If you’re feeling overwhelmed by student loans, take a moment to read these financial strategies from Becky Partridge.
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. Giving you greater financial freedom to achieve your life goals, such as traveling.
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 colle
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.
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.
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.
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.
For this week's student loan tip we are going to touch on the Revised Pay As You Earn (REPAYE) income-based repayment option.
REPAYE is an income-based repayment option for federal student loans. Under REPAYE your monthly student loan payment is generally 10% of your discretionary income.
In some cases, your monthly payment might be higher than it would be under the standard 10-year repayment option. The reason for this is because REPAYE takes into consideration your income and family size, so if your income increases over time your payment will likely increase. Every year you have to recertify your income by a deadline.
If you don’t recertify your income you will be removed from the REPAYE Plan and your monthly payment will no longer be based on your income. At this point, your unpaid interest will be capitalized. This means that the interest will be added to the principal balance of your loan, thus increasing the overall cost of your loan.
The repayment time frame for REPAYE is 20 years if all of your loans under the plan were for undergrad. If you have any loans that you’re repaying from graduate or professional school then you will likely be in the REPAYE program for 25 years (unless you are eligible for Public Service Loan Forgiveness).
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