loans – Breathing Room

Graduating? Time to Manage Your Student Loans

Published on May 14, 2020May 13, 2020 by JesseLeave a comment

The saying usually goes “With April showers comes May flowers” but typically with May flowers, comes students graduating from college. While some students may already have jobs lined up after graduation, others are just beginning their search. On the minds of many graduating seniors is how they will repay their student loans acquired over the last few years.

The first thing a graduating student needs to do is figure out how much money they owe. Federal student loans can be tracked through the National Student Loan Data System. It will list each loan as well as a total for all loans acquired. Private student loans are not part of the database, so grads should check their own records. Another option is to check your credit report at AnnualCreditReport.com. This site will provide detailed information about your credit history, including any private loans you have taken.

When it comes to repaying your federal student loans, I suggest you visit studentaid.gov. The site provides information about repayment, including options for repayment as well as a checklist of items for people who took out loans.

Typically, you have a six-month window before you need to make your first payment which you are then automatically placed on the Standard Repayment Plan. It is set up as a typical 10 year fixed payment. There are other repayment options, but always keep in mind – the longer you take to pay off the loan the more interest you will pay. Choosing a Federal Student Loan Repayment Plan provides an overview of various repayment options.

The spread of COVID-19 and the passage of the CARES Act affect student loan repayment drastically. All federal student loan borrowers are placed in forbearance (means you do not need to pay) from March 13, 2020 till September 20, 2020. Although you are not required to make payments, you still have the option. Most federal student loans will accrue 0% interest during this time. For more information about the impact of the CARES Act on student loans, visit studentaid.gov.

My colleagues in Extension created a series Factsheets on student loans which is very useful and can help you get more information on what to do when it comes to paying back your loans. The Consumer Financial Protection Bureau also has good information that you should check out. During this pandemic you should take time to learn more about your student loans and the best way to pay them back. Your decisions now can affect how much you pay back in the future and other aspects of your financial life.

Take Action! Don’t Lose Qualification for Student Loan Forgiveness

Published on January 23, 2020January 23, 2020 by DorothyLeave a comment

College affordability and student loan forgiveness are frequent topics of public concern. Two weeks ago, I discussed Public Service Loan Forgiveness (PSLF) qualification standards. There are very specific guidelines that must be followed in order to qualify for this program. However, it is not enough to just qualify — specific action steps need to be followed in order to benefit from PSLF. Borrowers who wish to pursue Public Service Loan Forgiveness need to carefully manage both their loan repayment terms and their loan documentation.

Let’s discuss the key actions for both.

Choose the right repayment plan. When borrowers graduate, they are given many choices for loan repayment plans. The default option is the standard repayment plan. Under this plan, loan payments are calculated for a 10-year, or 120-month, fixed payment. You must make 120 qualified payments toward your loans before qualifying for PSLF, so there is no benefit to this repayment plan.

A borrower who wishes to qualify for PSLF should select an income-driven repayment plan, or IDR. Income based payment plans were introduced to ease the burden of loan repayment, especially during the early earning years. Under these terms, your payment is calculated using a formula that is based on a percentage of your income, with payments stretched over 20-25 years.

Caution! Beware of loan consolidation! It is not unusual to leave school with multiple loans, with different servicers and different due dates. Tracking payments can be challenging. A federal consolidation loan with a single payment can be a good option, however, this will affect progress toward Public Service Loan Forgiveness. A consolidation loan is considered a new loan, and re-starts the counter toward the required 120 payments needed for loan forgiveness. If you’ve already been making progress toward PSLF, those payments will no longer count toward the 120 under consolidation.

Document carefully and frequently. Qualifying for PSLF requires that your employment is with a qualified employer. The federal government provides a form to document your employment. It must be signed by you AND your employer and filed with the Department of Education. Directions are on the form. It can be mailed, faxed, or uploaded depending on your loan servicer, but it cannot be completed online. It is recommended that you file the form annually, or at a minimum, whenever you change employers. Otherwise, it becomes more difficult to verify qualifying employment.

Be mindful of on-time payments. There are other important actions for maintaining PLSF qualification. You must make payments every month, on time. You can’t double-up or skip months. You do not lose the benefit of payments made during qualified employment if you leave that job for non-qualified work. The counter resumes if you once again work for a qualified employer.

Public Service Loan Forgiveness: Who is it for?

Published on January 9, 2020January 8, 2020 by DorothyLeave a comment

Earning a college, graduate, or professional degree is an accomplishment to celebrate, but once school ends, the reality of paying back student loans begins. Most direct student loans offer a six month grace period, with interest subsidized by the federal government, intended to provide the borrower with sufficient time to find employment. But for the millions of students who graduated in the spring of 2019, that grace period is ending. Fortunately, the federal government has many options to ease the burden of student loan payments.

If you work for the government or a nonprofit organization, you might be eligible for Public Service Loan Forgiveness (PSLF). This is a federal program designed to provide an incentive to attract job seekers to employment in much needed, but often lower paying, service work. Those who qualify for PSLF can have their student debt balance paid in full by the federal government, however, there are many rules to follow.

Qualify!

If you want to be eligible for PSLF, keep in mind that you must do qualifying work, for a qualified employer, make qualified payments, for a qualified amount of time, under a qualified plan.

The key word is qualified.

Qualifying work – Full-time employment, defined as 30 hours or more per week, or work that your employer considers full time. Part time hours at different qualified employers (see below) can be combined to reach the 30 hour minimum. There is a notable exception for religious work. Time spent on religious teaching, worship, or proselytizing does not apply toward the 30 hours.
Qualified employer – Any government organization or a nonprofit organization recognized under section 501(c)3 of the Internal Revenue Code, or federal tax code. Any level of government is acceptable. It could be a local, state, federal or tribal agency. However, if you work for a for-profit government contractor, a labor union, or a partisan political organization, your loan payments will not count toward PSLF.
Qualified payments – A minimum of 120 payments are required before your debt can be considered for PSLF, and are only counted if they are on time (no more than 15 days after the due date), and paid in full. Payments are only considered qualified if they are made while you are working for a qualified employer.
Qualified repayment plans – Borrower payment plans include all income driven repayment plans. There are several income driven repayment plan choices that a borrower can select. As the name implies, these repayment plans are based on the borrower’s income, as well as on other considerations, such as family size.

Where can I learn more?

Is Public Service Loan Forgiveness a good option? The best source for more detailed information is the Federal Student Loan Website. Many rules must be followed to qualify for PSLF and it is important to follow the rules carefully to reap the benefits of this program.