Achieving Travel Goals While Having Student Loans

By: Becky Eason, CFP®

Summer is a time when many people travel, though this year has created new or modified travel arrangements. Many people have a goal to see the world, but according to Bankrate, nearly 60% of people don’t take a vacation because they can’t afford it. 

According to the same study by Bankrate the average cost of a summer vacation is $1,979 per person. This expense adds up quickly, especially for a family. Keep in mind this is an average cost so depending on where you live and where you want to travel to your costs could be more or could be much less. There are also travel hacks to further reduce this expense, such as using points or miles from credit card rewards, traveling with friends or family and renting condos with full kitchens to save on restaurant costs. 

One of the factors in not being able to afford a vacation is student loans. Student loans are often thought to impact young adults, but in reality, adults of all ages are impacted. Part of this is because adults take out loans, such as the Parent PLUS loan, to help their children through school or they go back to college themselves. According to Credible the average student loan payment is $393 per month. If you are a couple, who both have student loans that brings your average monthly payment to $786 or $9,432 annually. It’s payments such as this that contribute to the 60% of Americans not being able to afford a vacation.

We love to help people achieve their goals, so if you feel held back by your student loans there are likely options available to help reduce your stress. For instance, if you have federal student loans and work for a qualifying not for profit company you might be eligible for Public Service Loan Forgiveness. If you elect to go for Public Service Loan Forgiveness (PSLF) an income driven repayment plan would be selected. This plan tends to lower your monthly payment and after 120 qualifying payments your federal loans are forgiven, tax free. Thus, giving you greater financial freedom to achieve your life goals, such as traveling. This is just one potential solution, as everyone has an individual solution that best fits their needs and goals. 

As I’m sure many of you are aware of, private student loans don’t don’t have as much payment flexibility as federal loans do. Even though there is less payment flexibility refinancing  your existing private loans can potentially help your overall student loan plan by offering lower interest rates and better repayment terms. Checkout this article from our friends at Money.com to see if you should pursue refinancing your existing private loans.  https://money.com/private-student-loans-refinance/

If this sounds like you, or someone in your family, give us a call or reach out to Becky@RootedPG.com.

Money Education to Impact College Borrowing

By: Becky Eason, CFP®

This month our focus has been on financial education, which is something that it is never too early to begin teaching. While it may not seem that general financial education for children would have much of an impact on student loans it very well can. 

We all know the saying “time flies,” so it’s important to teach financial habits to kids from a young age because before you know it they will be making decisions about college. We love being able to help students borrow the least amount of money as possible for college. Here are some ways to begin teaching your children about money so that they have the education and potentially some savings for when they go off to college.

Preschool:

• Save coins in a clear jar, as this may spark curiosity.

• Use cash when you take your kids/grandkids to the store and have them put the change in the coin jar when you get home

• When the jar is full have your kids help you count the coins to become familiar with different coin values

Elementary School:

• Continue with the above coin method but considering adding an end goal such as using the saved coins to go out to the movies. 

• Create chores or household duties that your kid/grand kid can help with and get paid for. 

• When you go to the store and they want a candy bar or toys, have them use some of their money to purchase their wants. They don’t have to pay for the entire thing but if they are putting some money towards it they will begin to understand that things cost money. 

  • If they don’t want to spend all of their money that’s great! You can start a savings account for them (when they are teenagers this savings can help cover college expenses).

Junior High:

• Have your kids/grandkids get summer jobs and miscellaneous jobs such as babysitting, and pet-sitting to make their own money. Trust me, this will quickly teach them about spending, as it’s no fun to spend your own, hard earned money.

  • If a savings account hasn’t already been opened, now would be a great time to open a savings account and/or a checking account. 

• This is a great time to focus on community service, grades and extracurricular activities as these will greatly enhance your transcripts and scholarship applications. 

• Begin thinking about potential careers and explore the costs of various colleges. It’s still early to know exactly what you want to go to school for, but this is your opportunity to take classes and explore different potential careers. 

  • It’s also a great time to shadow professionals in careers that are of interest to you. Don’t be afraid to ask lots of questions! 

High School:

• Continue focusing on community service, grades, and extracurricular activities because this is the time when scholarships are applied for. 

• Continue to shadow professionals in various careers, even if it may not be something that was ever of interest to your student.

• Visit college campuses and ask what scholarships and grants are available.

  • Be sure to compare both private and public schools, as sometimes private schools offer larger scholarships, thus reducing their cost comparison. 

• Apply to various colleges and universities, as you can use their scholarship and grant offerings to negotiate with your top choices. 

  • Don’t be afraid to ask for more grants and scholarships.

• Apply for any and all scholarships. I can’t emphasize this one enough. You won’t get all of them that you apply for, but it’s worth the extra time spent. 

  • Many times the essays that are required for college applications also work for scholarship applications with only a few modifications. 

  • Many people apply for the largest scholarships and don’t bother with the small ones. From personal experience the small scholarships add up and with fewer applicants your probability of getting these ones are greater. 

• When shopping for dorm essentials don’t go overboard. Save as much money as you can

College:

• Continue applying for scholarships and grants. Many people think that once they are in college they can’t get more scholarships, but there are still some available scholarships.

• Be conscientious about your spending habits. If you have a job during college try to pay the interest on your student loans, particularly if you won’t be going for loan forgiveness. It might even help you on your taxes, as interest paid may be tax deductible. 

• When you complete your annual FAFSA and they give you your estimated loan payment remember that they are only calculating that for the single year. They don’t take into consideration your existing loans or your future loans. 

These are just a handful of ways to educate your kids or grand kids about money. If you had a money experience growing up try sharing that with them as well!

Graduation and Student Loans

By: Becky Eason, CFP®

Congratulations to all recent graduates! You’ve reached an exciting milestone in your life, and now it’s onto adulthood. One of the first things a recent graduate should do is review their student loans. We all know how overwhelming student loans are, but the good news is that they don't have to be! There is a student loan strategy for everyone and the earlier you are aware of the best strategy for you the better. There are two main types of student loans, private and federal and your repayment strategies are going to depend on the type of loan you have, and what your ultimate goal is. 

After graduation, or once you drop below half time enrollment status, your federal student loans, and sometimes private, will enter a grace period during which time no payments are required. Generally, this is a six month period and then your loans will enter the standard 10 year repayment plan, unless you make other elections. The monthly payments under the standard plan are generally 1% of your beginning loan balance for 10 years. There are other options though for repayment so it’s important to know what fits your individual needs. 

If you have federal student loans and are entering a career in the nonprofit sector and plan on remaining in that sector for at least 10 years (it doesn’t have to be the same employer for the entire 10 years) check with your employer to see if they are eligible for Public Service Loan Forgiveness (PSLF). If you fit in that category and have a large amount of student loan debt you will likely want to consider PSLF. In order to receive PSLF you need to be on an income driven repayment plan, such as IBR, ICR, PAYE, or REPAYE and you will need to certify your income annually to determine your payment amount. PSLF requires 120 qualifying payments to be made, but these payments don’t need to be consecutive. After your 120 qualifying payments have been made you will need to certify your employment for the entire length of time. We recommend certifying your employment annually so that if you have a job change you don’t have to go back and contact all of your former employers. Once you have made your 120 qualifying payments and your employment has been verified your eligible federal students loans will be forgiven tax free!

Maybe you aren’t going to work in the public sector but still have a large amount of student loan debt in comparison to your income. If that is your case and you aren’t able to afford your monthly payments under the standard repayment plan you can still enter an income based repayment plan. It’s important to know that instead of the loans being forgiven in 10 years (120 payments), as they are with PSLF, it will be 20 - 25 years, depending on the payment plan. If you elect this type of loan forgiveness it’s also very important to know that your forgiven balance is taxable in the year of forgiveness. For many borrowers who elect this forgiveness option the forgiven balance is relatively large so you will likely want to save some money each month into a savings or brokerage account to cover what is called the “tax bomb.” 

If you have private student loans there unfortunately aren’t as many repayment options available to you. These loans will be repaid very similarly to the standard 10 year repayment plan for federal student loans. In some cases you are able to extend the repayment term to 15 or 20 years, however, this extended repayment term should only be considered if you truly can’t afford to repay under the 10 year term. This is because you will end up paying a considerable amount of interest over the extended period and you will also likely have a higher interest due to the increased risk the lender is taking on. You do have the option of refinancing these loans to receive a lower interest rate in some cases. It’s worth comparing interest rates on an annual basis to see if you could save money by refinancing. Federal student loans also allow for refinancing to a private lender, however there are federal benefits that need to be evaluated before doing so. 

Please note that we are currently in a very difficult situation than normal, with the CARES Act and the temporary deferment of federal student loan payments. For more specific information around the CARES Act and what it means for you student loans please check out our CARES Act - What It Means For Your Student Loans blog post. 

Understanding Your Student Loans

By: Becky Eason, CFP®

College Graduation is quickly approaching and many students are likely beginning to wonder what is going to happen with their student loans.

When we talk about student loans they can be broken down into the most common overall types, federal loans and private loans. While both are loans there are many differences between federal and private student loans and it’s important to know what you have. 

When is the first payment due? 

• Federal student loans generally have a 6 month grace period from the date you graduate until your first loan payment is required.

• Private student loans aren’t required to have a grace period, so every lender has a different repayment term. Some lenders may require a payment immediately, while others may give you a 6 month grace period. It’s very important that you check with your lender to clarify when your first payment is due as you don’t want to miss this payment. 

If I have a grace period should I start making payments now or wait?

• The answer to this question depends on your individual situation. Some things to consider that may help answer this question are the following:

  • Do you have an emergency fund?

    • If you don’t - you can use this time to establish one. 

  • Do you currently have a job?

    • If you do, and you have an emergency fund can you afford the payments on your current income?

How do I know what payment plan to select?

• Federal student loans offer many different repayment options from the standard 10 year repayment plan (this is the plan you will be in if you don’t elect something else), graduated repayment plan, extended repayment plan, Income Based Repayment (IBR), PAYE, REPAYE, and Income Contingent Repayment (ICR). 

  • As you can see, there are many different repayment plans available and each student loan borrower needs to evaluate their individual situation to determine their best option. 

  • Some things to consider when selecting your plan include:

    • What is your current loan balance?

    • Do you want to pay your loan off or are you going for loan forgiveness?

    • Do you work for a non-profit or government organization?

      • Are your loans and employment status eligible for Public Service Loan Forgiveness (PSLF)?

    • How much of a monthly payment can you afford?

    • Do you expect your income to increase significantly in the years to come?

    • Do you have private student loans in addition to your federal loans?

  • Please be advised that if you call your loan provider to ask for guidance you need to be aware that they don’t know your personal financial situation and they aren’t equipped to provide you with an answer for your particular needs. This can result in misguided information in many cases. 

• Private student loans usually don’t have many repayment options available. They do sometimes offer extended repayment options such as a 15 year repayment plan instead of the standard 10 year repayment. 

  • Generally your payment under the standard repayment plan is 1% of your outstanding loan balance on the day your loan goes into repayment. For example, if your loan balance is $100,000 your monthly payment will be $1,000.

How does interest accrue?

• Federal student loans calculate interest using simple interest. This means that your monthly interest payment is calculated as a percentage of your principal balance. 

  • If your interest rate is 5% and your loan balance is $100,000 you are paying $13.6986 in interest every day. (5%/365 days x $100,000). 

• Private student loans calculate interest using either simple interest (as illustrated in the above example) or compounded interest. Compounded interest is calculated as a percentage of your principal and accrued interest. See below for an example of compounding interest.

  • If your interest rate is 5% and your loan balance is $100,000 your daily interest being accrued increases every day until a payment is made. While day to day this increase may not seem like much it adds up over time. 

    • Day 1 - Interest is $13.6986 (5%/365 days x $100,000)

    • Day 2 - Interest is $13.7005  (5%/365 days x $100,013.6986)

    • Day 3 - Interest is $13,7024 (5%/365 days x $100,027.3991)

Student loans are a very complex topic and there are many different scenarios that need to be considered. If you’re a parent and are wondering how you can help your soon to be college graduate we offer a specialized student loan analysis that can be given as a graduation gift. If you need help understanding your loans and determining a plan of action for them we are here to help.

CARES Act - What It Means For Your Student Loans

On Friday, March 27th a CARES Act was passed to help Americans financially get through the Coronavirus Pandemic. If you are a student loan borrower or know of someone who has student loans this is a message for you. 

Under the CARES Act all federal student loan payments are being suspended for six months (until September 2020) and during this time no interest is accruing on your balance. This payment suspension is an automatic action that your loan provider has to implement, however, we recommend that you confirm that they actually do this for you. There are different scenarios that we recommend for you depending on your situation. 

If you are in an income driven repayment plan, whether you’re going for the 20 - 25 year student loan forgiveness or in Public Service Loan Forgiveness (PSLF) these six months of no payments are being counted towards your qualifying payments. If you are in one of those loan forgiveness programs we want to make sure that you’re not applying any payments towards those eligible loans. Instead, if you have private student loans or other debt (credit cards, auto loans, a mortgage, etc) and are able to afford to continue making payments we would like to see you applying the payment you would be making on your federal student loans to your other debt that has the highest interest rate. The reason for this is because you will be power paying on that debt which will save you money on interest in the long run, as your repayment period will be shorter on that debt.

If you aren’t in an income driven repayment plan but are still able to make your standard payment your entire payment will be applied towards your principal balance. Most student loan providers apply extra payments automatically towards the loan with the highest interest rate, but this is something you will want to confirm. If you continue making these payments during the six month period you will save yourself money in the long run on interest and be done with your student loan payments a little bit earlier than you otherwise would be. 

Important note: Private loan borrowers need to contact their lender or service provider to confirm eligibility.  Also, remember FFEL loans were issued under a system of private loan, subsidized and guaranteed by the federal government, they are not direct loans.  However, the CARES Act specifically states Part D and Part B of the 1965 Higher Education Act, and FFEL loans fall under Part B.  

I’m going to use my student loan as an example of the impact of continuing to make payments now. Here is a summary of my student loan balances and interest rates. 

My standard monthly federal student loan payment is $138. During this six month period I’m going to continue making payments and will be applying the entire payment to my Direct Subsidized Stafford loan with a 4.2% interest rate. During this period my payments will total $828 ($138 x 6 months). That will leave $1,075 as a balance when interest starts accruing again, so that will reduce that particular loan by almost half. While the interest on this particular loan isn’t substantial I will still save money in the long run. Depending on when you went to college your interest rates may be higher, in which case your continuing to make payments will save you even more money than what I will be saving. Another factor in how much interest you will save in the long run depends on what your monthly payment is. The higher your monthly payment the greater impact you will have on interest savings. If I had private student loans with a higher interest rate I would want to make the additional payments on that loan instead to maximize my interest savings.  

If you are able to continue making these monthly payments we strongly encourage you to do so. You will thank yourself in years to come.

Federal Student Loan Temporary Interest Waiver

As many of you have probably heard, President Trump has proposed a temporary waiver of federal student loan interest during the Coronavirus pandemic. So what does this mean for you, the borrowers?

The first thing to consider about this waiver is what loans you have, as the waiver is only good for federal direct loans as well as FFEL and Perkins loans that are held by the federal government. Unfortunately, this temporary waiver of interest doesn’t apply to private student loans. Another important thing to know is that the waiver doesn’t directly reduce your monthly student loan payment. It instead allows the entire payment to be applied towards your loan principal. 

If you are among the many people being financially affected by this pandemic then the student loan interest waiver could help you with your cash flow through temporary forbearance. While this isn’t something that is typically recommended, right now your federal loan balance won’t increase until the interest waiver is over. If you do end up taking this action to free up cash flow, please remember to put your federal loans back in payment status as soon as the waiver is over. If you forget to do this you will likely end up putting yourself in a worse financial situation than if you had just left your loans alone. Also, if you are going for Public Service Loan Forgiveness (PSLF) be aware that if you elect forbearance you won’t be getting credit towards your 120 qualifying payments during this time. If you want to keep your qualifying payments going you will need to continue making your normal payments. 

If you elect to not make any changes to your monthly payments during this waiver period you will still want to review your monthly loan statements to make sure that you weren’t charged interest. With all of the changes happening so rapidly there is a chance that your loan provider overlooks something. It’s always a good idea to monitor your own situation. 

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Nourishing Your Relationship with Student Loans

February is a great time for nourishing your relationships and growing your financial emotions. As overwhelming of a conversation this may be, it’s important to have an open and honest discussion with your significant other about student loan debt, as well as with any other debt you may have. For many people, debt is a leading cause of stress. That stress not only affects you but also your relationships. If you can get in front of this discussion it can save you money, time, and stress now and later in life.  

We’re at a point in history where student loan debt is at an all time high of nearly $1.6 Trillion. With that horrifying figure it’s safe to say that many relationships begin with a large amount of student loan debt from one or both parties. As a student loan borrower, you should never feel alone in your journey. There are many different repayment options available based on your loan type, occupation, income, and relationship status. Personal finance isn’t an easy thing to openly talk about, especially if you feel like you’re drowning in debt. However, an advantage of having these money conversations is to make sure that you’re both on the same page as to the best way to move forward and overcome your student loan debt. There is strength in numbers and the numbers I’m referring to in this case is a support system.

It’s important to continuously have these money conversations each year as life is always changing. It’s surprising how many life events happen in a matter of a year, whether it be graduating, changing jobs, changing your relationship status, having kids. All of these changes could potentially have an effect on your student loan repayment strategy. Schedule a money date at least annually and reward yourself with your favorite meal and glass of wine.  

Financial Check Up - Student Loan Edition

By: Becky Eason

January is a good month to give yourself a financial check up, and that includes looking into your student loans. This should be done on an annual basis to make sure you are on the most appropriate course of repayment.  

For those of you who are on an income based repayment plan, reviewing your student loans for the year might be to make sure that you’ve re-certified your income. Your loan provider should notify you of when you need to do an income re-certification, but it’s always good to set an annual reminder to confirm that this has been done. If you miss the annual re-certification deadline your interest will capitalize, which means that any outstanding interest will be added onto the principal of your loan. Depending on your repayment plan, this could result in your student loan costing you more in the long run because you will be paying interest on a higher principal balance. Another thing is that if you don’t re-certify your income, your loan payments won’t be based on income anymore so the payment is usually reverted back to what it would be under the standard 10 year repayment. And remember, as mentioned prior, your unpaid interest will capitalize which increases your overall student loan principal balance. This means that you have a higher loan balance to pay off.

Another reason to review your student loans on an annual basis is that you may have changed jobs in the past year. If you changed jobs and were previously working in a private sector but switched to a public sector job then you should see if your new employer is eligible for Public Service Loan Forgiveness. If they are, it could be worth your time to see if your loans are eligible for PSLF and determine what the difference in your payments would be. It’s also important to consider how long you plan on staying in the public sector as you are no longer eligible for PSLF if you enter the private sector. On that same note, maybe you were working in the public sector and changed jobs to the private sector. If that is the case you should evaluate whether you should go for the long term (20 - 25 year) loan forgiveness or enter the standard repayment plan. The 20-25 year loan forgiveness has a “tax bomb” at the end of the period where your forgiven balance is subject to income taxes in the year of forgiveness. This “tax bomb” is something that you want to be aware of and potentially start saving for, depending on how much you expect to be forgiven.

A third reason that you should review your loans annually is to determine if you should refinance based on your current and potential interest rates. If you have federal student loans there are important considerations to take into effect in your decision making, such as the death and disability clauses. But if you have outside coverage for situations like those or plan for those situations and you aren’t going for loan forgiveness you might find lower interest rates if you refinance to a private student loan. If you currently have private student loans it could be beneficial to shop around for lower interest rates on an annual basis. You can refinance your student loans more than just once to take advantage of lower interest rates and/or cash back bonuses. A popular website to refinance your student loans through is the Student Loan Planner website. They have many different companies that they have partnered with to offer cash back bonuses, you just have to click the refinance links that are on their website.

Student loans are very complex so it’s important to take the time to consider all of your different possibilities. If you spend the time every year to give yourself you a financial checkup you will thank yourself for years to come.

Student Loans and Bankruptcy

You may have heard that student loans cannot be discharged in bankruptcy, but……

In order to potentially have your federal student loans discharged as a result of bankruptcy you have to file a separate action, called an adversary proceeding. When you file the adversary proceeding you are asking to have the court determine that repaying your student loans will cause you undue hardship.

Be prepared, when you go to bankruptcy court your student loan creditors might be present and will try to challenge your bankruptcy request.

If you are granted any bankruptcy determination there are three different outcomes.

• In some cases your student loan could be fully discharged, meaning that you won’t have to repay any of your loan.

• Other cases could have a partial discharge, in which case you would have to repay a determined portion of your loan.

• And in the third case you might have to repay your loan with a different term or a lower interest rate. 

Please note that it’s rare for student loans to be discharged in bankruptcy, so don’t depend on this.

Student Loan Discharge - Total and Permanent Disability

Did you know that federal student loans can be discharged if you have a total and permanent disability? Loans that are eligible for this discharge include Direct Loans, FFEL Loans, and Perkins Loans. 

So how do you go about this discharge process? In order to have your federal student loans discharged you will need to complete and submit a TPD (Total and Permanent Disability) application with documentation (from the VA, Social Security Administration or a physician) proving that you’re considered totally and permanently disabled.

This application can be submitted Nelnet as they are the loan servicer that processes TPD discharges. If you apply for TPD and are approved for it you should know that there can be a post-discharge monitoring period during which you will need to meet certain requirements or your loans will be reinstated. In some cases the discharged balance of your student loan may be considered income for both state and federal tax purposes 

Federal Perkins Loan - Cancellation or Discharge

Do you have a Federal Perkins student loan or know someone who does? If you do, you might be eligible for Federal Perkins Loan cancellation or discharge.

There are various occupations that qualify for cancellation. Some of those occupations include teaching in an elementary or secondary school, working for a child or family services agency, working at a tribal college or university, firefighting, law enforcement, military, nursing or other medical technicians, public defenders, providers of early intervention services, librarians, speech pathologists, and volunteers (Americorps or Peace Corps).

Depending on your occupation you may be eligible for up to 100% cancellation over a specific period of time. Many of the occupations that provide 100% cancellation do so over a 5 year period of time. For your first two years in the occupation you get 15% of the original principal loan cancelled and then 20% in the 3rd and 4th year and then the remaining 30% in the 5th year.

Perkins loans may be eligible for discharge under the following conditions, bankruptcy, death, school closure, service - connected disability, spouse of a victim of 9/11 and total and permanent disability. 

To get a Perkins loan cancelled or discharged you will need to contact the school that issued the loan or the schools loan provider. If you meet or think you meet the above criteria for having your Perkins loan cancelled or discharged be sure to reach out to your school. They will provide you with forms and additional instructions that are specific to your situation. 

Student Loans - Teachers Loan Forgiveness

If you’re a teacher who has federal student loans or if you know a teacher who has federal student loans this blog is for you because we are going to touch on Teacher Loan Forgiveness. 

Eligible loans for this forgiveness program include any Direct Loans or Federal Family Education Loans (FFEL) that were issued after October 1, 1998. Other eligibility requirements are that you must be a full time, highly qualified teacher for 5 complete and consecutive academic years (at least 1 year has to be after 1998) in a low income school.

Teacher Loan Forgiveness can forgive up to $17,500 for eligible loans if you are/were a highly qualified full time math, science or  special education teacher at a qualifying school, as mentioned prior. If you aren’t a math, science or special education teacher but are highly qualified and an elementary or secondary education teacher you could be eligible for up to $5,000 to be forgiven. 

It’s important to know that you can receive forgiveness for both Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF), but not at the same time. You would want to do an analysis to determine what the most optimal forgiveness strategy is for your unique situation.

Student Loans - Full Deferment Repayment

Last week we touched on the partial interest repayment option for private student loans. This week we are going to touch on the full deferment repayment option.

The full deferment repayment option is the most common repayment plan for students. Under this student loan repayment plan you don’t have to make any student loan payments while you’re in school. Also, many lenders offer a six month grace period after graduation if you select this plan.

During the six month grace period you aren’t required to make any student loan payments. It’s important to take note that interest will accrue during the deferment period so when your loans enter repayment your loan balance will be higher than the initial borrowed amount.

Of the four private student loan repayment options we have touched on this is the most expensive in terms of total amount students have to repay. Most lenders will allow you to make extra payments while you’re in school, even though you aren’t required to pay anything. If you select this payment method and are able to make some non-required payments you will save money on interest once your loans go into full repayment.

Student Loans - Partial Interest Repayment Option

Last week we touched on the interest only repayment option for private student loans. This week we are going to touch on the partial interest repayment option.

If you select the partial interest repayment option you will have a low fixed monthly payment that will be applied towards the interest on your loan. It’s very likely that your monthly payment won’t cover the entire amount of interest that is being accrued on your loan, but it will certainly help keep the accrued interest to a minimum.

Under the partial interest repayment plan your monthly payments, once your student loans go into full repayment, will be lower than they would be under the standard deferred repayment plan. If you have a little extra spending money, even if it’s $10 a month, that you can afford to use to make these payments you will thank yourself in future years. 

Student Loans - Interest Only Repayment Option

Last week we touched on the immediate repayment option for private student loans. This week we are going to touch on the interest only repayment option.

If you select the interest only repayment plan your monthly payment will begin while you are in school but it will be lower than under the immediate repayment plan. Your payment will be just enough to cover the cost of the interest that would be accruing on your student loan.

If you elect this repayment plan your student loan balance won’t decrease while in school, but it won’t be increasing either. Under the interest only repayment plan your monthly payments, once your student loans go into full repayment, will be lower than they would be under the standard deferred repayment plan. 

Check back next week on additional information about the standard deferred repayment plan.

Student Loans - Private Loan Repayment Plans: Part 1

Over the past eight weeks we have touched on the basics of each of the federal student loan repayment options. For those of you with private student loans there are different repayment plans available to you and they vary based on your loan provider. 

The most common repayment options for private student loans are immediate, interest only, partial interest, and full deferment. As you may notice, there aren’t any income based repayment options listed. That is because it’s very rare to find a private student loan provider who offers this option. Instead, some private loan providers offer an extended repayment term, so instead of the standard 10 year repayment plan you might be able to stretch your payments over 15 or 20 years. If you do this, you will still be paying back your full loan and won’t receive any loan forgiveness. The longer you stretch your repayment terms, the lower your monthly payment will be, but the more you will end up paying in total, due to interest. 

If you elect the immediate repayment option, your full monthly student loan payment will begin as soon as you take out the loan. This results in the lowest overall cost because you will have already paid down principal and interest before you graduate. Most students aren’t able to select this repayment option because it’s difficult to afford the monthly payment while in school.

Check back next week for additional information on the interest only repayment option for private student loans. 

Student Loans - Income-Sensitive Repayment Plan

Last week we touched on the basics of the Extended Repayment Plan. This week we are going to cover the basics of the Income-Sensitive Repayment Plan. 

The Income-Sensitive Repayment Plan is for low-income student loan borrowers who have FFEL loans. Any loans issued after 2010 are not eligible for this repayment plan. Under this repayment plan, your monthly payments are based on a percentage of your income, usually between 4% and 25% but the payment will always be at least the amount of interest that accrues on the student loan.

There is no loan forgiveness with this option and the loan has a 10 year repayment period. Because of this, your payments might start out lower than they would under the 10-year standard repayment plan but the payment will increase as the years go by unless you switch to an income-driven repayment plan.

This type of repayment plan is best for people who need lower student loan payments for a short period of time. 

Student Loans - Extended Repayment Plan

Last week we touched on the basics of the Graduated Repayment Plan for student loans. This week we are going to cover the basics of the Extended Repayment Plan.

The extended repayment plan is for eligible federal student loans and has a 25 year maximum repayment period.

This plan allows for your student loan payments to be either fixed or graduated as long as the loan will be paid off within 25 years. As a general rule, your payments under the extended repayment plan will be lower than they would be if you were on the standard or the graduated repayment plans.

In order to be eligible for the extended repayment plan, you must have over $30,000 in outstanding direct student loans and/or $30,000 in outstanding FFEL Program loans. If you meet the $30,000 minimum balance for either direct or FFEL but have a lower balance on the other type of loan you can enter the extended repayment plan for one loan type and select a different repayment option for the lower balance loan.

As a reminder, this payment plan is not a qualified public service loan forgiveness plan. 

Student Loans - Graduated Repayment Plan

Over the course of the last four weeks, we have covered the four different income-based repayment options available. This week we will be touching on the graduated repayment plan.

The graduated repayment plan has a 10 year repayment period unless you have a consolidated loan in which case you could have between 10 and 30 years for repayment.

Under this repayment plan, your student loan payment will start out low and increase every two years. The payment will always be at least the amount of interest that is accruing between your monthly payments but the payment won’t be more than three times what you would be required to pay on any other payment option.

The thought behind the graduated repayment plan is that when your loans initially go into repayment you are likely making less money than you will be later on in life. As you progress in your career, your income should increase and your student loan payment will increase. Under this repayment option, you will end up paying more in interest on your student loans than you would under the standard 10-year repayment plan. This is because you aren’t paying down as much on your principal in the early years of repayment.

Student Loans - Income - Contingent Repayment Plan (ICR)

Last week we touched on the basics of the Income-Based Repayment Plan (IBR). This week we are going to be touching on the basics of the Income - Contingent Repayment Plan (ICR).

ICR is the final income-based repayment option. Under ICR your student loan payment is the lesser of 20% of your discretionary income or the amount that you would be paying on a fixed payment plan over the course of 12 years, adjusted according to your income. Under ICR your repayment period is generally 25 years, unless you’re eligible for Public Service Loan Forgiveness (PSLF) then it’s forgiven after 120 payments.  After 25 years, any remaining balance will be forgiven. As with PAYE, REPAYE, and IBR discussed in prior weeks, the loan amount that is forgiven at the end of your repayment period will be considered taxable income unless the balance is forgiven as a result of PSLF.

You will need to re-certify your income and family size every year in order to get your payments to be based on your income. If your income increases over time it’s possible that your payment will end up being higher than it would be under the 10-year standard repayment plan.

NOTE: ICR is the only repayment plan that Parent PLUS Loan borrowers can participate in if their loans are consolidated into a Federal Direct Consolidation Loan.