Paying Back Student Loans

Every year millions of Americans attend college¹ to further their education and if you’re one of them, chances are you’ve had to take out student loans to fund your education. The cost of college is incredibly expensive between tuition fees, room and board, school supplies, books, and more. By the time you’re finished with school you may be looking at quite a sizeable bill, sometimes to the tune of several hundred thousand dollars depending on the school you chose or how long you attended school. If left alone, these loans can have high monthly payments that would be hard for many people to manage. Here’s some information on paying back student loans that may help make managing your accounts a little easier.

Consolidation

There are many different student loan providers, and you may be in a situation where you have loans with more than one provider. This can make it difficult to manage your loans as you’ll be juggling multiple loans with different repayment terms. To help make managing these accounts easier, you could consider consolidating your loans². Loan consolidation is where you take multiple loans and merge them to create a single loan under a single loan provider. After consolidating you will only have one repayment term and will only need to make one monthly payment. While consolidation is a great option when managing multiple loans, there are some things you’ll want to consider. Consolidating could change your interest rate, the length of your repayment period, how much you’ll pay in interest, or could affect other benefits you’re taking advantage of. Therefore, you should do plenty of research to be certain this is the best option for you before consolidating your loans.

Income Driven Repayment Plans

When it’s time to begin making payments on your student loans, your monthly payment will typically default to a standard repayment plan. However, payments on a standard repayment plan can be high and you may be wondering how you will be able to afford them. In this instance you may want to consider an income driven repayment plan³. With an income driven repayment plan, you will submit information to your loan provider on your income and living expenses. After reviewing your information, if you qualify, your loan provider will adjust your monthly payments based on your income, usually making your monthly payment a percentage of your discretionary income. Since this repayment plan is based on your personal situation, the payments are usually much more affordable than if left under the standard repayment plan. In some cases, you may not be required to pay anything under an income driven repayment plan. Since this payment plan is based on your income, you will be required to reverify your income each year.

Public Service Loan Forgiveness

Public Service Loan Forgiveness⁴ is a program which, if you qualify, may allow you to receive loan forgiveness for the remaining balance of your loans. Of course, this option sounds great, and you might be thinking “Sign me up!”. However, you will only qualify for this option under very specific circumstances. First, to be eligible you must work for a qualifying employer. This would include working for a federal, state, or local tribal government organization, which includes working for the military, or working for certain non-profit organizations. Secondly, you must work a certain number of hours per week for said qualifying employer, have made at least 120 qualifying payments or the equivalent, and have a direct loan or consolidate your other loans into a direct loan.

Deferment or Forbearance

If you’re experiencing a hardship and are struggling to make your student loan payments, you may be able to get a deferment or forbearance.⁵ These are usually short-term options, but both allow you to temporarily postpone your loan payments. The major difference between these two options is that a deferment will pause interest from accruing during the deferment period while a forbearance will not. A deferment also requires you meet certain criteria to qualify, while a forbearance usually does not. One of the best things about these options, however, is they won’t impact your credit even though you aren’t making any payments on your loan.

Biden’s Student Loan Debt Relief

Of course, when it comes to student loans the hot topic on everyone’s mind right now is President Biden’s student loan debt relief plan. Though there are several parts to his plan, the primary point of interest lies in his plan for debt cancellation. Debt cancellation is available for individuals with federally funded loans whose annual income is less than $125,000 or married couples whose combined income is less than $250,000. If you meet the income requirement you automatically qualify for debt cancellation, but the amount you qualify for will depend on whether you received a Pell Grant. A Pell Grant provides money, which does not have to be repaid, to individuals meeting certain income requirements to pay for college expenses. If at some point during your college education you received a Pell Grant, you will be eligible to have up to $20,000 of your student loans cancelled, and if you did not receive a Pell Grant, you will be eligible to have up to $10,000 of your student loans cancelled. If the balance due on your loans is less than the amount you’re eligible to have cancelled, the remaining balance on your loans will be waived but you will not receive any money back for the difference. Though the debt cancellation will be a one-time occurrence, the plan does include further changes that will help more long term. Note, however, that this plan is currently under court challenge which could affect its availability. To learn more about the student loan debt relief plan, visit Studentaid.gov.

These payment options are usually available for federally funded student loans, and options may vary for privately funded loans. If you have questions about your available options or your eligibility for certain plans, contact your loan provider to learn more.

Sources:

¹Hanson, Melanie. (2022, Jul 26). Retrieved from: https://educationdata.org/college-enrollment-statistics

²Helhoski, Anna and Branch, Trea. (2023, Mar 21). Retrieved from: https://www.nerdwallet.com/article/loans/student-loans/consolidate-student-loans

³Helhoski, Anna. (2022, Aug 26). Retrieved from: https://www.nerdwallet.com/article/loans/student-loans/income-driven-repayment-right

⁴Zinn, Dori. (2023, Apr 21). Retrieved from: https://www.bankrate.com/loans/student-loans/public-service-loan-forgiveness/

⁵Lane, Ryan and Helhoski, Anna. (2021, Jul 19). Retrieved from: https://www.nerdwallet.com/article/loans/student-loans/student-loan-deferment-forbearance