About Tom Melecki

40 years experience in the administration of and rule making for postsecondary student financial aid and loan programs. Tom's experience also includes advising students and their parents, providing personal financial management education to college students, research on college students and their finances, and nonprofit management.

After College: Federal Direct Consolidation Loans May Be, But Aren’t Always, Helpful

Over the last few weeks we’ve described all the Federal Direct Loan Program (FDLP) repayment plans. Today we examine another strategy for managing FDLP debt repayment — an FDLP Consolidation Loan.

Consolidation will probably give you more than 10 years to repay under the FDLP’s conventional repayment plans. Specifically:

  • An outstanding balance of less than $7,500 gets a 10 year repayment period;
  • An outstanding balance of $7,500 to $9,999 gets a 12 year repayment period;
  • An outstanding balance of $10,000 to $19,999 gets a 15 year repayment period;
  • An outstanding balance of $20,000 to $39,999 gets a 20 year repayment period
  • An outstanding balance of $40,000 to $59,999 gets a 25 year repayment period; and
  • An outstanding balance of $60,000 or more gets a 30 year repayment period.

Longer repayment can significantly lower your monthly payments, which is helpful if you want to use a conventional repayment plan but can’t afford what you’d pay each month within it’s normal 10 year length. But a longer repayment period also means your debt will be outstanding much longer and it’ll cost lot’s more of your lifelong earnings to repay it.

Another advantage of FDLP Consolidation Loans is that you keep almost all the borrower benefits — deferment, forbearance, etc. — available on your other federal Loans. Using a private refinancing loan instead of an FDLP Consolidation Loan means you lose these benefits.

FDLP Consolidation Loan interest rates are always rounded to an even one-eight of one percent. So, for example, if loans you consolidate currently have a combined interest rate of 5.38%, that’ll rise to 5.50%. This is a slight increase, but it’s an increase nonetheless.

Would you consolidate both subsidized and unsubsidized FDLP Loans? If so, your Consolidation Loan’s interest will be both subsidized and unsubsidized in proportion to the subsidized and unsubsidized debts you consolidate.

You may consolidate anytime after leaving college, but be careful. Consolidating during your grace period will start your monthly payments during that period unless you indicate on your FDLP Consolidation application that you want consolidation delayed until your grace period concludes. Then payment will begin up to 60 days after grace-end.

What would be the monthly payment amount, repayment period length, and total amount you’d repay with an FDLP Consolidation Loan? You may request this information from your loan servicer before consolidating.

You can use any repayment plan if you consolidate, but you must use an income-driven repayment plan to get Public Service Loan Forgiveness (PSLF) 10 years after consolidating. If PSLF isn’t for you, income-driven repayment also qualifies you for forgiveness on anything you still owe 20-25 years of payments on your FDLP Consolidation Loan.

Consolidation also creates a brand new debt that repays any federal (but not non-federal) college loans you choose, giving you just one federal debt. But Washington places all your FDLP Loans with one loan servicer, and it’s required to combine those loans into one account mimicking a single debt, so you may not need to consolidate if you only have FDLP debt.

For more information, review the government’s official loan consolidation webpage.

For low-income and/or high-debt borrowers, consolidation is a fundamental strategy for keeping FDLP payments affordable. Look into it, and if it’ll help meet your repayment needs, go for it!

Let College Affordability Solutions use its four decades of student loan experience help you select workable strategies for repaying your higher education debt. Call (512) 366-5354 or email collegeafford@gmail.com to set up one or more free consultations with us if you need help.

After College: Revised Pay As You Earn — Could It Be The Best Plan for Repaying Your Student Loans?

This concludes our review of the Federal Direct Loan Program‘s (FDLP’s) conventional repayment plans and income-driven repayment plans, including Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn. Today we’ll examine the last of those income-driven plans, Revised Pay As You Earn (REPAYE).

There’s a simple way to project what REPAYE can do for you. Just use the Federal Student Loan Repayment Estimator to find out:

  • Your monthly loan payment amount, at least for your first year in REPAYE (to use REPAYE for any 12-month period, you need to apply for it and certify your latest Adjusted Gross Income (AGI),
  • How many months REPAYE gives you to zero out your debt;
  • The total amount you could end up spending to eliminate your FDLP debt;
  • Whether any of your debt will be forgiven; and
  • How REPAYE compares to other FDLP repayment plans.

Here are REPAYE’s details . . .

REPAYE can significantly lower your monthly FDLP payments, especially if those payments would be unaffordable given your income. To do this, REPAYE will schedule you to eliminate your FDLP debt in 20 years if you borrowed your student loans as an undergraduate, and 25 years if what you borrowed was for graduate or professional school. So as with other income-driven plans, the downsides of REPAYE are debt that’s outstanding longer and costlier to pay off.

But REPAYE also puts you in line for Public Service Loan Forgiveness (PSLF) if you’re otherwise qualified for it. Not PSLF-qualified? REPAYE forgives what you still owe the FDLP after making monthly payments for 20 years.

REPAYE is the only income-driven repayment plan that’ll limit your monthly FDLP payments to no more than 10% of your discretionary income. But your discretionary income varies with your family and tax situation. It always includes your AGI minus 150% of the federal poverty level for your family size. However, if you’re married and you file a joint tax return, it also includes your spouse’s AGI. Your spouse’s student loan debts are also used to set your monthly payment amount under REPAYE if you’re married and filing jointly.

You may use REPAYE for any loans you borrowed from a federal postsecondary educational loan program as a student. This includes student loans you borrowed from the FDLP and any FDLP Consolidation Loan that eliminated and took the place of your FDLP student loans. It also includes your student loan debts that began in the Federal Family Education Loan and Federal Perkins Loan Programs provided you consolidated them into the FDLP. Unfortunately, Parent PLUS Loans and FDLP Consolidation Loans that absorbed Parent PLUS Loan debts aren’t REPAYE-eligible.

Remember, there are eight different repayment plans for paying off FDLP debt. You need to think carefully about your career, financial, and personal circumstances, then select the plan that best meets your needs. Do this and you’ll find that your monthly FDLP debt payments will be much more affordable!

If you graduated last spring, you’ll be soon required to begin repayment on your federal student loan debt. But do all the repayment plans out there boggle you? Could you could some professional advice? College Affordability Solutions can help you with four decades experience in running federal college loan programs. Call at (512) 366-5343 or email us at collegeafford@gmail.com to arrange a free consultation.

After College: Can “Pay As You Earn” Help You Repay Your College Debt?

There are eight different approaches to repaying Federal Direct Loan Program (FDLP) debt. Four of them base your monthly payment amount on your income. One of these is called Pay As You Earn (PAYE).

PAYE gives you up to 20 years to pay off your FDLP debt, which can reduce your monthly payments by having them equal 10% of your discretionary income (see below) but never more than what they’d be under a 10-year Standard Repayment Plan.

PAYE is also one of the repayment plans you need to get into to pursue Public Service Loan Forgiveness (PSLF). But even if PSLF isn’t in your future, PAYE will forgive anything you’ll still owe after 20 years of payments.

The downsides of PAYE? A 20-year repayment period means your FDLP debt can be outstanding for a longer time. It also means you’ll accumulate more interest on that debt, so it’ll cost you more in the long run to fully eliminate it.

As with other income-driven repayment plans, you can use PAYE only for certain federal student loans. These include loans you borrowed as a student — FDLP and Federal Family Education Loan Program (FFELP) Subsidized, Unsubsidized, Graduate PLUS Loans, and also Federal Perkins Loans. They’re also FDLP Consolidation Loans you borrowed to repay and replace your student loans. But Parent PLUS Loans and FDLP Consolidation Loans you borrowed to repay and replace Parent PLUS Loans aren’t PAYE-eligible.

Also, not every borrower is PAYE-eligible. You can get it only if you owed nothing on a FDLP or FFELP Loan as of October 1, 2007 and you received FDLP Loan funds on or after October 1, 2011.

Additionally, you must have a “partial financial hardship” to be eligible for PAYE. You have this hardship if you are:

  • Unmarried or Married but Filing an Individual Federal Tax Return: Under a Standard Repayment Plan of 10 years, the annual amount you’d pay on your eligible loans each month — using the greater of what you owe when you begin repayment or what you owe when you apply for PAYE — would exceed your discretionary income.
  • Married and Filing a Joint Federal Tax Return: The annual amount you and your spouse would pay on you and your spouse’s eligible loans under a 10-year Standard Repayment Plan — again, using the greater of what you owe upon beginning repayment or upon applying for PAYE — would exceed you and your spouse’s discretionary income.

What’s discretionary income? For PAYE, it’s the difference between your and, if you’re married and filing your taxes jointly, your spouse’s Adjusted Gross Income, minus 150% of the federal poverty line for your family size.

To see if you’re eligible for PAYE, and how much PAYE would initially require you to pay each month, the easiest thing to do is to use the Federal Student Loan Repayment Estimator.

PAYE is yet another plan you should consider for eliminating your FDLP debt. But remember, get into it only if it meets your needs.

Trying to figure out which repayment plan you should use? College Affordability Solutions uses its four decades of student loan administrative and policy experience to provide borrowers with free consultations. Email collegeafford@gmail.com or call (512) 366-5354 to arrange such a consultation.

After College: Income-Contingent Repayment May Meet Your Federal Student Loan Repayment Needs

In mid-October we reviewed Income-Based Repayment (IBR), a popular income-driven approach to repaying Federal Direct Loan Program (FDLP) debt. Today we’ll look at another FDLP repayment option that’s tied to what you earn — Income-Contingent Repayment (ICR).

Like all repayment plans, ICR has certain pros and cons:

  • Pros: ICR can provide you with a way to make your monthly FDLP payments more affordable, especially if what you would otherwise be required to pay eats up a big chunk of your monthly income. It does this by giving you up to 25 years to pay off your FDLP debt, and it will forgive any of that debt you may still owe after 25 years of payments.
  • Cons: By spreading your repayment out to as many as 25 years, ICR can keep your FDLP debt out there for a much longer period than it would otherwise be under one of the FDLP’s conventional repayment plans. It will also result in you spending more of your lifetime earnings on FDLP Loan repayment.

ICR can be used to repay any FDLP Loans you borrowed while you were a student — Graduate PLUS Loans, Subsidized Loans, and Unsubsidized Loans. All other types of federal student loans, including but not limited to Parent PLUS Loans, must be repaid and replaced by an FDLP Consolidation Loan to be included in an ICR Repayment Plan.

The legal and regulatory requirements for determining your exact monthly payment amount under ICR are exceedingly complex so, rather than going into the details of all that federal gobbledygook, we recommend you use the Federal Student Loan Repayment Estimator to figure out what you’ll be required to pay under ICR, at least initially.

To initially get ICR, you’ll submit an Income-Driven Repayment Plan Request and an income certification. You can do this online or on a paper form you may request from the loan servicer hired by the government to collect your FDLP debt.

To keep using ICR, update your Income-Driven Repayment Plan Request and your income certification every 12 months. Should you fail to do this, your monthly payment amount will go to what you’d pay under the Standard Repayment Plan, which usually requires the highest monthly payments of all FDLP repayment options.

Remember, you should use the FDLP repayment plan that best meets you needs given your career, financial, and personal circumstances. That may be ICR, IBR, or one of the FDLP’s conventional repayment plans. Or it may be the Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE) plans. More about those later this week.

Trying to figure out the best approach to manage and repay your student debt? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for a free consultation if we can help.

During College: Helping Your Student to Manage Money

Today we are pleased to present a guest article by Linda Matthew on a particularly timely topic for the parents of current college students . . .

Towards the end of his first semester in college, my fiercely independent son let drop that he was feeling worried about his finances. He couldn’t get a handle on just how much was coming in, and his money seemed to be going out much faster than it had before.

It was a good opening, to actually be asked to help a young person, and I was happy to have it. If your own child has recently gone off to college, this could be a good time to check in and see how they are doing with their finances. There can be a wide variation in what expenses the student covers versus how much mom and dad provide, but even if you are paying for every penny right down to an allowance, the student will be managing some of the money.

If the child has questions (or you do), the first thing that can be very useful is a spending summary for the semester so far. Have them take their bank statement for September and total up their spending for that month by category (food, phone, laundry, outings, printing, transportation etc.) Then have them do the same for October. It can help a lot for them to see how much they are spending on each thing.

I remember that my son was stunned to see how much he was spending on the little green scooters that the kids zoom around on. They didn’t seem like much at $2 to $3 a ride, but apparently they added up. Once they have categories done, they can find the grand total of their expenses for each month, and compare that to their income. This will help them see whether they are going over their income, and why. (If categorizing is too complicated, it can still be very useful to do the second part. Our spending rarely feels as if it’s much each day, and the grand total for the month can be a much larger number than we might have expected.) Either way, the key is to find out the numbers – putting specific numbers to things is the only way to get beyond that stage of just feeling vaguely uncomfortable.

Sometimes, the problem can be that strange things are happening, and this is a good time to try to get to the bottom of those. With our older son, his meal plan was disappearing much faster than we had anticipated. A little digging turned up the fact that he had been using it at Starbucks, which took his meal card, and we had to explain to him that we were not paying for fancy coffees. While he was welcome to buy those, he needed to do it out of his own earnings, not the meal plan that we were covering.

It is worth noting in this category also that some college meal plans can be very confusing, and it’s hard not to think that it’s intentional.

One son had “free” points that he could use at specific meals on the weekend. The meals were at times that he could never make, and finally I realized that we were actually paying for those unused “free” points, and that there was a plan we could buy without them, listed at the very bottom of the page. Things got a lot cheaper after that. Other schools have “dining hall bucks” that are supposedly discounted, but looking at the numbers shows that there is no savings. For example, you might pay $10 for 4 meal bucks, only to find that 4 meal bucks buys – yes – $10 worth of food.

The last point I will make is that I am not a fan of credit cards for college students. When there is money in a bank account and a debit card on that, it is very easy to tell when you have hit the limit of your budget – your account is at zero. Then you know that you are in trouble, and it is time to make another plan.

Using a credit card is basically spending the money before you earn it, and it is very difficult to understand exactly where you are relative to your budget. People worry about “building credit”, but why not build savings instead? “Building credit” is really just building debt, and we do our children no favours by loading them with debt so early in life.

About Linda Matthew

Today’s guest author is Linda Matthew, an Accredited Financial Counselor® and the owner of MoneyMindful Personal Financial Coaching, with which College Affordability Solutions has partnered since 2016. Linda has clients throughout the U.S. and Canada. She is also the parent of one college graduate and one current college student.

Linda’s new book, Teach Your Children About Money, describes age-appropriate methods for helping youngsters learn about themselves and different ways to manage their money. It also has a special section just for college.

Go to the MoneyMindful website for more about Linda, to arrange a free consultation and to order your copy of Teach Your Children About Money.

After College: Can and Should You Use Income-Based Repayment?

Did you read last Wednesday’s article about Federal Direct Loan Program’s (FDLP’s) conventional repayment plans? Hopefully, you even checked out those plans. If they don’t meet your needs, you’ve got other options called “income-driven repayment plans.”

These plans work well if your federal college loan payments are high compared to your income. They can even set $0 monthly payments if your income’s low enough. But they also drag out repayment, so it’ll take longer and cost more to eliminate your federal college debt.

The income-driven plans offer you up to 20-25 year repayment periods. And they forgive whatever you might owe when such repayment periods end. They can also help you qualify for Public Service Loan Loan Forgiveness (PSLF) in 10 years.

They’re called “income-driven” plans because you reapply for them every 12 months, when they reset your monthly payment amount based on your documented Adjusted Gross Income (AGI).

Unfortunately, these plans use overly-complicated criteria and formulas to determine eligibility and monthly payment amounts. They’re so byzantine that we can’t fully describe all of them today. So today we’ll examine the most popular of these plans — Income-Based Repayment (IBR).

Under IBR, your monthly payment amount will never exceed one-twelfth of:

  • 10% of the difference between 150% of the federal poverty line for your family size and your AGI if you’re a new borrower with a partial financial hardship; or
  • 15% of this difference if you’re not a new borrower but have a partial financial hardship.

You can use IBR to repay your FDLP Subsidized, Unsubsidized, and Graduate PLUS Loans. You can also use it to repay your FDLP Consolidation Loans that repaid federal loans made to you as a student. But IBR cannot be used to repay FDLP Parent PLUS Loans, or FDLP Consolidation Loans that repaid Parent PLUS Loans.

Using the Federal Student Loan Repayment Estimator is the easiest way to see if you’re IBR eligible and what your IBR payments would be. The Estimator employs the following definitions to make these determinations:

  • AGI: Your AGI equals what’s listed on your most recent federal tax return, plus your spouse’s most recent AGI if you’re married and the two of you filed a joint tax return;
  • New Borrower: You’re a new borrower if you had no outstanding FDLP or Federal Family Education Loan Program (FFELP) debt on July 1, 2014; and
  • Partial Financial Hardship: If you’re a new borrower, you have this hardship if what you’d repay over 12 months under the FDLP’s 10-year Standard Repayment Plan — either when you began repayment or when you select IBR, whichever amount is greater — would exceed 10% of all you borrowed from the FDLP or FFELP. If you’re not a “new borrower,” you’ve got a partial financial hardship if this percentage exceeds 15%.

So use the Federal Student Loan Repayment Estimator to see if you’re eligible for IBR and if IBR meets your needs. More about other income-driven repayment plans October 30.

College Affordability Solutions offers 41 years experience in administering student loans and their repayment. Contact us for free consultations at (512) 417-7660 or collegeafford@msn.com if you need help in managing and paying off your student loan debt.

After College: Is a Conventional Student Loan Repayment Plan for You?

Most or all your college debt is probably from the Federal Direct Loan Program (FDLP). Last Wednesday, we suggested you ask and answer two questions to help select strategies for repaying this debt — (1) what are my current career, financial, and personal circumstances; and (2) how will these to evolve over time?

Your answers will help you determine which FDLP repayment plan you should select. Four of these are what we call the government’s “conventional” repayment plans. We use “conventional” because these are the oldest federal student loan repayment plans, and the first of them mimics the repayment blueprint for most other consumer debt. Here they are:

Standard Repayment Plan

This approach requires you to pay the same amount (no less than $50) every month for up to 10 years, when your federal debt is paid-in-full. It usually features the highest monthly payments of all federal repayment plans, but requires you to devote the lowest share of your lifetime earnings to FDLP repayment and helps you eliminate your federal loans faster — unless you consolidate them, in which case you can get from 12 to 30 years to repay depending on your total college debt level.

This plan works best if you have a high salary and/or low FDLP debt and want to eliminate that debt within a decade.

Graduated Repayment Plan

Graduated repayment also eliminates your FDLP debt in 10 years — or more if you consolidate — but your payments start small and increase every two years. No payment will ever be more than three times higher than any other.

Graduated repayment is best if your salary’s low now, you expect pretty significant annual salary increases, and you want to eliminate your federal debt in 10 years.

Extended Fixed Repayment Plan

You can get an extended fixed plan only if you owe the FDLP $30,000 or more. Under it, your monthly payments are all equal but you get up to a 25-year repayment period. This reduces your payment amounts but increases your FDLP debt’s life and what you repay in total.

This plan works well if your salary’s already pretty high, you owe $30,000 or more, but rapid debt elimination isn’t important.

Extended Graduated Repayment Plan

Extended graduated payments also require $30,000 plus in FDLP debt, begin low, and rise every two years, with no payment being three times bigger than any other.

This is the plan for you if quick debt elimination isn’t important, your salary’s low now, but it’ll rise every year or two.

The Federal Student Loan Repayment Estimator will project the impact of each conventional repayment plan’s impact on your monthly FDLP repayment amount, length, and total. Try it out!

Next Wednesday we’ll explain the other four FDLP repayment plans.

College Affordability Solutions consults with student loan borrowers about repayment at no charge. Call (512) 366-5354 or email collegeafford@gmail.com to schedule such a consultation.