The Identity Theft Resource Center at www.idtheftcenter.org has more information to help you protect yourself.

Getting the actual loan dismissed and your money back is a more difficult task. You may be able to have the loan erased under what’s known as a false certification discharge, but qualifying for that isn’t easy, said Jay Fleischman, a Los Angeles attorney who specializes in student loan problems.

It’s not enough to have a police report. You’d need to identify and file a lawsuit against the thief. If you can get a court judgment against that person, you would provide the Education Department with that as well as proof of your identity and possibly signature samples from the approximate date of the loan.

Even if you did everything necessary to prove eligibility for discharge, the department could still deny it if you received any benefits from the loan — if it paid any costs of your education instead of someone else’s, Fleishman said.

At this point, you may need to hire an attorney familiar with identity theft issues. You can get referrals from the National Assn. of Consumer Advocates at www.naca.net.

Monday’s need-to-know money news

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Today’s top story: How to responsibly handle an inheritance. Also in the news: 7 questions to ask before selling a stock, how to create your own pension, and why 35% of college seniors don’t know what their student loan repayments will be.

How to Responsibly Handle an Inheritance
Don’t run out and buy a sports car just yet.

Selling a Stock? Ask 7 Questions First
What you need to know.

How to Create Your Own Pension
Filling in the gap.

35% of college seniors don’t know what their student loan repayments will be
That’s an alarming number.

Friday’s need-to-know money news

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Today’s top story: Three student loan risks parent borrowers should avoid. Also in the news: Why you don’t have to be rich to feel good about your money, how second chance checking reopens doors to banking, and the lazy person’s guide to travel hacking.

3 Student Loan Risks Parent Borrowers Should Avoid
Be careful.

You Don’t Have to Be Rich to Feel Good About Your Money
You don’t need fancy cars and mansions.

Second Chance Checking Reopens Doors to Banking
Bringing back customers.

The Lazy Person’s Guide to Travel Hacking
Rack up miles without becoming obsessive.

Q&A: When a student loan co-signer dies

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Dear Liz: I have a friend who recently died after co-signing a student loan for her son. She was making the payments. Does that loan go to her son now to repay?

Answer: Possibly. Another possibility is that her estate is on the hook.

It all depends on the loan agreement, which varies from private lender to private lender. (We know this is a private loan because federal student loans, which have many more consumer protections, do not require co-signers.)

In many cases, nothing happens if the other borrower takes over the payments and continues to make them on time. Some lenders, however, have a contract clause that makes the balance of the loan due immediately. In the past, lenders also could consider a death to be an “automatic default” that could seriously damage the living borrower’s credit. Fortunately, the Consumer Financial Protection Bureau pushed lenders to change their policies on new and existing loans so that co-signer deaths no longer trigger such defaults.

If you’re close to this young man, you should urge him to check the contract and to contact the lender.