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New Service Helps Recession-Proof Student Borrowing

August 11, 2009

by Scholarships.com Staff

Student loans have received a lot of attention lately, especially in light of the ongoing recession. As average student debt increases and post-graduate job prospects become less certain, borrowers are struggling to make payments and avoid default on their loans. Meanwhile, lenders are tightening credit requirements or opting out of the student loan industry altogether. While Congress and President Obama are contemplating additional reforms to student lending on top of recent fixes that have provided some help to borrowers, relying on loans to pay for school is still a scary idea for many students.

However, there are some innovative private sector solutions students may want to consider. Alternative lending programs, such as peer-to-peer lending have received much publicity lately, as has a new program called Student Choice that makes it easier for students to find private loans through credit unions. On top of this, BridgeSpan Financial has launched a new service called SafeStart, which acts as insurance for students' Stafford loan payments.

In exchange for a down payment of $40 to $60 per $1,000 they've borrowed, SafeStart will extend an interest-free line of credit to students facing financial hardships in the first five years after graduation, allowing them to continue making payments on their Stafford loans and avoid defaulting or seeing loan amounts balloon as interest accrues during a forbearance period. SafeStart will cover up to 36 loan payments in the first 60 months of the loan, provided a student's loan payments exceed 10 percent of their monthly income.

Currently, SafeStart is only available for Stafford loans, and not PLUS loans or private loans. Stafford loan borrowers already have several other options for repayment if they find themselves struggling, including the new federal income-based repayment plan, which allows borrowers to only make payments if they meet certain income requirements and forgives remaining loan balances after 25 years. Students can also apply for temporary forbeareances if they need, though interest on the loans will still accrue.


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