by Repayable | May 15, 2017 | Getting started, Money Matters
Read this if you’re panicking about making student loan payments and you are looking for temporary relief from student loan debt payments.
Estimated read time ~5 minutes.
Student loan deferment or forbearance can give you temporary relief from the financial stress of student loan payments. Here’s what you need to know to decide if these options are right for you.
Deferment
Deferment allows you to temporarily stop making payments on your student loans. While in deferment the federal government pays the interest accruing on your subsidized federal loans. That means you don’t earn interest or compounding interest on those loans during your period of deferment.
In order to be eligible for deferment borrowers must meet specific criteria. You can find the comprehensive list and forms for each type of deferment here. In a nutshell you’re eligible if you’re still enrolled in school half-time, if you’re in grad school or fellowship, if you’re unemployed, if you’re experiencing economic hardship or in the peace corps, if you’re currently or were recently on active military duty for war, military operation, or national emergency.
Deferment is the ideal choice because you will never have to pay for interest accrued on subsidized loans during the period of your deferment. You can find the
Forbearance
Forbearance allows you to temporarily stop making payments on your student loans. While in forbearance interest continues to accrue and compound on all types of loans including subsidized.
There are two types of forbearance, general and mandatory. Forbearances aren’t granted for longer than 12 months so if you are still experiencing hardship or are eligible for mandatory forbearance after that you will need to re-request forbearance.
General forbearance is at the discretion of your loan servicer and can be granted for reasons such as financial difficulty, medical expenses, employer change, and other reasons suitable to your lender.
Mandatory forbearance is required to be granted by your loan servicer if you meet eligibility requirements. These requirements can be medical or other health-professional residency, total monthly amount of student loan payment is 20% or more of your gross monthly income, some teaching and americorps positions, some military and national guard situations
You can find the general forbearance request here.
Alternative repayment plans.
Do you really need to stop making payments on your student loans or is there other room in your budget to make sacrifices? Take a calm look at your finances and find out if a lower payment is really what you need rather than no payment. You can accrue a significant amount of interest in forbearance. Let’s look at 12 months forbearance on a $36,000 loan with 4.8% interest. Your loan balance after 12 months forbearance will be $37,728. That’s an extra $1,728 you now owe and 4.8% relative increase in the cost of your education. Choose wisely, income-based payments also allow you to work toward eventual loan forgiveness after 20-25 years of payments.
Let me know what your biggest fears are about student loan repayment in the comments below, on the Repayable Facebook Page, or by sending me an email jeni@repayable.org. I’m here to help. With the information you need, you can make your student loans truly repayable.
Additional Resources:
Deferment and Forbearance
Deferment Eligibility
Forbearance Request Form
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by Repayable | May 1, 2017 | Getting started
Read this article if you’re worried about being able to afford student loan payments and think you might default. Estimated read time ~10 minutes.
If you’ve come to this article you might be uncertain of your financial future. Maybe you can’t find a job, maybe you had unexpected medical expenses, or maybe you overextended yourself when borrowing for college and now are facing down repayment. Whatever brings you to this article take a deep breath, you have options.
Repayable is all about finding the best way for you to repay your student loans. That starts with keeping you in good standing, which means making your payments on time. Your student loans are in default when you’ve failed to make a payment for 270 days if you pay monthly, or 330 days for FFEL loan programs.
Step 1: Contact Your Loan Servicer
The first thing to do is contact your loan servicer to discuss your options. Your loan servicer can help you find the payment plan that makes the most sense for you.
Step 2: Review Your Options
There are a two strategies to help you manage your student loan debt during times of financial hardship. Deferment and forbearance allow you to delay making payments for a period of time. In deferment you don’t make any monthly payments and you don’t accumulate interest on subsidized loans. In forbearance you don’t make any monthly payments but you do accumulate interest on all loans.
The next strategy involves choosing an income-driven repayment plan. Income-driven repayment plans include: Revised Pay as You Earn (REPAYE), Pay as You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). Each plan is slightly different but involve paying 10-20% of your discretionary income and forgiveness of the remaining balance after 20-25 years. Your monthly payment can be very low so may be a better option than deferment or forbearance because you can work toward loan forgiveness.
Step 3: Choose the Strategy That’s Best For You
Picking the strategy that’s best for you isn’t as overwhelming as you might think. You may even be able to enlist the help of the financial aid office of your college.
Step 4: Avoid Common Pitfalls
Don’t be so overwhelmed that you choose to ignore the problem until you’re in default. Default can keep you from loan forgiveness eligibility and ruin your credit. If your student loans aren’t in good standing you could also lose the professional license you earned with your college degree.
Don’t enroll half-time to avoid having to make payments. Your debt is compounding but you might not be earning yourself a higher paying job after the completion of the courses. You’re better off seeking deferment or forbearance or switching to an income-driven repayment plan.
Unlike other types of consumer debt, student loan debt can’t be discharged in bankruptcy. You will have to deal with your student loans one way or another. The easiest way to do that is to start looking at your options at the first sign of trouble. Don’t let your fear of criticism or the unknown keep you from repaying your student loans
What’s your biggest struggle with repayment? Let me know in the comments below or on the Repayable Facebook Page. You can always send me an email jeni@repayable.org and I’ll help you out!
Additional Resources:
Understanding Default
Deferment and Forbearance
Avoiding Default
Income-Driven Plans
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by Repayable | Apr 17, 2017 | #Millenniallife, Getting started, Money Matters
Read this article if you know your total debt load and want to figure out how bad it actually is.
Estimated read time ~ 9 minutes.
By now you’ve figured out how much you owe, what type of loans you have, and what repayment plan you’re in. Now it’s time to assess your financial situation. You have to draw conclusions about the impact your student loans have on your finances in order to set goals that meet your unique needs.
So how do you know if your student loan debt sucks hard or just sucks a little? The answer is the debt to income (debt:income) ratio. This handy little ratio helps quantify your debt load relative to your income. Think of it this way, $40,000 feels different if you make $28,000 per year than if you make $100,000 per year.
A side note that the debt:income ratio I talk about is not the same as the debt:income ratio creditors use to determine your financial viability. This ratio focuses on total student loan debt load and annual income. The common debt:income ratio focuses on monthly debt payments and monthly income and is reported as a percentage.
How to calculate your debt:income ratio.
- Grab your total debt: we’ll use $40,000 for this example.
- Estimate your total annual income: we’ll use $28,000 for this example.
- Divide your debt by your annual income: $40,000 ➗ 28,000
- Your quotient is your debt:income: in this case it’s about 1.4
What does your debt:income ratio mean?
Your debt:income gives you a quick way to assess the affordability of your debt. In general the higher your debt:income the harder it feels to repay your debt. As you make more money it feels easier to repay your debt with the same or even higher debt:income.
For example if your student loan debt is $150,000 and you make $100,000 per year it’s easier to make your payments than if you have a debt total of $45,000 and make $30,000 per year. Why is this the case? Essentially the more money you make, the more you have left after paying for basic costs of living. You may elect to pay for a higher quality of life as you make more but there’s less financial pressure on the basics like groceries, transportation, and health insurance.
What’s a good debt:income ratio?
The answer is, it depends on how much you make. If your ratio is less than 1:1 it will likely feel affordable. However if you make a salary that’s high enough to cover cost of living and then some a ratio of 1.5:1 may feel affordable. Generally, I would aim to cap your debt:income ratio at 1.5:1.
What to do with your debt:income ratio.
So what do you do if your debt:income ratio just isn’t that great? Well, there are only two sides to this equation, your debt and your income. The only thing you can do with your debt once you’ve borrowed it is repay it. The flexible side of this equation is your income.
There are a ton of resources out there on ways to make extra money. You can try to move to a better paying position in your company, switch to a better paying field (that doesn’t require more education and debt), ask for a raise, or start a side hustle. There are a lot of resources out there for making any of these moves. I’ll link up my favorite side hustle podcast at the end of this post.
What did your debt:income ratio reveal to you? Did it bring up more questions than answers? I would love to hear your thoughts on the Repayable Facebook Page or in the comments below. As always you can send an email to me jeni@repayable.org.
Additional Resources
Side Hustle School Podcast
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by Repayable | Apr 3, 2017 | Getting started
Read this if you want to know if you’re in the best repayment plan for your specific financial situation. Estimated read time ~5 minutes.
Repayment plans are the start of your student loan repayment journey. The right plan keeps you from worrying you won’t be able to make your monthly payment and sets an end date for student loan freedom. The wrong plan has you financially stretched or paying more slowly than you could be.
This article will give you the key tenants of choosing a repayment plan so you can customize your repayment to fit your financial needs. If your plan’s not doing it for you anymore it’s time to say buh-bye!
Duration of Repayment
How long will it take you to repay your loans according to this plan with no missed or extra payments? The plan you choose determines when you’re debt free. If you want to be out of student loan debt in 10 years look at the standard 10 year repayment plan.
Cost of Monthly Payment Relative to Your Income
Repayment plans offer either a fixed monthly amount with a set duration or a variable amount that gets re-calculated with changes in your income. The income-based repayment plans offer the most flexibility in terms of your payment relative to your income. However a standard 10 year plan offers a clearly defined timeline for repayment.
Your financial situation will determine which option is best for you at the time. For example maybe you would like to be out of debt in 10 years but the monthly payment under the 10 year repayment plan is unaffordable right now on your starter salary. You can always choose an income-based plan first and change to a more aggressive repayment plan as your income allows.
Loan Forgiveness Options
Are payments made under this repayment plan eligible for loan forgiveness? This is a critical piece of information to know if you’re considering loan forgiveness of any type. If you’re working toward loan forgiveness such as PSLF you’re required to make 120 payments on an eligible income-based repayment plan. If you change plans or consolidate your loans you could have to restart your 120 payments from the beginning and lose all the progress you made so far.
Advantages and Disadvantages of the Repayment Plan
What are the advantages and disadvantages of your repayment plan? Standard repayment plans minimize the amount you pay in interest and help you repay your loans more quickly but have high monthly payments that don’t take your income into account so may be unaffordable for some borrowers. Income-based plans have low monthly payments but stretch out the time it takes to repay your loans which means you pay more interest and it will take you longer to become debt free.
Target Borrower for the Repayment Plan
Who is the ideal candidate for your repayment plan? Some plans work very well for high-income borrowers and less well for lower-income borrowers. For example, an income-based repayment plan may not be the best choice for a high-income borrower who would rather have a set monthly payment and repay their debt over 10 years. In contrast an income-based plan might be a great option for someone in a starter job not making their goal salary yet. You’ll need to compare your financial situation to the target borrower for the plan and decide if the plan makes sense for you.
Choosing the right repayment plan involves deciding your specific loan repayment goals and finding the plan that can make those goals come to life. All federal loan repayment plans can be changed at any time by contacting your loan servicer. If you’re not in the right repayment plan, break up with it for a better one, you won’t even need to burn all of it’s old things 🙂
After reading this post are you planning to kick your plan to the curb for something better or are you and your plan meant to be? Let me know in the comments below or on the Repayable Facebook Page. As always you can send me an email jeni@repayable.org or post your question in the Facebook group and I will help you navigate the minutia of plan choice.
Additional Resources
Repayable: Chapter 3 Ways to Repay
Federal Student Aid Overview of Repayment Plans
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by Repayable | Mar 6, 2017 | Getting started, Money Matters
Read this article if you don’t know your total amount of student loan debt. Estimated read time ~ 2 minutes.
The first step to making your student loan debt repayable is to know exactly how much of it you have. While it’s easier to deny reality and maintain only an estimate of your total debt load, it’s imperative to take control of your debt by facing the exact number.
Start with Federal Loans
To figure out the total amount of federal student loan debt you can go to the National Student Loan Data System (NSLDS) website. This website is operated by the Department of Education and serves as a central data base for student aid. NSLDS gets their information from schools, the Direct Loan program and other Dept of Ed programs. This is your one stop spot to find your federal student loan total.
You will need your FSA ID to access the NSLDS. If you don’t have that you can set one up. One thing to note is that the information on the NSLDS tends to be older (up to 120 days) so you will want to obtain a balance from your loan servicer if you’re making payments.
Contact your Loan Servicer(s)
This works for both federal and private student loans. You can find out who your lender is by checking your credit report, your lender will be listed, or by asking your college’s financial aid office for help. Either way your current loan servicer will have the most accurate and up-to-date information on your loan balance.
Now that you’ve empowered yourself with a real number what’s the verdict? Is it more, less, or about the same amount you thought it was? I remember when I graduated I thought I had borrowed $118,000 then realized $10,000 of interest had accrued on my unsubsidized loans… it was such a bummer but very quickly helped me realize the financial burden of interest! Right now I owe $81,799.82. Share your experience with owning your number on the Repayable Facebook Page or in the comments below!
Additional Resources:
https://www.nslds.ed.gov/nslds/nslds_SA/public/SaFaq.do
https://studentloanhero.com/featured/how-much-do-i-owe-in-student-loans/
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by Repayable | Feb 20, 2017 | Getting started, Money Matters
Read this article if you’ve borrowed money to attend college and aren’t sure what type of loans you have. Estimated read time ~3 minutes.
You need to know the type of student loans you have in order to choose the right repayment option and make the most of your money.
So how do you know what type of student loans you have? First off there are two types of student loans “federal” and “private”. Federal loans are funded by the U.S. government and come with a standard set of borrower benefits and fixed interest rates. Private loans are made by banks and other private lending institutions and often don’t carry the same benefits as federal loans. Determining which type of loans you have is easy if you follow the directions below.
Ask your loan servicer(s).
If you have more than one loan servicer that’s a good sign that you have at least one loan is with a private lender. When you borrow federal loans they will be serviced by the same company. Your loan servicer(s) will let you know if you have federal or private loans with them. Just give them a call or send them an email.
Go to the National Student Loan Data Services (NSLDS) website.
This step require a little effort on your part because you will need an FSA ID (you can set this up when you go to the website). Once you’ve gotten that though it’s very easy to track your loan information. Your federal loans will be listed there.
Call the Federal Student Aid Information Center (1-800-433-3243).
The FSA information center employs counselors who can help you find out the type of loan you have when you call.
Check out the name of your loan.
Here’s the list of federal loans: Stafford, PLUS, Perkins, FFEL, William D. Ford Driect Loan Program (aka Direct Loans).
Other things that hint at the source of your loan.
If you needed a credit check or a cosigner that’s a strong sign it’s a private loan. If your repayment period begins while you’re still enrolled in adequate credit hours, it’s a private loan.
So what kind of loans do you have?
I’m curious to know what type of loans you have? Do you have federal, private, or a mix of each? My loans are completely private now that I’ve refinanced but prior to that were all federal. Comment below or head over to the Repayable Facebook Page and let me know what type of loans you have!
Additional Resources:
https://studentaid.ed.gov/sa/types/loans
https://studentaid.ed.gov/sa/types/loans/federal-vs-private
http://www.studentloanborrowerassistance.org/start-here/what-type-of-loan-do-i-have/
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