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Repayment for May Grads Begins in November

3 Oct

All information on repayment plans is from this article by David Evans, Ph. D.
Additional info added by Casey Doten, Purdue Financial Aid Administrator

Most student loans begin repayment six months after the student leaves school. With November coming up quickly, now is the perfect time to review your repayment options and set up your payment plan before the first payment comes due!

There are two main types of repayment plans you can choose from: traditional and income-driven. For borrowers that will qualify for Public Service Loan Forgiveness (PSLF), income-driven plans may be the better option. Income-driven plans will require an annual verification of income. This fact sheet describes each of the repayment plans as well as pros and cons of each. For more information about each of the repayment plans visit the Federal Student Aid website.

Traditional Plansstudent-loan-repayment-plans

Standard Repayment Plan

The Standard Repayment plan consist of equal monthly payments over a 10-year period of time. This repayment plan is good for those who can handle making their monthly payments and make enough money to afford them. This payment plan is best for those who have minimal other debts and start working right out of school.

The Pros: You’ll pay off your loan faster compared to other plans, and pay less interest as a result.

The Cons: Your monthly payments will be higher than those made through other plans.

Graduated Repayment Plan

The Graduated and Extended Repayment plans could be an option for you if your income is low when you graduate but will increase quickly. Under a graduated plan, payments start out low and increase during the repayment period, usually every two years. This is a good plan if you can’t afford your current payments but know you will make more money in the years to come.

The Pros: Your loan is still paid off within 10 years.

The Cons: You’ll pay more interest over the lifetime of your loan compared to the Standard Plan.

Extended Repayment Plan

An Extended Repayment Plan is an option if your loan amount is more than $30,000 and you want to stretch your repayment to 25 years.

The Pros: Smaller monthly payments (since they’re spread out over as many as 25 years) and more time to pay off your loan.

The Cons: You’ll be saddled with payments for a longer period of time as well as pay more interest.

Income-Driven Plans

If you qualify for an Income-Driven plan, these are often the most attractive options if you’re willing to recertify your payment each year (it’s not very difficult). However, some of these are contingent on when you took out loans! If you’re interested in student loan forgiveness*, you’ll need to be enrolled in any one of these plans.

Income Based Repayment Plan

If you’re not making enough money to cover all of your monthly expenses the Income Based Repayment (IBR) Plan would be a good option. There are two separate calculations for IBR which are dependent upon when you took out your student loans.

The Pros: The IBR plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income** if you were a new borrower on or after July 1, 2014. Otherwise it will be 15%. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: You will have to pay income taxes on any forgiven debt unless you qualify for PSLF (this is true for all loan forgiveness).

Income Contingent Repayment Plan

If you have a federal Direct Loan (other than a PLUS loan), you could opt for the Income Contingent Repayment (ICR) Plan. Your payments could be as low $5 or even $0.

The Pros: Your monthly payment will be the lesser of 20% of your discretionary income or on a repayment plan with a fixed payment over 12 years. You can have your remaining loan balance forgiven after 25 years of regular payments.

The Cons: You’ll pay more over the lifetime of your loan than you would with a 10-year plan, your payment could be lower than the monthly accrued interest and your loan principal will grow. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Income Sensitive Repayment (ISR) Plan

The Income Sensitive Repayment (ISR) Plan is only available for those with Federal Family Education Loan (FFEL) Program. Payments are based on your annual income, family size, and total loan amount. You would pay the loan off in fifteen years.

The Pros: Each lender has their own calculation, but generally it is between 4% and 25% of your monthly gross income, although your payment must be greater than or equal to the interest that accrues.

The Cons: It’s only available for up to five years. After that time, you must switch to another repayment plan. You must reapply annually, and there’s no guarantee that you’ll have continued enrollment in the plan.

Pay as You Earn Repayment Plan

The Pay as You Earn Repayment (PAYE) Plan is another option for those not able to afford their current monthly payments.

The Pros: The PAYE plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 years.

The Cons: PAYE is only eligible to those who were new borrowers on or after October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Revised Pay as You Earn Repayment Plan

The Revised Pay as You Earn Repayment (REPAYE) Plan is very similar to PAYE. This plan was created to allow more borrowers the opportunity to have their payments lowered to 10% of discretionary income.

The Pros: Not dependent upon when you took out your student loan, the payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: If you are married, your spouse’s income will be considered whether taxes are filed jointly or separately. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Summary

Federal student loans offer various ways for repayment. If you are in a situation (like so many others who have taken out student loans) that is not ideal for standard repayment of your loan, consider these options. There is a lot to consider when you are trying to decide which repayment plan to choose. Using the Federal Student Loan Repayment Estimator can help you make your decision by showing you what your payments would be under each of the plans described above.

*A note about loan forgiveness: There are two different kinds of loan forgiveness, Public Service Loan Forgiveness (PSLF) and loan forgiveness from your income-driven repayment plan ending. While both plans require you to be enrolled in an income-driven plan to reap the benefits there are some key differences:
-PSLF requires being employed at a qualifying employer in public service (non-profits, government, etc.) for 10 years/ 120 qualifying payments before forgiveness takes place. Standard forgiveness is after 20 or 25 years depending on your repayment plan.

-Any loan amounts forgiven under PSLF are tax-free, but not under standard forgiveness! So if you still have a balance on your loans after 20 (or 25) years, you will owe taxes on it as if it is income. While it’s still better than paying the amount back, it’s important to know it will have ramifications.

**Discretionary income = Your income – 150% of the poverty level in your state for your family size

5 Habits of Successful Student Loan Borrowers

7 Sep

In 2015 student loan servicer Navient completed a study to analyze the behaviors of 6.8 million former students who are successfully managing their student loan payments.

They concluded that there are 5 key habits to staying on track to student loan payoff.

Don’t Put It Off5 Habits 22.jpg

Student loans have several options for deferment and forbearance that can be utilized if your circumstances necessitate taking a break from payments. If your situation is difficult they can work with you to help reduce your payments or even put them on pause. However, they recommend not doing so unless it is truly necessary.

By keeping deferments and forbearances to a minimum, you can reduce the total cost of your loan and shorten the total time that you are repaying it!

Borrowers who use less than six months of forbearance are almost twice as likely to successfully repay than those who take longer postponements. If you need it, use it! Just remember that the loan will still be there when the forbearance ends and you’ll need a plan to repay it then!

Stay Connected

Borrowers who track their progress tend to be more successful in repaying their loans. Just by checking in regularly into your online student loan account can help you stay on track of your loans. It makes you more aware of your current balance, allows you to explore and renew payment plans, and gives you valuable tax information in addition to other useful tools they provide.

Also be sure to provide your servicer with up-to-date contact information so that any communication they send you reaches you in a timely manner! You never know when a time-sensitive document may be on its way.

Graduate

Nothing is more important to getting a return on your educational investment than graduating! 

When you’re still in school, maximize your meetings with your advisor and take 15+ credits per semester to graduate on-time! Extra years in college cost over $138,000 in lost wages, retirement savings and your tuition for the same degree.

However, even for those who didn’t graduate with a degree successful repayment can still be within reach. If college is still in your future, come up with a plan on how you will pay for your degree (including all portions of the Cost of Attendance) to help ensure you graduate and prevent any surprises while you’re still in college.

Stick with Repayment

the longer that you can make payments on your student loans, the more likely you are to successfully repay them. Even when times are tough, continuing to make even small payments is an important factor in completing your repayment.

Whether it on the standard repayment plan, or one of the income-driven plans available, even a small percentage of your discretionary income can keep you on-track with your repayment. Missed payments will damage your credit and cost you more over the life of the loan. 

Talk to Your Servicer

Your student loan servicer is there to help answer your questions and get you through your repayment successfully. Borrowers who reach out with their questions tend to be more successful with their repayment.

9 times of 10, Navient finds that when they talk to a federal loan customer they can help them avoid default and enter into an affordable payment plan. 

If you have any concerns about missing payments, details or enrolling in different payment plans, or just general questions about your loans, engage with your servicer!

Source: 5 Habits of Successful Student Loan Borrowers, Navient Solutions, Inc.

The FAFSA Opens Oct 1st!

5 Sep

fafsa
Getting you through FAFSA, one question at a time.FAFSAQs

 

  • Who

    • Who Should File a FAFSA?
      If you are interested in getting any Federal Financial Aid, including federal direct loans, you need to file the FAFSA at www.fafsa.gov/ to become eligible. Federal loans are almost always preferable to private loans. In addition, many colleges’ need-based scholarships rely on FAFSA information to verify that you are eligible. In short, everyone should file the FAFSA – even if you don’t think you’ll qualify for any federal aid.

     

    • Whose Information is Needed to File a FAFSA?
      This answer depends on if you are a dependent student or not. Unsure if you’re Dependent or Independent? Check here. (Note: this is not the same as being independent for tax filing)
      Dependent students: You need tax information for both you AND your parents. If your parents are divorced, you need the information on whoever you receive the most support (51%) from.Independent students: You only need your own information unless you are married. If so, you will need your spouse’s information as well.
  • What

     

     

    • What If Things Change After I File The FAFSA?
      If your family situation has a significant change after you’ve filed your FAFSA, and any time while you’re in school, stop by your Financial Aid office to see if you qualify for a “special circumstance”. These could include job loss, divorce, death of a parent, child birth, or other unexpected situations that impact your financial status.

     

    • What Types of Federal Financial Aid are there?
      There are three main types of financial aid:
      1. Grants & Scholarships— Federal Pell Grants do not have to be repaid and are sometimes referred to as “gift aid”. Grants are similar to scholarships, except that they are often for those who demonstrate financial need, where scholarships can be either merit-based or need-based.
      2. Student Loans — This is the type you hear about most often. Filling out the FAFSA is required to be eligible for Federal Direct loans. Federal loans are almost always preferable to private loans from lending institutions, because they have fixed interest rates and flexible repayment options. Keep in mind that there are limits on how much you can borrow in a year as well as in your lifetime.
      3. Federal Work Study (FWS) — Work Study may provide you with more opportunities to find on-campus jobs. Rather than being given the funds in the beginning of the semester like loans and grants, FWS earnings are distributed to you as part of your paycheck. Tips on finding a job around the Purdue campus and the difference between Work Study and non-Work Study jobs.
  • Where

     

    • Where Do I Get the School Code and FSA ID?
      You’ll need the school code for whatever schools you are interested in applying to. They are available here. Your FSA ID is used to login and electronically sign your FAFSA. Set it up at here. Purdue’s school code is 001825.

     

    • Where Do I Get Help?
      College Goal Sunday will be held on Sunday, November 5th in Indiana and it provides FREE FAFSA filing assistance. It is at Ivy Tech in West Lafayette, but to find a location near you in one of the participating 42 states, go to www.CollegeGoalSundayUsa.org. You can always call the Financial Aid office of your prospective school to ask questions as well.
  • When

    • When Can I start the FAFSA?
      You can begin the FAFSA any time after October 1st of the year before you plan to attend college. So if plan to be in college for the 2018-19 school year, you can start your FAFSA on October 1, 2017. The FAFSA uses the student/parent tax information from the previous year of when you file. If you are filling out for the 2018-19 school year you’ll use your 2016 tax info. Keep in mind that while you use your 2016 tax information, the rest of the questions are meant to reflect your situation the day that you file. You can estimate the required information to beat a college priority filing date, but the info must be corrected after the taxes are complete!

     

    • When is the FAFSA Due?
      If you are a Purdue student, the FAFSA priority filing date is March 1st, so be sure to have it done by then! Other colleges (and states) have their own priority dates. Check for deadlines here.
  • How

    • How Do I Get my Financial Aid?
      Your financial aid is sent directly to your school and they will apply it directly toward your billing and send any excess aid to you to be used for books and other education related expenses. The exception is Work Study which needs to be earned by working, and is paid via a paycheck.

     

    • How Much is the Maximum That Can be Borrowed?
      Most students don’t know this, but there is a maximum amount of Federal Loans you can take out each year. There is also a maximum amount you can take throughout your college career! Check out the chart below for annual and lifetime limits.If you take the maximum amount for four years, there won’t be as much left for a fifth year if needed.

      Plan ahead!

      Remember: Everything you borrow you will have to pay back with interest for the next 10 (or more) years. For every $5,000 you borrow at 6% interest, you pay back $6,661.23 over 10 years ($55.51/ month).

Why

  • Why Should I Do a FAFSA?
    Other than qualifying for grants and Federal Loans? Many state grants and institutional scholarships require FAFSA information submitted. Even if you aren’t sure, it is always worth submitting!

 

    • FAFSA-brw-chart

Releasing Your Cosigner from Private Student Loans

31 Aug

If you have a private student loan through a bank, credit union, or other lender odds are you will be part of the 90% of private student loans that require a cosigner. While the cosigner is meant to be an extra guarantee to the lender that the loan is repaid, it’s fair to assume that you’re no longer a risk for the lender not getting paid back after you’ve graduated, have a steady job, and have been steadily making on-time payments.Cosigner Release

Now that you’re on your feet, it would be nice to be able to release your cosigner from your private student loans. Releasing a cosigner from a student loan means that they are no longer tied to the loan and it won’t appear on any credit checks or leave them on the hook in the event of a catastrophic incident that leaves the student permanently disabled or dead. Not to mention, if your cosigner were to die or declare bankruptcy, it could automatically put your loan into default even if you are on-time with payments.

Remember, removing your cosigner from your loan won’t harm you as the student in any way! The loan will still have the same impact on your credit regardless of whether there is a cosigner or not. So whether your co-signer is a parent, or one of the 30% of cosigners who are a non-parent, releasing them of the liability is something nice you can do for them after they put their neck out for you.

Every lender has different methods to release cosigners, if they do so at all. There are, however, some standard things that most lenders like Sallie Mae or Wells Fargo will review when considering releasing your cosigner.

In addition to having graduated from college and being a US Citizen, they’ll take a look at your employment, income, payment history, credit score, and ability to assume full responsibility for the loan.

Remember that the release isn’t guaranteed, with the Consumer Finance Protection Bureau reporting a high number of rejections from lenders. But the opportunity to relieve you and your cosigner of the potential issues from unfortunate circumstances is worth contacting your lender and filling out some paperwork.

Do Student Loans Die with the Student?

29 Aug

Casey Doten, Purdue Financial Aid Administrator

Student Loan Death Discharge 2.jpg

What happens to my student loans if I die or are permanently disabled?

It’s not a thought most of us want to visit but, like many personal finance topics, you’ll want to be prepared in case of the unfortunate and unforeseen. If you have student loans, you should know if your loan burden could be passed on to someone else.

So do your student loans die with you? It depends…

There are a few different types of student loans you might have and many of them treat discharge for death or permanent disability differently.

Federal Student Loans

Federal student loans are the most common form of student loans, with 42.3 million borrowers totaling over $1.3 trillion between Federal Direct, FFEL, and Perkins loan programs.

Fortunately, federal student loans are also the most lenient in almost all situations – death forgiveness included. If you pass away, or suffer from total permanent disability, all federal student loan debts in your name are discharged.

In order for this to occur, you or your survivors will need to contact your loan servicer and make them aware of the circumstances. The servicer will likely request third party documentation of the circumstances such as a certified copy of a death certificate, a letter from a doctor, or proof of unemployment or disability benefits to go along with Total & Permanent Disability Discharge application in the event of disability.

This applies to all federal loan programs, including Federal Direct Stafford Loans (both subsidized and unsubsidized), FFEL Loans, Perkins Loans, and Graduate and Parent PLUS Loans.

Of note to Parent PLUS borrowers: If either the parent or the student the loan was borrowed for become eligible for a death discharge this benefit can be applied to the Parent PLUS loan. Just note that in the case where a parent borrower has the loan forgiven for their student they will receive a 1099-C form from the IRS and the cancelled debt will be treated as a taxable income. While better than repaying the debt, you will want to prepare for what may be a large tax bill.

Private Student Loans

This is where things get tricky. All private student loan lenders have their own rules when it comes to their own loans. While there are some protections that are mandated by the government, discharge due to death or total permanent disability is not one of those.

Some lenders will seek to recoup the loan from your estate. Others, like Wells Fargo, Sallie Mae, NYHELPs, and some other lenders do offer loan discharge in the event of the death of the student. Next time you speak to your lender, you may want to ask them if they have a similar program.

What About Cosigners?

Your lender will likely seek payment from your cosigner in the event of your death or any other circumstances that render you unable to pay on your student loan. Cosigners are legally responsible for the debts they sign on to and unless the lender discharges the loan, they will be on the hook for the sum – possibly on an accelerated repayment schedule.

However, you can head this off a couple of ways. After being out of college a couple years, you may want to look into a cosigner release from your lender which removes their name from the loan. Once that takes place, the loan will solely be in your name.

A second option would be if your cosigner is one of your parents, for them to take out a life insurance policy for the amount they are cosigned on to. This can be a low-risk way to hedge against the possibly terrible combination of losing a child then being given a large bill immediately after.

How Does Marriage Impact?

If your spouse takes out student loans and passes you are likely in the clear unless you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, Texas, Washington, and Wisconsin). If you live in one of the states listed, you may be liable for your partner’s debts after their passing.

Most of the time, however, unless you are a cosigner on the loan neither you not joint assets in the estate will not be held liable for the loan if your partner passes away.

All in all, it’s a situation none of us hope we ever have to confront. Thankfully there are some protections built in for many student loans that can keep a terrible situation from becoming even worse. Even if your lender doesn’t have discharge written into their loans, it is always worth giving them a call and seeing if there is anything that can be done in the event this unfortunate situation becomes a reality.

 

 Student Loans: Responsible Borrowing

29 Jun

Melissa Leiden Welsh, Ph.D., CFCS, CPFFE | University of Maryland

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If you are planning to attend college, a trade school, or some type of post-secondary training after high school, you will also likely apply to obtain student loans. The challenge is to select loans that match your financial needs, not only when you are a student but also when you are earning an income following graduation.

Student loan debt has generally been considered “good debt” due to a borrower’s increased earning ability upon graduation. However, the amount of outstanding debt should be proportional to a student’s projected earning ability. Check out the following suggestions to keep from falling into student debt traps.

1. Evaluating Post-Secondary School Options

There are many things to consider as you look at educational opportunities and the decision should not be taken lightly.

Do

  • Look at different types of post-secondary school and make sure you fully understand the costs (i.e., tuition and fees, room and board) associated with each one. It’s okay to “shop around” for schools.
  • Complete a Free Application for Federal Student Aid (FAFSA). The FASFA is the gateway to federal student loans.
  • Examine and evaluate federal loan options. Federal loans will almost always offer lower interest rates than private loans, and you may be eligible for loan forgiveness programs, or more flexible repayment options.
  • Shop around for private loans if you don’t qualify for enough federal student loans. Even a slightly higher interest rate of 0.5% to 1% more can add up over extended repayment periods.
  • Examine potential career earnings upon graduation specific to your field of study. Some fields of study do not pay as much upon graduation as other fields. You may struggle to pay loans from an expensive post-secondary institution with a low paying career.
  • Get a copy of your free credit report at www.annualcreditreport.com to check for unauthorized action with your personal information. You may not even have a credit report at this time, but checking it will ensure you have not been a victim of identity theft.

Don’t

  • Overlook public in-state colleges and training facilities as they often charge lower tuition with degrees matching your career goal and financial budget.
  • Select colleges or post-secondary training sites due to a friend’s enrollment. While it is difficult to change social settings in life, it is far worse to study for a degree/certificate in a field you are not truly interested in studying.

 

2. Before Signing Loan Documents

Student loans are ultimately your responsibility to repay, so make sure you are paying attention when borrowing.

Do

  • Limit borrowing to the amount you need to cover tuition, books, and educational supplies.
  • Keep a running total of loans accruing from year to year. Only looking at semester or yearly totals may leave you surprised and overwhelmed with the final summary loan total at graduation. You can use the National Student Loan Database System (NSLDS) to check your Federal loan balances.
  • Keep a folder of all student loan related forms and information brochures, preferably both physical and digital. It is not only convenient to be able to find everything in a single folder, but also can be helpful when planning and evaluating repayment options.
  • Some loans require actions to keep loans in deferment/forbearance (no payments required) while remaining as an enrolled student.
  • Keep your contact information current with each lender. It is your responsibility to report a change in your address to the lender. A lack of current address is NOT an excuse for missing a loan payment.
  • Understand the terms of the agreement in regards to how loan amortization works, how interest will be charged, and if interest will be added to the principal of the loan, commonly referred to as capitalization. Some private loans capitalize more frequently than federal loans.

Don’t

  • Turn to the signature page and sign without reading all the text of the contract you are signing.
  • Use extra funds from the refund check for pizza nights, spring break, drinks with friends or shopping trips. These expenses will cost you more because of interest.

 

3. Searching for Jobs and Preparing to Graduate

It is important to consider your student loans as you near graduation and begin looking for your first post-secondary school job.

Do

  • Work hard to graduate on time. Extra years at school mean additional student loan costs and lost years of earning. 
  • Make a spending and saving budget to follow after graduation. Determine potential costs to help guide your financial decisions such as housing. It is important to look at the interest rate of each loan and work to pay off higher interest rate loans first versus small loans with low interest rates to potentially save thousands of dollars in interest costs.
  • Visit the Student Loan Estimator to determine your estimated loan repayment totals.
  • Examine and evaluate various repayment plans. Schedule an appointment with your university loan department to determine available options.
  • Read all correspondence from loan providers thoroughly before deciding to consolidate loans – some loans are ineligible for loan forgiveness programs once consolidated with non-eligible loans and loan consolidation does not necessarily lower interest rates.
  • Be cautious when deciding to pay for loan consolidation as many federal programs and some private banks offer free loan consolidation. You may receive solicitations via the mail that offer to do it for a free, but it is always free to do yourself for federal loans.
  • Explore tax credits for student loan interest payments.
  • Choose to sign up for automatic draft payments from your bank account. Automatic payments reduce the possibility of late payments and are often rewarded with lower interest rates too.

Don’t

  • Consider not paying your loans on time. Default on student loans can greatly impact your credit report. Lenders and other businesses use the information in your credit report to evaluate your applications for credit, loans, insurance, employment or renting a home.
  • Extend loans to a longer repayment time to simply have a lower monthly payment. Those extra months and years will quickly add additional interest costs beyond the principle.

 

Resources

U.S. Department of Education Blog

Student Loan Hero

Edvisors Network

Who Owns Your Student Loans?

6 Jun

Carrie L. Johnson, Ph.D. | North Dakota State University

When leaving college, whether you are graduating or taking some time off, it is important to know how much you owe in student loans and who you will be paying back. You may have kept track over the years, or maybe you didn’t. There are two types of student loans: federal and private. This fact sheet will show you how to determine the amount of student loans you owe and who you need to pay.

Federal Student Loans

The National Student Loan Data System (NSLDS) website is the best place to start when looking for history on your federal student loans (Direct Loans and Perkins Loans). To access your student loan information, you need your FSA ID to log in.

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The main page is broken down into four sections:

  1. Summary information for borrower; this includes your enrollment status and the date that status became effective.

  2. The next section will have any “warnings” that may be on your account such as nearing your aggregate borrowing limit or if you are in default on your loans.

  3. The Loans section lists every federal loan you have ever had and totals for your federal loans.

  4. Section 4 shows your Pell Grants.

To identify your loan holders and repayment amounts, focus on the third section shown below.
nslds4

By clicking on the blue button with the number in the first column you can see even more details about your loan. You will be shown the type of loan, what school you were attending when the loan was obtained, various important dates, amounts, disbursements and statuses, and your servicer information. The servicer is who you contact about repayment.

There are currently ten servicers the Department of Education uses for Direct Loans; you can find a list here. The servicer on a Perkins Loan is typically the school that extended the loan. However, some schools do have outside servicers or assign your loan to Department of Education. The example below shows what the servicer section on NSLDS looks like.

nslds3

Private Student Loans

The best way to determine information about the status of private student loans is to obtain a copy of your credit report. The credit report will include will total amount owed and the name of your lender. A free copy of your credit report can be requested by mail, telephone, or online every 12 months from each of the three credit reporting agencies (Equifax, Experian, and TransUnion).

By going to AnnualCreditReport.com you can get access to information about your credit history, including student loan payments. You will need your personal information to log on and you will also be asked a series of security questions based on your report. You can also request your credit report by calling 1-877-322-8228 or by mail using this form.

Resources

AnnualCreditReport.com 

National Student Loan Database System

Saving for College

 

Federal Student Loans are Getting More Expensive This Year

15 May

Casey Doten, Financial Aid Administrator 

College can be an expensive investment. So it makes sense that many students have to take out loans in order to fund it. Unfortunately, borrowing federal loans for the 2017-18 just became a little bit more expensive.

The interest rates on all federal loans went up 0.69% for the 2017-18 school year. So undergraduates taking out Federal Direct loans for 2017-18 will be paying 4.45% on their loans, up from 3.75% in the 2016-2017 school year. This also impacts other types of federal loans: graduate Direct loans will increase from 5.31% to 6%, and PLUS loans for parents and grad students will increase from 6.31% to 7%.Interest rate increase.png

So how much more does this interest rate increase cost you?

A freshman taking out the federal limit of $5,500 in unsubsidized Federal Direct loans for the 2017-2018 school year will be impacted by the new, higher interest rate. Compared to those freshman who started a year before, the 2017-2018 freshman will accrue $161 over their four years of college, (plus their post-graduation grace period) before they even begin making loan payments. For a student who doesn’t take 15 credits every semester, that number will only grow higher.

Once repayment begins, interest is also applied to that $161 that accrued while the loan was in deferment. So that extra 0.69% in interest ends up costing $456 more over the life of the loan if the student uses the standard 10-year payment plan, which has the lowest total interest paid. The grand total repaid at the new, higher interest rate is $8,134 on the original loan of $5,500.

Unfortunately, this means paying $456 more than students who began only one year earlier for the same loan.

Keep in mind that this change only impacts loans which are being taken out for the 2017-2018 school year. Any federal student loans already taken out and disbursed before July 1, 2017 will not be effected by this change.

However, variable interest rate private loans from previous years may also be increasing. While the change in federal loan interest does not cause private loans to change, they both calculate their interest rates based off the Treasury Department’s auction of 10-year notes. This means that when federal loan interest rates rise, old private loans with variable interest rates can similarly expect to see an increase.

If you want to calculate your own loans for the 2017-2018 year, use a two-step process:

  1. Input your loan information into the Accrued Interest Calculator along with how many months until repayment begins (this is often years until graduation plus three months). This will give you the loan’s balance when repayment begins.
  2. Plus those loans into the Federal Student Aid repayment calculator and see what your repayment is, including information on the different payment plans available.

Even with the higher interest rates, Federal Direct loans are almost always a better option than private loans. They typically have lower interest rates and more flexible repayment plans to go along with fixed interest rates.

While this increase in interest shouldn’t dissuade you from making the investment in your education, hopefully it gives you the opportunity to think about how much you may borrow. Anything borrowed has to be paid back, with (higher) interest.

Which Student Loan Repayment Plan is Right For You?

12 May

All information on repayment plans is from this article by David Evans, Ph.D.
Additional info added by Casey Doten, Purdue Financial Aid Administrator

Congratulations on your graduation! It’s an exciting time as you move into new jobs and new places! However, something from your past will be coming back soon – your student loans. Six months after leaving school most student loans are due for repayment. By default you are put into the the Standard Repayment Plan (which is also the most aggressive repayment option), but you have more options! Choose which Federal Loan repayment plan is the best one for your life.

There are two main types of repayment plans you can choose from: traditional and income-driven. For borrowers that will qualify for Public Service Loan Forgiveness (PSLF), income-driven plans may be the better option. Income-driven plans will require an annual verification of income. This fact sheet describes each of the repayment plans as well as pros and cons of each. For more information about each of the repayment plans visit the Federal Student Aid website.

Traditional Plansstudent-loan-repayment-plans

Standard Repayment Plan

The Standard Repayment plan consist of equal monthly payments over a 10-year period of time. This repayment plan is good for those who can handle making their monthly payments and make enough money to afford them. This payment plan is best for those who have minimal other debts and start working right out of school.

The Pros: You’ll pay off your loan faster compared to other plans, and pay less interest as a result.

The Cons: Your monthly payments will be higher than those made through other plans.

Graduated Repayment Plan

The Graduated and Extended Repayment plans could be an option for you if your income is low when you graduate but will increase quickly. Under a graduated plan, payments start out low and increase during the repayment period, usually every two years. This is a good plan if you can’t afford your current payments but know you will make more money in the years to come.

The Pros: Your loan is still paid off within 10 years.

The Cons: You’ll pay more interest over the lifetime of your loan compared to the Standard Plan.

Extended Repayment Plan

An Extended Repayment Plan is an option if your loan amount is more than $30,000 and you want to stretch your repayment to 25 years.

The Pros: Smaller monthly payments (since they’re spread out over as many as 25 years) and more time to pay off your loan.

The Cons: You’ll be saddled with payments for a longer period of time as well as pay more interest.

Income-Driven Plans

If you qualify for an Income-Driven plan, these are often the most attractive options if you’re willing to recertify your payment each year (it’s not very difficult). However, some of these are contingent on when you took out loans! If you’re interested in student loan forgiveness*, you’ll need to be enrolled in any one of these plans.

Income Based Repayment Plan

If you’re not making enough money to cover all of your monthly expenses the Income Based Repayment (IBR) Plan would be a good option. There are two separate calculations for IBR which are dependent upon when you took out your student loans.

The Pros: The IBR plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income** if you were a new borrower on or after July 1, 2014. Otherwise it will be 15%. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: You will have to pay income taxes on any forgiven debt unless you qualify for PSLF (this is true for all loan forgiveness).

Income Contingent Repayment Plan

If you have a federal Direct Loan (other than a PLUS loan), you could opt for the Income Contingent Repayment (ICR) Plan. Your payments could be as low $5 or even $0.

The Pros: Your monthly payment will be the lesser of 20% of your discretionary income or on a repayment plan with a fixed payment over 12 years. You can have your remaining loan balance forgiven after 25 years of regular payments.

The Cons: You’ll pay more over the lifetime of your loan than you would with a 10-year plan, your payment could be lower than the monthly accrued interest and your loan principal will grow. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Income Sensitive Repayment (ISR) Plan

The Income Sensitive Repayment (ISR) Plan is only available for those with Federal Family Education Loan (FFEL) Program. Payments are based on your annual income, family size, and total loan amount. You would pay the loan off in fifteen years.

The Pros: Each lender has their own calculation, but generally it is between 4% and 25% of your monthly gross income, although your payment must be greater than or equal to the interest that accrues.

The Cons: It’s only available for up to five years. After that time, you must switch to another repayment plan. You must reapply annually, and there’s no guarantee that you’ll have continued enrollment in the plan.

Pay as You Earn Repayment Plan

The Pay as You Earn Repayment (PAYE) Plan is another option for those not able to afford their current monthly payments.

The Pros: The PAYE plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 years.

The Cons: PAYE is only eligible to those who were new borrowers on or after October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Revised Pay as You Earn Repayment Plan

The Revised Pay as You Earn Repayment (REPAYE) Plan is very similar to PAYE. This plan was created to allow more borrowers the opportunity to have their payments lowered to 10% of discretionary income.

The Pros: Not dependent upon when you took out your student loan, the payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: If you are married, your spouse’s income will be considered whether taxes are filed jointly or separately. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Summary

Federal student loans offer various ways for repayment. If you are in a situation (like so many others who have taken out student loans) that is not ideal for standard repayment of your loan, consider these options. There is a lot to consider when you are trying to decide which repayment plan to choose. Using the Federal Student Loan Repayment Estimator can help you make your decision by showing you what your payments would be under each of the plans described above.

*A note about loan forgiveness: There are two different kinds of loan forgiveness, Public Service Loan Forgiveness (PSLF) and loan forgiveness from your income-driven repayment plan ending. While both plans require you to be enrolled in an income-driven plan to reap the benefits there are some key differences:
-PSLF requires being employed at a qualifying employer in public service (non-profits, government, etc.) for 10 years/ 120 qualifying payments before forgiveness takes place. Standard forgiveness is after 20 or 25 years depending on your repayment plan.

-Any loan amounts forgiven under PSLF are tax-free, but not under standard forgiveness! So if you still have a balance on your loans after 20 (or 25) years, you will owe taxes on what is forgiven as if it is income. While it’s still better than paying the amount back, it’s important to know it will have ramifications.

**Discretionary income = Your income – 150% of the poverty level in your state for your family size

Dear Class of 2017, About Your Loans

10 May

From WiseBread New Graduate Help Center: Reyna Gobel, Student Loans Expert

girl surprised by letter

 

Dear Not-Yet-In-Trouble Federal Student Loan Borrower,

You might have heard that the Department of Education will be sending out letters to millions of student loans borrowers. The letters target borrowers whose grace periods are ending, as well as borrowers who exhibit signs of trouble that could lead to defaulting on their loans. If you haven’t started repayment yet but are fretting about how you’re going to possibly repay all that money — stop worrying.

I’m writing you this letter to not only give you important details about student loan repayment, but also to help you be aware of potential issues well before trouble starts.

I Defaulted — Here’s How to Avoid My Mistakes

I defaulted on a federal student loan simply because I didn’t know it existed. I had over a dozen student loans from different lenders; I forgot about one loan and went into default. It’s easy to do, but it’s also easy to avoid. Just log in to the National Student Loan Data System. You’ll see all your federal student loans on this site, along with contact information. Either arrange to pay each individually, or consolidate them into one loan. This is also a great time to get a free credit report – it can alert you to any problems you might have, like having missed a loan or bill payment.

Then, know yourself. If you can’t keep track of each individual loan, you really need to consolidate them into one loan to streamline payments (ask your loan servicer about consolidation options). Once consolidated, you can still choose a plan where payments are based on income, such as Pay as You Earn. And if you’re interested in the public service loan forgiveness program, know that it’s only available through loans originated by or consolidated with Federal Direct Loans.

Realize That Even With the Pay as You Earn Plan, You Might Have Payment Problems

The income-based Pay as You Earn repayment plan bases payments on your income and family size, but it doesn’t fully consider your expenses if your circumstances change. For example, at some point, you may have to help support a sick parent or child. You could also have bought a home when your income was higher. After a pay cut, a majority of your income could go towards your mortgage.

If you experience a financial setback, you have three options:

  • Call your servicer and see if your Pay as You Earn payment amount can be adjusted. You have to supply your income annually, and you may have forgotten to do so this year, causing your payments to set based a higher income level.
  • Ask for a deferment or forbearance, which are temporary payment breaks. Taking a break should only be done if the situation isn’t permanent. Always take a deferment when possible over a forbearance when any of your student loans are subsidized. The government pays the interest on subsidized student loans during periods of deferment.
  • If your income is lower because you took family leave for six months, you may not want to change your plan. However, for long-term pay cuts where your income-based repayment is too high for your budget, you should ask your servicer to also calculate payment options and see which payment option offers the lowest monthly payment.

Don’t Feel Embarrassed If You Don’t Know Something About Student Loans

I wrote two editions of a 240-page book on student loans, and I still don’t know everything about them. I read articles and play with the student loan repayment calculators every day. There’s always something new to learn. For instance, the public service loan forgiveness employer verification form wasn’t created until after the first edition was released. Now, thanks to that form, you can find out if you qualify for the public service loan forgiveness program right away and register for it right after you start working or after you’ve already started repayment — the choice is up to you. Never be afraid to ask your servicer questions about any of these programs.

Talk to Your Friends Who Are or Will Be in Repayment Soon

I’m not the only person who has experience with and advice about student loans. Talking to your friends can help you figure out repayment options and possibly pick better ones based on their choices and experiences. Just remember, they might have different circumstances than you, such as income level, children, or other debt that impacted their choices. Therefore, you shouldn’t copy their decisions. But you’ll be more informed and learn questions to ask your servicer. Plus, they may have missed payments, recovered, and now have advice about that. Learn from others’ student loan mistakes and victories.

The Most Important Part of This Letter?

The help you get doesn’t end here. You can tweet me anytime — @ReynaGobel— and ask questions. My articles will be posted here every week. You can ask me questions in my CollegeWeekLive web chats or get more helpful advice in my book CliffsNotes Graduation Debt.

Finally, remember you never want to receive a “dear troubled borrower” letter. The second you think you might miss a payment, talk to your loan servicer about options for a payment break or new repayment plan. With federal student loans, that one call will likely save your credit.

Reyna Gobel is a writer, author, public speaker, and student loans expert.  Her financial advice appears on Wise Bread’s New Graduates Help Center, in her video course How to Repay Federal Student Loans, in CollegeWeekLive newsletters and keynotes speeches, and in her audiobook How Smart Students Pay for School, now in its second edition. Be sure to check out her website for more helpful information on repaying your student loans.

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