After College: Know What — and to Whom — You Owe Your Student Loans

If you graduated last spring after borrowing federal student loans, you’ll need to begin repaying them soon. So now’s the time to confirm what you owe and to whom you’ll make your payments.

Fortunately, the government has two easy-to-use websites through which you can IMG_0137find such information in a matter of seconds. One is the Federal Student Loan Repayment Estimator. It’ll identify your outstanding loan balances and project your monthly and total repayment amounts under each repayment plan for which you’re eligible. It can also compare these amounts if you consolidate your federal student loan debts.

This information is the key to selecting the right repayment plan before you begin making monthly payments. And if consolidation is right for you, now is the time to look into a Federal Direct Consolidation Loan.

IMG_0138Where can you identify who you’ll repay and/or to whom you should apply for a consolidation loan? That’s the National Direct Student Loan System (NSLDS). You can use NSLDS to identify the loan servicer — and its mailing address, phone number, and website address — for each of your Federal Direct Loans and, if you have them, Federal Perkins Loans.i

Both the estimator and NSLDS are secure federal websites so, to access and use them, you’ll need your Federal Student Aid (FSA) ID.

About those federal student loan servicers . . .

They work for your lenders — the government for your Federal Direct Loans and the colleges and universities that awarded your Federal Perkins Loans. Each lender will places all loans you owe it with a single servicer.

If you owe on Federal Direct and Perkins Loans, you may have a servicer for both and you should consider consolidating those debts.

Finally, your servicer doesn’t just collect your debt. It can also to provide services to help you manage that debt — advice about resolving problems; explanations and information on the practices, rules, and systems that apply to your loans; and responding to your requests on consolidation loans, repayment plans, and payment postponements. Make sure your servicer always knows where to contact you in case it needs to reach out to you about such matters.

Knowledge is power, and knowledge about what and who you owe give you a powerful edge in managing your student loan debts. Use that edge — you’ll benefit from it!

You’re always welcome to contact College Affordability Solutions at (512) 417-7660 or collegeafford@gmail.com for no-charge consultations on repaying your student loans.

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During College: Save by Prepaying Unneeded Loan Funds Within 120 Days of Disbursement

So your student’s currently in college? And he borrowed a Federal Direct Unsubsidized Loan for this fall? He can save a lot on that loan by prepaying during the next 6 weeks. This is worth considering, because only 38.6% of college seniors look back and feel all they borrowed was essential to continuing their education.

Federal regulations say any prepayment received within 120 days of disbursement must be used to reduce that disbursement’s principal — and interest and loan fees on the prepaid principal must be automatically cancelled, too.

IMG_9849For example, a college freshman prepays $100 of his fall 2017 Federal Direct Unsubsidized Loan within this 120 day period. This’ll reduce the total amount he must repay by an additional $175. Actual savings will depend on his choice of the federal repayment plans he’ll be offered — a choice he’ll make after leaving school.

These regulations also apply to upperclassmen. Their savings may be a bit less, but they’re still significant.

How to do this? First, your student should check with his financial aid office to see if it’ll submit his prepayment for film. If so, he should follow its directions. Otherwise:

  • Do Some Research: The National Student Loan Data System has his most recent Federal Direct Unsubsidized Loan disbursement date (i.e. “Loan Date”). It’ll also identify his federal student loan servicer and its mailing address.
  • Meet the 120-Day Deadline: He’ll write a check to his loan servicer for the amount IMG_9854he wants to prepay and mail it 7-10 days (for delivery and processing) before the 120th day after disbursement.
  • Direct the Prepayment’s Application: To make sure his prepayment goes 100% to his most expensive federal loan — that Federal Direct Unsubsidized Loan — he should write “Apply to [INSERT LOAN DATE] Unsubsidized Loan” on his check’s memo line before mailing it.

But be careful. You student should only prepay funds he doesn’t need to finish the current term. So if he doesn’t already have a spending plan, help him build one when he’s home for Thanksgiving. More about this next Wednesday.

The right to prepay at any time without penalty helps make federal loans superior to most other forms of credit available to America’s college students. And prepaying within 120 days of disbursement saves extra money, making them even better!

College Affordability Solutions offers 40 years of experience in a wide variety of student finance issues, including student loan debt management. Contact us at (512) 417-7660 or collegeafford@gmail.com for cost-free consultations.

After College: Save by Prepaying During Your Grace Period

Did you get your bachelor’s degree this past spring? While in college, did you borrow Federal Direct Unsubsidized Loans? If so, you’re fast approaching the last day of your 6-month “grace period.” The next day what you’ll repay on those loans could easily multiply.

IMG_9822Lenders charge interest on student and other loans they make, and what borrowers repay equals the principal amount they borrowed and the interest they’re charged. Interest on your Federal Direct Unsubsidized Loan installments began building when you received them, and any of this interest outstanding at the end of your grace period gets added to those loans’ principal.

It’s a legal practice called “capitalization.” Many lenders do it, including the government on Federal Direct Unsubsidized Loans. Once capitalized, your outstanding interest gets added to your principal. This inflates the total amount you repay because, the greater your principal, the more interest you get charged as you repay it.

Fortunately, this can be prevented — if you can afford it — by prepaying your IMG_9824outstanding interest before capitalization occurs. Say you borrowed the maximum allowable Federal Direct Loan amount during each of the last 4 years. Assuming you earn the average starting salary for a 2017 graduate, every $100 you prepay during your grace period reduces the total amount you’d repay by an additional $94 to $113.

Here’s what to do:

  • Get Information: Identify your grace period end-date and get a projection on the interest you’ll owe on that date. Your federal student loan servicer should be able to supply both and, if necessary, you can obtain its contact information from the National Student Loan Data System.
  • Prepay Before Your Grace Period Ends: Prepay as much interest as you can. Ask your servicer how to send this prepayment electronically, or mail it a check 7-10 days before your grace period ends.

Any payment made before it’s due is a prepayment. You can prepay any time without penalty on Federal Direct Loans. Prepayments reduce outstanding interest first, then loan principal. So if you can prepay even more than interest during your grace period you’ll also diminish your loan principal, further shrinking the total you end up repaying.

Prepaying during your grace period will save you money in the long run, giving you more to invest and spend on other things. So use your grace period to prepay as much as you can!

Look here next Wednesday for how currently enrolled students can save even more in the total amount they repay.
Seeking ways to manage the repayment of your student loans? Consult College Affordability Solutions at no charge. Contact us at collegeafford@gmail.com or (512) 366-5354 to do so.

 

After College: Pick Your Federal Student Loan Repayment Plan Carefully

If you graduated this past spring after borrowing Federal Direct Loans, your loan servicer will soon contact you about how to repay them. You can pick from as many IMG_8761as seven different repayment plans.

There’s information about these plans on the government’s federal repayment plan website. To see how each plan will work for you, use the government’s Federal Student Aid Repayment Estimator. Here’s a quick summary:

  • Standard Repayment: You get a standard plan if you don’t select any other repayment approach. It offers fixed monthly payments for up to 10 years (30 years for Direct Consolidation Loans). It’s the quickest way to eliminate your debt, and you’ll repay the least amount possible over time. But it’ll also generate the highest monthly payments of all the plans at your disposal.

Other plans lower your monthly payment amounts but generally increase the total amount you repay:

  • Extended Repayment: This is available only if you owe $30,000 or more in Federal Direct Loans. You’ll get a 25 year repayment period, but no loan forgiveness when it ends.
  • Graduated Repayment: This begins with low monthly payments that increase every two years regardless of your income. Your repayment period will be 10 years — 30 years if you consolidate. But there’s no loan forgiveness after 10 or 30 years.
  • Income-Based Repayment (IBR): Depending upon when you borrowed your IMG_8763first Federal Direct Loan, IBR sets your payment amount at 10% to 15% of each year’s Adjusted Gross Income (AGI) for a 20 to 25 year repayment period. If you still owe money when your repayment period ends, it’ll be forgiven.
  • Income-Contingent Repayment (ICR): ICR payments equal 20% of each year’s discretionary income, with debt you still owe after 25 years forgiven.
  • Pay As You Earn (PAYE): PAYE requires monthly payment amounts equal to 10% of your discretionary income every year for 20 years. Anything you may then owe will be forgiven. Discretionary income resets every 12 months based on your family income and size. Spousal college debt and AGI are also factors if you’re married and filing jointly.
  • Revised Pay As You Earn (REPAYE): REPAYE is identical to PAYE, except it gives you 25 years to repay and to await the forgiveness of any remaining loan balance.

Don’t forget, you can change repayment plans any time, so pick a plan and then, as your financial situation evolves, decide whether to switch to another plan.

College Affordability Solutions offers no-charge consultations on student loan repayment strategies. Contact us at (512) 366-5354 or collegeafford@gmail.com.

Before College: Make Sure Your Freshman’s Loans Are There When Needed

IMG_7991Soon you’ll be taking your new freshman to college. If you or she are borrowing Federal Direct Loans for the fall term, and if those loans’ proceeds are needed to help cover start-up costs that accompany the beginning of school, make sure they’re ready in time to do this.

How? Use your respective Federal Student Aid (FSA) IDs to make sure the following steps are complete on the government’s studentloans.gov website:

1. Your student should open “Complete Entrance Counseling” and get the 20-30 minute online briefing that’s full of information she needs about her rights and IMG_7990responsibilities as a borrower. If you’re a parent borrowing a PLUS loan, you need
to not do this.

2. Your student should then open the “Complete Loan Agreement for a Subsidized/Unsubsidized Loan (MPN)” link and fill out its online promissory note — the legal document through which she promises to repay all the federal subsidized and unsubsidized loans she borrows for 10 years. It’ll ask for her permanent and email addresses, her phone number, and for this information on two “references” — U.S. residents who’ve known her for at least 10 years.

3. If you’re borrowing your first parent PLUS loan for your freshman, open the “Parent Borrowers” page and provide the data requested under “Apply for a PLUS Loan.” Then open “Complete Loan Agreement for a PLUS Loan (MPN)” and execute its online promissory note, which’ll cover the PLUS loans you borrow for her for 10 years.

When everything described above is complete, each loan’s proceeds will arrive at the school within school 5-8 days. The school may apply them to tuition and other amounts owed 10 days before classes begin, then turn whatever’s left over to your student.

What if you or your student haven’t done everything and have enough funds to not need federal loan dollars until later this fall or even next term? Then delay the steps described above until about two weeks before the loan money is needed.

Why? Washington doesn’t charge interest on unsubsidized and PLUS loans until the school applies their proceeds. At today’s unsubsidized loan interest rate of 4.45% and PLUS loan interest rate of 7.00%, postponing this event from, say, mid-August until early January reduces the amount of interest to be paid on $1,000 of unsubsidized and PLUS loan by as much as $33 and $15, respectively. Small savings, but if you can do this every year, they’ll add up!

College Affordability Solutions is back for the 2017-18 academic year! Look here every Wednesday for a new post about strategies you and your student can use before, during, and after college to make higher education as affordable as possible! And check out what we can do for you by opening the “Services Offered” link on this website!

 

Special Bulletin: Does National Collegiate Student Loan Trusts Supposedly Own Your Loans? Make Them Prove It!

If you borrowed private student loans for your postsecondary education, and if an organization called National Collegiate Student Loan Trusts (National Collegiate) asserts you owe loan payments to it, double check everything it says about how much you owe and whether it actually owns your loans.

The New York Times reports that courts across the United States have dismissed IMG_7740many educational loan debts supposedly owed to National Collegiate because its was unable to prove that it had actually purchased those loans from lenders who originally made them. And in at least one case, a court dismissed part of a college graduate’s debt after finding that some loans for which National Collegiate was billing her were for enrollment at a school she never attended.

Note: National Collegiate is a “secondary market” that buys private student loans after they’re made, giving it the right to collect what borrowers owe in principal and interest on those loans. It has been particularly aggressive in going to court against private student loan borrowers unable to repay their debts.

National Collegiate contracts with American Education Services to provide its borrowers with services and do routine collections on its loans. The Times reports it uses a collection agency called Transworld Systems to collect debts when borrowers fall behind on their payments.

If any of your private student loans are being collected by either of these companies, determine whether National Collegiate Student Loan Trusts says it owns them. To do this, contact American Education Services and/or Transworld Systems to inquire. If they list National Collegiate as the owner of any of your loans, double check your records to confirm whether you actually borrowed them. If not, ask for documents proving you borrowed the loans and establishing what the courts call a “chain of title” to prove National Collegiate’s ownership.

Note: There are no reports of any federal or state student loans being dismissed by IMG_7739courts because of the irregularities described above.

Never stop making payments on and debt you really do owe. This can cost you big bucks and ruin your credit rating. And never, ever, use false or misleading information to try to get out of any of your debt obligations. That’s called a criminal offense called fraud!

But if there are questions about debts National Collegiate Student Loan Trusts says you owe it, retain a law firm or seek help from your local legal aid society if necessary. Don’t get ripped off!

We’re on summer vacation at College Affordability Solutions, but this issue was too important to ignore. Join us next month when we again begin publishing regular weekly blogs.

After College: Should You Refinance Your Federal Student Loan Debt?

If you owe on federal student loans borrowed to pay for college, and especially if you watch late night TV commercials, you may be wondering what “refinancing” is and whether it’s the right thing for you?

When you “refinance” you borrow a private loan to pay off your federal loans, IMG_6807pledging to repay the new loan according to terms and conditions stated in its promissory note.

This sounds a lot like a Federal Direct Consolidation Loan but it’s not. Your new loan isn’t coming from the U.S. government so your rights and responsibilities on it are no longer based on laws governing federal student loans. Instead, the promissory note you’ll sign with your new lender defines your rights and responsibilities, and certain benefits and protections you now enjoy most likely won’t be available on your new, private, refinancing loan. Here are some key examples:

Interest Rates: Your federal student loan interest rates are generally fixed for the life of those loans. Refinancing lenders stress that their loans offer lower interest rates than you’re currently being charged — thereby lowering your monthly payments and saving you money in the long run. However, their promissory notes IMG_6803may allow their lenders to raise their interest rates later, perhaps many times.

Deferment and Forbearance: You may defer or forbear payment on your federal loans under certain conditions — returning to college, part-time employment, financial distress, etc. But such postponements may not be available once you refinance, or at least not available for the same circumstances.

Repayment Flexibility: When you owe the government, you get a 6-9 month grace period and the right to make payment under any of 7 different federal repayment plans that best meet your needs. Some of these plans will lower your monthly payments. Your grace period may not be the same on a refinancing loan, and refinancing lenders don’t usually offer you all the same repayment options.

Debt Cancellation, Discharge, and Forgiveness: Federal law creates opportunities through which your debt to the government may be cancelled, discharged, or forgiven. Understand none of these opportunities exist on refinancing loans.

How can you tell if a refinancing loan is good for you? Closely scrutinize its promissory note. If that note doesn’t explicitly guarantee benefits and protections you may need or want, don’t borrow it!

Looking for ways to make your college debts more manageable? Feel free to contact College Affordability Solutions for help.