Before, During, and After College: Federal Student Loans May Soon Undergo Many Changes

We recently reviewed provisions reduce college prices and increase grants for needy collegians in the College Affordability Act (HR 4676) , now pending before the U.S. House of Representatives. Today we look at how HR 4676 would modify federal student loans.

Improving these loans is essential. The latest data from College Board show them accounting for 87% of all college borrowing and 29% of all financial aid. The Project on Student Debt reports that 65% of undergraduates borrow an average of $29,200 before getting their bachelor’s degrees. And just last week the U.S. Secretary of Education announced 42 million Americans owe $1.5 trillion in federal student loans.

Here are highlights HR 4676’s student loan provisions:

  • Provides More Loan Dollars: Total college costs covered by Federal Direct Subsidized and Unsubsidized Loans continues to shrink because Congress hasn’t increased those loans’ limits in 23 years. But HR 4676 would restore the Federal Perkins Loans Program, which ended in 2017, by making it part of the FDLP. As in the past, institutions would select students for Federal Direct Perkins Loans. Selected undergraduates could borrow up to $5,500 and selected graduate students could borrow as much as $8,000 a year through these loans. Their borrowers would face 5% fixed interest rates, and Federal Direct Perkins Loan interest would be unsubsidized, meaning it would begin building from the day students get Perkins money and enlarge student indebtedness beyond $5,500 and $8,000 a year.
  • Eliminates Loan Fees: HR 4676 would eliminate the federal origination fees of 1.059% to 4.236% currently deducted from various FDLP Loans.
  • Simplifies Repayment: There are eight different FDLP repayment plans. Some complain borrowers can’t understand so many plans. So for those who borrow after July 1, 2021, HR 4676 would eliminate all but the most-used of these plans — Standardized Repayment, which requires the same monthly payments until the debt is fully repaid; and Income-Based Repayment (IBR), which ties monthly payment amounts to borrower income, then forgives anything still owed after 20 years of payments.
  • Federal Private Student Loan Consolidation: The federal government has never consolidated private student loans. That would change if HR 4676 becomes law. Financially needy private student loan borrowers could get federally consolidated private student loan debts with fixed interest rates of 4.53% if borrowed for undergraduate school and 6.08% if borrowed while in graduate school.
  • Limits Repayment Costs for the Financially-Stressed: Interest that builds up while FDLP payments are forborne for any reason or deferred due to financial hardships, Fulbright and graduate fellowship, or unemployment currently gets capitalized — i.e. added to loan principal — when forbearance or such deferments end. This can significantly enlarge federal student loan debts. But under HR 4676, such capitalizing would no longer occur.
  • Improves Parental Debt Management Options: Parents with FDLP PLUS Loans that helped their children pay college expenses are currently excluded from using IBR. HR 4676 would end this exclusion. It would also make parents eligible for loan forgiveness if the children for whom they borrowed suffer total and permanent disabilities.

The House will soon debate and vote on HR 4676. So if you like or dislike these revisions, or think they need to be changed, tell your House member right away! You can get his or her contact information here.

College Affordability Solutions will be closing for the holidays on December 13. But you can contact us by phone email at collegeafford@gmail.com or by phone at (512) 366-5354 before 5:00 pm on that day, or after 9:00 am when we reopen on January 6. Meanwhile, we wish you a joyous holiday season and happy new year!

Before and During College: The U.S. House of Representatives May Vote on The College Affordability Act in the Next Three Weeks!

Last Wednesday’s article laid it out — bachelor’s degrees are fast becoming unaffordable even for middle-class students. Certain personal strategies can ease soaring college costs but, by themselves they’re often not enough.

We Americans generally expect our government to address problems affecting individuals and the nation as a whole. Unaffordable bachelor’s degrees are just such a problem. Today, 56% of America’s good jobs — those paying at least $35,000 for 25-44 year olds; $45,000 and up for 45-64 year olds — go to people with bachelor’s degrees.

And now that brains, not brawn, are the key to global competitiveness, the U.S. is falling behind. Examples: 1.3 million fewer Americans were pursuing college degrees in 2017 than in 2010. Meanwhile, we’re 13th in “knowledge workers” while our competitor, China, leads the world in them.

Unfortunately, Congress has done little about college affordability. The Higher Education Act (HEA) that governs federal postsecondary Education programs hasn’t been updated in over a decade.

But now the House Education and Labor Committee has produced the College Affordability Act (HR 4676). It would rewrite much of the HEA, and the House may vote it may before Christmas. Here are some ways HR 4676 would help make college more affordable:

  • Create the America’s College Promise Program: States eliminating community college tuition for full-time resident students would receive federal funds equalling about 75% of what they spend to replace that lost tuition. Today, this would result in a full-time community college student living at home paying only $5,700 per academic year at the average community college, just 21% of the average cost of a public 4-year university. Students pursuing associate’s degrees or starting toward bachelors degrees at community colleges would get substantial savings.
  • Pell Grants: HR 4676 would increase Federal Pell Grants to up to $6,695 in its first year, and it’d grow Pell awards with inflation thereafter. Today, America’s lowest-income students would be getting $500 (8%) more in Pell Grants. Financially needy middle-class students would benefit, too, because this would free up some state and institutional grant money for them.
  • TEACH Grants: TEACH Grants go to students in majors preparing them to be highly-qualified teachers in high-need fields in low-income K-12 schools. HR 4676 would double them from $4,000 to $8,000 per academic year. It’d limit them to juniors and seniors, and extend them to those majoring in early childhood education. HR 4676 would make TEACH Grants and maximum Pell Grants pay 53% of the average academic year’s costs at a public 4-year university today. Eliminating freshmen and sophomores would reduce the number of students whose TEACH Grants are converted to expensive federal loans because, ultimately, the students don’t go on to become teachers.

Do you like or dislike these changes? Exercise your right to express your opinion about them to your member of Congress! Find his or her contact information here.

Next Wednesday we’ll cover how HR 4676 would change the federal student loan programs.

Want more information about financial aid programs that make college more affordable? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com to arrange a no-charge consultation.

Before College: Don’t Let Bachelor’s Degrees Become Even More Unaffordable to Middle-Class Students!

Are you “middle-class”? Do you want your children to go to get bachelor’s degrees? Well, you’ve got a problem, because such degrees are fast becoming unaffordable for families like yours.

Median Household Income (MHI) is right at the center of middle-class earnings. The latest data show MHI in the U.S. to be $63,179. A year at today’s average public 4-year university costs $26,590 for everything — tuition and fees, books and supplies, room and board, transportation, and other basic expenses. That’s 42% of MHI. Can you afford to spend 42% of your annual income to send a child to college?

And things are getting worse. Public 4-year institutions have always been affordable pathways to bachelor’s degrees. But rising costs are bringing that to an end. Four-year university costs grew 144% over the last 20 years, while MHI increased just 62%. Should these trends continue, over the next two decades the cost of going to a public 4-year college will grow to almost $65,000, or 63% of MHI.

Of course, there’s always financial aid and student loans. But, unfortunately, they’re not keeping pace with rising higher education costs, either.

The country’s biggest program for students needing financial assistance is Federal Pell Grants, but households with incomes of $40,000 or more get just 26% of Pell recipients and 18% of Pell dollars.

Furthermore, the portion of the average public 4-year university’s cost covered by the maximum Pell Grant slipped from 39% to 23% over the last two decades. This forced states and institutions to devote more of their grant funds to help their lowest-income students go to and stay in college. Result? Shrinking amounts of state and institutional grants for needy middle-class students.

Furthermore, Congress last set the annual limits for federal student loans in 1996. Thus the costs they cover for public university freshmen dwindled from 50% in 1999-00 to just 21% in 2019-20.

So if you’re middle-class, what should you do? Here are a few ideas:

  • You (and your children) should save and invest every possible penny for college;
  • Have your children shorten their time at a university while they’re in high school by steering them into transferable AP and dual credit courses; and
  • Forgo the status symbol that comes with going to a university right after high school and have your children generate big savings by living at home and taking transferable courses at a community college for a year or so after high school — today, average community college costs are about 1/3 of 4-year university costs.

You should also push your lawmakers for funding and policies that’ll make bachelor’s degrees more affordable. We’ll look into what’s brewing in Washington next Wednesday.

Need help identifying strategies to keep college costs from cutting your children off from bachelor’s degrees? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com to arrange a no charge consultation.

After College: Common Student Loan Repayment Q and As

College Affordability Solutions gets approached by many student loan borrowers trying to mange the repayment of their federal college debts. Here are some of the most frequent questions they ask . . .

Q-1. Am I “locked in” to the repayment plan I originally selected?

No. You may change your repayment plan at least every 12 months. So annually assess whether another plan would better meet your needs. If so, contact your federal loan servicer to get that repayment plan.

Q-2. I’ve got some extra money. May I make a payment before I’m required to do so?

You bet! If you’ve got debt from federal Unsubsidized Loans, Graduate PLUS Loans, or Parent PLUS Loans the interest on them has been accumulating ever since you got them. If left unpaid, that interest eventually gets capitalized, or added to your debt’s principal, so it’ll cost you more to retire your debt. But paying before you’re required to do so eliminates or reduces that interest.

Q-3. My loan servicer sent me a repayment schedule showing the date my monthly payments are due, payment amounts, and how long I’ll make payments. Do I have to accept all this?

Not necessarily. You have options. Review your repayment schedule for information on how to check out all federal repayment plans. Select the one that best fits your needs. You may also change your monthly payment due date to another day within the month. And you may want to borrow an FDLP Consolidation Loan to lower your monthly payments by stretching out your repayment period.

Q-4. I can’t afford to make my next monthly payment. What should I do?

If you’ve got a temporary problem, talk to your servicer about postponing or reducing your payments through a deferment or forbearance. If you’re situation will last longer than a few months, your best option may be to use the Federal Direct Loan Repayment Estimator to compare your monthly payment amounts under all FDLP repayment plans for which you’re eligible. Then you may request that plan from your loan servicer. Or it may be best to borrow an FDLP Consolidation Loan to lower your monthly payments by extending them.

Q-5. Is loan forgiveness available after I make payments for certain number of years using conventional repayment plans?

No. Conventional repayment plans don’t provide forgiveness for what’s left of your debt after a specified number of years. And of those plans, only the Standard 10-Year Repayment Plan can qualifies you for Public Service Loan Forgiveness (PSLF). But you can’t get PSLF by starting with the Standard 10-Year Plan, only if you finish making payments under that plan after losing eligibility for income-driven repayment plans.

Do you have questions about repaying your student loans? Let College Affordability Solutions put its 40 years of student loan experience to work helping you. Call us at (512) 366-5354 or collegeafford@gmail.com to arrange a free consultation.

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.