5 Common Student Loan Forgiveness Mistakes to Avoid

5 Common Student Loan Forgiveness Mistakes to Avoid

by | Mar 26, 2018 | Loan Forgiveness

If you’re considering student loan forgiveness this post will help you avoid common mistakes that delay your forgiveness or even worse make you ineligible for student loan forgiveness. Estimated read time ~ 5 min

 

Student loan forgiveness isn’t exactly straightforward. For folks counting on it, student loan forgiveness offers an opportunity to kiss their debt goodbye after years of repayment. Student loan forgiveness takes years, 5-25 years depending on which type of loan forgiveness you’re eligible for. No one wants to work toward loan forgiveness for 10 years only to find out they made a mistake that’s going to delay their forgiveness another couple of years or they made a mistake that makes them completely ineligible for loan forgiveness.

 

Consolidating your student loans.

 

Consolidating your student loans to a Direct Consolidation Loan lumps all your individual loans with varying interest rates into one big loan with an interest rate based on the weighted average rate of your individual loans. Student loan consolidation doesn’t save you money or lower your interest rate. If you consolidate your student loans while working toward Public Service Loan Forgiveness (PSLF) your 120 payments will start all over again, none of your previous payments will count. That means you could delay your student loan forgiveness by years.

 

Avoid consolidating your student loans if you’re working toward PSLF and have already made eligible payments.

Choosing the wrong repayment plan.

 

Each student loan forgiveness option has specific requirements about which type of repayment plans make a borrower eligible for student loan forgiveness. You want to make sure you’re enrolled in an eligible repayment plan as soon as possible otherwise you delay loan forgiveness and pay more on your debt than you need to.

 

Look up the specifics of the student loan forgiveness plan you’re interested in on the FSA website. Find the qualifying repayment plan that fits your needs best and make sure you’re enrolled in it.

 

Failing to resubmit your income information on time.

 

Student loan forgiveness generally requires a borrower to be enrolled in an income-driven repayment plan of some type. Borrowers must update their income information annually to remain eligible for income-driven repayment. If you fail to keep update that information your repayment will revert back to an alternative repayment plan, costing you extra money and delaying your student loan forgiveness.

 

Keep your income information updated annually so your income-driven repayment plan doesn’t lapse.

 

Defaulting on your student loans.

 

Defaulted loans aren’t eligible for loan forgiveness. Any payments made to rehabilitate your student loan default aren’t eligible for loan forgiveness. That means you will spend more money and delay the time until you can shake off the burden of your debt.

 

Keep making income-based payments. Your required monthly payment is based on your income and can be as low as $0 each month and still count toward student loan forgiveness.

 

Refinancing federal student loans.

 

Refinanced loans are private student loans and aren’t eligible for any type of loan forgiveness. If you think at any point that you may need student loan forgiveness don’t refinance your student loans!

 

What about if you already have private student loans? Your private loans aren’t eligible for loan forgiveness so it’s best to put any extra monthly payments you can afford toward principal on those student loans. If you qualify you can consider refinancing your private student loans for a lower interest rate.

 

Have you heard of anyone making any of these mistakes and delaying their student loan forgiveness? Are there any mistakes I missed? Let me know in the comments below or on the Repayable Facebook Page!

Student Loan Forgiveness 101

Student Loan Forgiveness 101

by | Mar 19, 2018 | Loan Forgiveness

If you’re planning to take advantage of any type of student loan forgiveness, this post is for you.

Estimated read time 4 min.

What types of student loans can be forgiven?

 

Federal student loans are the only loan types eligible for forgiveness. Private student loans don’t have any federal loan forgiveness options, any company that suggests they can forgive your private student loans is almost certainly a scam.

 

What are the options for student loan forgiveness?

 

Public Service Loan Forgiveness or PSLF: PSLF forgives the amount of student loan debt remaining after 120 payments have been made while employed full-time for a qualifying employer.

 

Teacher Loan Forgiveness: Teacher Loan Forgiveness forgives up to a combined total of $17,500 of student loan debt if you teach full-time for five consecutive years in specific schools that serve low-income families.

 

Income-driven Loan Forgiveness: Income-driven loan forgiveness forgives the amount of student loan debt remaining after 20-25 years of income-driven monthly payments.

 

Is student loan forgiveness taxed?

 

Loan amounts forgiven under income-driven loan forgiveness are taxed as income. Loan amounts forgiven under Teacher Loan Forgiveness and PSLF are not taxable.

 

How do I get student loan forgiveness?

 

Each loan forgiveness program is different and has it’s own eligibility nuances. The best place to start is by reading about the program you’re interested in on the Federal Student Aid (FSA) website. Here are the links to the respective programs.

Public Service Loan Forgiveness (PSLF)

Teacher Loan Forgivness

Income-Driven Loan Forgiveness

 

Here are a few general principles to make sure you remain eligible for student loan forgiveness:

  • Make your monthly payments on time and keep your loans in good standing. Defaulted student loans aren’t eligible for loan forgiveness.
  • Do not refinance any loans you want forgiven. Refinanced loans = private loans. Private loans don’t qualify for student loan forgiveness!
  • Submit your income documentation annually to keep your income-driven repayment plan active. If you don’t submit this information annually you will get switched to a standard repayment plan which will cost you more money.

 

Are you considering loan forgiveness? Are you almost there, or have you already had student loan debt forgiven? Share your thoughts on loan forgiveness below or on the Repayable Facebook Page.

 

See you next week for a post about common student loan forgiveness mistakes that can cost you time and money.

 

Ask Jeni: Why Is My Loan Balance Increasing?

Ask Jeni: Why Is My Loan Balance Increasing?

by | Mar 12, 2018 | Ask Jeni

Ask Jeni is brought to you in partnership with tuition.io, a company dedicated to helping the best companies free their employees from student loan debt.

My student loan balance keeps increasing even though I’m making monthly payments under my income-driven repayment plan. What gives?

 

To answer this question we need to talk about negative amortization.

Negative amortization happens when your monthly loan payment isn’t big enough to cover the amount of interest that accrued on that month so your loan balance increases.

 

 

If you have federal loans negative amortization will only occur under income-driven repayment plans or in periods of deferment.

10 and 30 year standard repayment plans calculate a monthly payment that’s high enough to cover the monthly interest so you pay down that debt over the repayment term.

If you have private loans negative amortization can occur under any reduced-payment arrangement or payment pauses you set up with the private lender.

If you have a pre-determined repayment term i.e. 5,10, 15 year term you will pay off yoru loan balance in that time frame.

 

Let’s look at an example:

 

Jack borrowed $80,000 and has an average interest rate of 6.5% He makes $40,000 per year and is repaying under the Pay as You Earn (PAYE) plan.

 

According to the Federal Student Aid Repayment Estimator Jack’s monthly payments will start at $183 per month and end at $606 per month. He will continue to make those payments for 20 years until he qualifies for loan forgiveness. Jack will pay $86,596 and have $97,404 of his student loans forgiven.

 

 

What’s a borrower to do?

 

If you have federal student loans, continue to make your monthly income-driven payments on time.

This will keep your loan in good standing and enable you to get the remaining balance of student loans forgiven.

Income-driven repayment plans and loan forgiveness are designed to protect borrowers from student loan debt situations like this that produce negative amortization. Income-driven loan forgiveness is one of the federal loan benefits that helps borrowers out in a scenario like this one.

 

If you have a mix of federal and private student loans you’ll want to aggressively tackle your private student loans.

Your private student loans are likely the highest interest loans you have and aren’t eligible for any loan forgiveness. You’ll want to eliminate them as quickly as you can afford. Be sure to continue making your monthly federal student loan payments under an income-driven repayment plan.

Ask Jeni: Why Is My Loan Balance Increasing?

Ask Jeni: Are Income Share Agreements Better Than Student Loans?

by | Mar 12, 2018 | Ask Jeni

Ask Jeni is brought to you in partnership with tuition.io, a company dedicated to helping the best companies free their employees from student loan debt.

“I just heard about Income Share Agreements. How do I know if my daughter qualifies for this? She is a junior in high school. Is this better than taking out a student loan?”

 

Let’s start by defining what an income share agreement (ISA) is. ISA’s are contracts offered through the specific college or university the student will attend that offer upfront money to a student (similar to a loan).

 

The ISA organization will provide a borrower with a fixed amount of money in return for a percentage of their income for a fixed number of years. The terms of the ISA contract, percentage of income and duration of collection, are determined on a case by case basis.

 

Generally, the repayment amounts are capped at 2.5 times the original amount of money given to the student. ISA’s also have a minimum income threshold, meaning if a borrower makes less than a certain amount no payment will be collected.

 

ISA’s are typically offered to students when the estimated cost of attendance exceeds the funds available via federal student aid (like federal student loans, Pell Grants, etc) and scholarships. ISA’s are best-suited as an alternative to private and potentially parent PLUS loans.

 

The appeal of ISA’s

 

ISA’s put some accountability on the college or university to ensure a student’s financial success after graduation.

If the university wants to get paid at all they need to ensure the graduate makes more than the minimum threshold. The more financially successful the graduate, the more money the university will collect.

 

ISA’s provide a safety net to borrowers who don’t anticipate being able to get a high-paying job after graduation.

Higher education can have social value beyond the financial return on investment and some individuals choose to pursue their degree for that purpose. If a borrower is approaching a low-paying field ISA’s can lessen the crushing weight of the cost of their education.

 

The drawbacks of ISA’s

 

You could end up paying more than you would under an alternative loan option.

Let’s say Jane borrows $32,000 and get’s her degree in Early Childhood Education from Purdue (one of the universities offering ISA’s). Based on Purdue’s comparison tool under an ISA of 14.46% she would repay $52,196 while under a Parent PLUS loan she would repay $50,107. That means the ISA would cost $2,000 more than repayment under a Parent PLUS loan and she would be out of debt about four months sooner.

 

An ISA is not a good choice if your daughter plans to graduate with a high-paying job relative to her debt.

In this scenario it is almost certain she will pay more under an ISA than she would under an alternative loan type.

 

ISA’s are meant to protect borrowers from low income but if they’re combined with federal student loans they could increase the financial burden extensively.

The worst case scenario would be a borrower with federal student loans being repaid under an income-driven repayment plan and another amount under an ISA contract. The monthly payment for the federal loans and the ISA are calculated based on borrower income and don’t consider other monthly payments. So a borrower could have to repay $387 a month under their income-driven repayment plan and have to pay another $417 a month under their ISA contract which may not be affordable.

 

My final advice

 

ISA’s aren’t competitive compared to the federal student aid available to borrowers but can be competitive when compared with private student loans.

If your daughter is considering a degree that doesn’t have strong job prospects and may offer a lower income an ISA can be a reasonable strategy to “top off” her available federal student aid.

However, I would argue that needing “top off” funds of any kind (Parent PLUS, private student loans, or an ISA) is a major red flag that directs a borrower to seek out a lower cost alternative, find scholarships, or ensure the job prospects for that degree pay well enough on graduation to repay her debt.

 

 

 

Student Loan Refinancing Strategy Guide

Student Loan Refinancing Strategy Guide

by | Mar 12, 2018 | Refinancing

Photo by rawpixel.com on Unsplash

 

If you’re considering refinancing your student loans and want to make sure you don’t miss something major this strategy guide is your place to start. It covers everything you need to know to decide if refinancing is the right choice for you. By reading the posts you’ll get a solid walk-through of the refinancing process from start to finish.

 

Decide if Refinancing is Your Best Option

 

This is the place to start.The best refinancing candidates are high earners with good to excellent credit and predictable income. If you’re considering student loan forgiveness refinanced loans aren’t eligible for forgiveness so refinancing might not be best for you. Check out the post to start thinking about the pros and cons of student loan refinancing.

For more info check out:

Is Refinancing Right for You?

 

Find a Refinancing Company that Offers the Benefits You Need

 

When you refinance your student loans those loans are now private. That means you can lose important federal benefits. Refinancing companies vary widely on which benefits they offer to borrowers. For example some refinancing companies will forgive your remaining student loan balance if you die but some don’t. Depending on your life insurance situation this may be a benefit you need. Check out these posts to get an idea of how borrower benefits can change when you refinance.

For more info check out:

How to Choose the Refinancing Benefits You Need

Eight Questions to Ask Refinancing Companies

 

Avoid Refinancing Disasters

 

Now that you know you’re a good candidate for refinancing you’ll want to make sure to avoid pitfalls. You don’t want to get scammed, lose benefits you need, or miss out on student loan forgiveness because you refinanced. Read through these posts to build your confidence.

For more info check out:

Four Refinancing Disasters to Avoid

How to Know if Student Loan Refinancing is Legit

 

Find the Lowest Student Loan Refinancing Rate

 

Interest rates can vary widely between refinancing companies. You’ll want to use the quick rate estimator on the refinancing websites to get an estimate of their rates. Put in accurate information so you get accurate estimates. A word of caution: I haven’t had much success with companies that claim to take your information once and supply all your rates, in my experience these sites left out my most competitive offers. Read through this post for a list of the top refinancing companies and a quick-start guide to shopping for the best student loan refinancing interest rate. 

For more info check out:

Top Student Loan Refinancing Companies

Find the Lowest Refi Rates Fast

 

Submit your formal applications

 

Choose two or three of the companies with the lowest interest rate estimates and offering the benefits you need and submit formal applications. Formal applications will pull a hard credit check and show up on your credit history. That’s why it’s helpful to do the rate estimators first to narrow down the playing field to the most competitive interest rates. You’ll want to have all the required information ready to go to speed the application process along.

For more info check out:

The Information You Need to Refinance Your Student Loans

 

That’s it. Follow these steps and you’ll be ready to snag a lower interest rate on your student loans. I’ve saved tens of thousands of dollars refinancing and I’m a huge believer in refinancing your student loan debt if it’s the right choice for you. How was your refinancing experience? Leave me a comment below!