Month: March 2016

Exploring Student Loan Repayment Options

By: Mercedes Pineda

The Consumer Financial Protection Bureau (CFPB) reports that more than 40 million borrowers owe on federal and private student loans, with the average student debt around $23,000. I, like many of you, am one of those 40 million borrowers. Student loan debt can be a stressful financial burden for most people. However, armed with some knowledge and a helpful toolkit, we can make these loans more manageable.

Why is paying back student loans so difficult? The CFPB’s recent report highlights many of the problems student borrowers experience when trying to repay their student loans. These problems include (but are not limited to): a lack of flexible repayment offerings for distressed borrowers, lack of information regarding repayment options, paperwork processing delays, and inconsistent instructions from servicers. Below I outline the best way to approach repayment and the various options available to borrowers. 

How Do I Find Information About My Loans?

The best place to start is the National Student Loan Data System (https://www.nslds.ed.gov/nslds/nslds_SA/). This is a government database that keeps track of all your federal loans. Speak to your school’s financial aid administrator about any information they may be able to provide you about your loans. Additionally, check your credit report. Student loans are often listed on your credit report. You are entitled to a free copy of your credit report from each of the three major credit-reporting agencies. (www.annualcreditreport.com). However, please be aware that student loans may look confusing on your credit report. Loan servicers often sell loans, and it may be difficult to determine which servicer owns your loan now and how much you owe. I highly recommend going over your credit report with a trained financial counselor. Take advantage of your local or county community services that provide this resource!

What Are My Repayment Options?

  • Standard Repayment Plans
    • Payments are generally a fixed amount over the course of a certain amount of years
  • Income Based Repayment Plans
    • If you have federal loans, flexible repayment options may work best for you. These plans take into account your yearly income and the payments are a certain percentage of your discretionary funds (that is the money you have available after paying rent and bills). Payments are recalculated every year. Generally, outstanding balances are forgiven after a minimum of 20 years.
    • Learn more about these plans here: www.studentaid.ed.gov/sa/repay-loans/understand/plans
  • Consolidation
    • Allows you to simplify repayment by combining loans into one payment. Not all federal loans are eligible for this option, and it may not be the best option for your situation. You cannot consolidate federal and private loans into one payment. You cannot “undo” consolidation.
    • Beware of “Debt Relief” scams! Many scammers try to charge you fees to help consolidate your loans. They can often leave you with a loan that was worse than your original loan! Federal debt consolidation is an option you can apply to for free via studentloans.gov
    • Get more information about consolidation here: http://www.bouldercounty.org/doc/hhs/student-loan-consolidation.pdf and here : studentaid.ed.gov/sa/repay-loans/consolidation
  • Refinancing
    • To refinance you take out a new loan, and you use that loan to pay off the existing loans. With this option you can change the terms of your loan. By doing this you can lock in a different interest rate and save money over the life of your loan.
    • The government does not offer refinancing. You can refinance your federal loans into private student loans. BUT, you may give up benefits such as income based repayment options or eligibility for student loan forgiveness programs by converting your loan.
    • However, like consolidation, there are some scams out there for loan refinancing. The following to sites are reliable and have resources such as a refinancing calculator to help you explore this option:
  • Student Loan Forgiveness
    • The most common of these is the Public Service Student Loan Forgiveness Program. This program allows federal student loan borrowers a chance to qualify for loan forgiveness after committing 10 years to public service work. To find out if you may be eligible for this option use the chart at the following site: bouldercounty.org/doc/hhs/public-service-loan-forgiveness.pdf
    • There are VERY limited other situations in which your loan may be forgiven. To learn more about them visit this site: studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation
    • Please be aware that this is another option that sees many scams. Your federal loans can only be forgiven by the federal government. Please visit the government site listed above or reach out to your servicer directly to figure out if you qualify for a forgiveness program.

Summary:

I hope the above information will help borrowers explore and consider the right repayment options. I highly recommend seeking out local resources, such as a financial counselor at your community services center, who can help you understand the repayment process and help pick the best option for your situation.

Understanding Student Loans

By: Mercedes Pineda

According to recent reports by the Consumer Financial Protection Bureau, student loan debt is currently around $1.2 trillion. For many people, the decision to take on student loans is often the first major financial decision of their adult life. However, it is also a decision that can haunt us later in life. Students often struggle to understand the confusing financial documents given to them and have a difficult time finding helpful resources us navigate the student loan process. I know that my 18-year-old self definitely didn’t understand every aspect of the student loans I agreed to. So let’s start with the basics.

The Basics:

What’s the difference between federal loans and private loans?

Federal government loans almost always cost less and tend to have more flexible repayment options. Many federal student loans are subsidized and have fixed interest rates (more on interests later). Most students are eligible for these loans. The amount of money students can borrow is limited.

Private loans are usually done through private banks or lenders. Some schools and state agencies may offer these types of loans as well. You can borrow larger amounts than federal loans. Private student loans usually have higher costs and often require a co-signer. You are charged interest while attending school. Additionally, interest rates on private loans are often variable (more on this later) and repayment options are usually not flexible.

            Interest Rates

An interest rate is the cost of borrowing money. Interest rates are calculated as a percentage of the unpaid principal (the amount you borrowed). The total cost of your loan varies depending on the interest rate charged and the type of loan. The following are different types of interest characteristics that will effect how much your loan ultimately ends up costing:

  • Fixed interest rate: this is a set rate that will not change over the life of the loan. Generally, a fixed rate will be higher than a variable rate.
  • Variable interest rate: this is a rate that can change as interest rates in the market change. This means you may have a different interest rate on a monthly, quarterly, or annual basis.
  • Subsidized: The Government will pay the interest on your loans while you attend school. These loans are awarded based on financial need. You do not pay interest during the 6 months after graduation (the grace period) or during periods of deferment.
  • Unsubsidized: Interest starts to grow and is added to your principal (“accrue”) as soon as you receive the loan. You do not need to demonstrate financial need. You are responsible for all the interest on these loans during all time periods.

What is the best student loan for you?

There are many factors you should consider before deciding on what type of student loan to get. For example: Can you work during the school to cover some costs? Can you live at home? Do you think you may be able to pay the loan off quickly? Is one school offering me a better financial aid package? Below is a list of tips to help you make the best financial decisions regarding your student loans.

Strategies for building a strong financial future as a student:

  • Fill out a Free Application for Federal Student Aid (FAFSA). You must fill out this form to be eligible for any federal student loans. Since federal student loans are usually the best option for most students, you should explore your federal loan options first. Also, schools often use the FAFSA to award scholarships and grants, so fill it out even if you don’t think you’re eligible! Access the application here: https://fafsa.ed.gov/
  • Research free funds. Scholarships and grants are free money! These applications don’t usually take up much of your time and can really help you save money on education costs.
  • Negotiate for more aid.
    • Do not be afraid to talk about your accomplishments. I did this myself! It can be difficult to put yourself out there, but you should always be your own advocate! Even just a little extra financial aid can be the difference in being able to attend the program you want. You can email your financial aid office and ask to meet with a staff member to explain your position. You can also send a letter with the same information if a face-to-face meeting is uncomfortable.
    • Here is a helpful tool from the Consumer Financial Protection Bureau to compare your financial aid offers. You can use this information to help negotiate a better offer. http://www.consumerfinance.gov/paying-for-college/compare-financial-aid-and-college-cost/
  • Know what your financial situation will be.
    • Learn how to budget and be practical about what your costs will be. Getting informed now can save you from many headaches down the road.
  • Get good advice. Your community likely has free or low-cost financial counselors that can help you with the student loan process and other important financial decisions. Make use of these resources. Reach out to your school’s financial aid office if you have any questions. Talk to friends or family about their student loan experiences. The Consumer Financial Protection Bureau also has some great resources. http://www.consumerfinance.gov/paying-for-college/

Summary:

This information will hopefully help you understand and manage the student loan process. Student loans are not easy to understand, so take the time to learn as much about them as you can before making this important financial decision.