During College: Strategies for Your College Finance Plan

Your College Finance Plan (CFP) needs strategies for you and you student toIMG_9592 implement before, during, and after college. Let’s look at the “During College” phase.

Research at a major university indicates that, looking back, almost 4 out of every 10 seniors conclude part or all of their student loans weren’t essential for their educations. Therefore, some of these strategies focus on personal money management so students can spend and borrow less of the interest-bearing educational debt that, over time, increases college costs. These include:

IMG_9555Also, the faster your student gets her degree, the less cost and debt she’ll incur. Still, the latest national data show that only 39.8% of undergraduates earn their bachelor’s degrees within 4 years. Here are some strategies that’ll help your student graduate on-time, if not before:

 

Look here for why you need a CFP. You can find summaries of strategies for your plan’s “Before College” phase here. And next Wednesday there’ll be samples of “After College” strategies for your CFP here.
Beginning October 16, check this website every Wednesday for a more detailed account of a strategy you may want to use in your CFP’s before, during, or after college phase.

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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.

Special Bulletin: Help’s Available for Current and Ex-College Students Affected by Hurricane Harvey

 

A little-known fact is that the U.S. Department of Education (ED) has policies in place to help currently-enrolled college students hurt by federally-declared natural disasters such as Hurricane Harvey. These policies also provide relief to disaster-affected ex-students and parents struggling to repay their federal loans.

A description of these policies, and what should be done to use them, is available on the Federal Student Aid (FSA) Programs’ Hurricane Harvey web page. Texas counties that have been declared federal disaster areas are listed on the Federal Emergency Management Agency (FEMA) Hurricane Harvey web page.

Here are some examples these policies:

  • Aid Eligibility: Harvey will no doubt undermine the ability of many families to come up with the money they planned to provide their students for the 2017-18 academic year. Students from such families should file the Free Application for Federal Student Aid (FAFSA) to request aid. If they’ve already filed their FAFSAs, students should contact their campus financial aid offices to learn what documentation is needed for them to request “professional judgment” reviews that can determine if they qualify for additional financial aid.
  • Damaged or Lost Documents: Sometimes students are required provide certain documents before getting their aid to verify the accuracy of their FAFSA data. If these documents have been damaged or lost due to Harvey, students should notify their financial aid offices. ED has given those offices the authority to not require those documents in such situations.
  • Dropping Out: Some student who’ve already received their fall financial aid may need to drop out to go home and help their families recover from Harvey. Such students should contact their financial aid offices and let them know why they are dropping out. In these circumstances, ED allows schools to waive a regulatory requirement that usually compels drop-outs to pay back federal grants received for the fall.
  • Temporary Postponement of Loan Payments: Many ex-student and parent borrowers are likely to find their ability to make federal educational loan payments disrupted because Harvey adversely affected them. Such borrowers should contact the “loan servicers” (contractors Washington hired to collect their federal debts) and request “administrative forbearances.” These forbearance allow affected borrowers to postpone their federal education loan payments for up to three months. Ex-students can get contact information for their loan servicers through the government’s National Student Loan Data System.

In the wake of all the problems stemming from Hurricane Harvey, current and ex-student borrowers who need help should review and use these policies!

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com.

After College: If Your Student Loan Servicer Mistreats You . . .

The U.S. Education Department (ED) is the lender to which you owe what you borrowed under the Federal Direct Loan Program (FDLP). But ED doesn’t collect payments, answer questions, or provide help related to your FDLP debts. It’s contracted those jobs to one of nine private companies called a “loan servicer,” something many lenders do for their student and other consumer loans.

IMG_6914Loan servicers are usually very helpful. However, in one year alone there were over 30,000 documented complaints about them denying or discouraging the use of loan deferments, forgiveness, and repayment plans to which borrowers were entitled; inappropriately charging late-payment fees or increasing interest rates; losing or misapplying loan payments; and otherwise doing injustices to student loan borrowers.

If your servicer messes you over, here’s what you should do:

  1.  Go to ED’s Federal Student Aid website and review the applicable section under “How to Repay Your Loans” to make sure you understand your rights and responsibilities as a federal loan borrower.
  2. Call your servicer for help in resolving the problem. If necessary, speak with someone in management. Keep detailed notes — date, time, names, what you said, what they said, etc.
  3. Problem not resolved? Submit a complaint on the Consumer Finance Protection Bureau’s (CFPB) website. The CFPB is an independent agency under current IMG_6917federal law. It has the authority to investigate servicers, fine them, and require them to repay the money borrowers lost due to their errors. The CFPB also maintains a publicly accessible database about complaints regarding loan servicers and other financial companies — a database that can be used to determine which servicers ED hires in the future.

The U.S. House recently voted for HR 10. This bill that would end the CFPB’s independence and shut down public access to its complaint database. Also, Education Secretary Betsy DeVos has proposed taking servicer misconduct out of the criteria used to award future federal loan servicing contracts.

Nobody’s sure if the U.S. Senate will agree with HB 10 or the DeVos recommendation. So if you have federal student loans call, email or write letters to your Senators now. Tell them what you want them to do regarding these proposals.

And if you ever are mistreated by a federal student loan servicer, be aggressive in standing up for yourself and seeking relief. It’s your right, not just as a borrower, but as a citizen!

This is College Affordability Solutions’ last regularly scheduled blog for the 2016-17 academic year. But we’ll start up again in early August with more strategies to be used before, during, and after college for helping to optimize higher education affordability. Have a great summer. We’ll be back soon!

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.

After College: What Will My Monthly Student Loan Payments Be?

Congratulations! You’ve finished your bachelor’s degree and are about to begin your career. If you borrowed for college, you’ll soon wonder how much you’ll need to spend each month to repay your student loans.

IMG_6700The answer is . . . it depends! It depends on how much you’ll owe when your grace period ends, the combined interest rates on your loans, the student loan repayment plan you select and, under some plans, your earnings and family size. Consider, for example, a new bachelor’s degree recipient who borrowed the annual maximum in Federal Direct Loans during each of his 4 years in college which, when his grace period ends, will amount to a $28,187 debt at a combined interest rate of 4.2%. He just accepted a new $40,000 per year job:

Repayment Plan         Monthly Payment       Number of Payments    Total Amount Paid

Standard                      $276                               120                                     $33,086

Graduated                   $155                               155                                     $34,696

Extended                     This Borrower Not Eligible for This Repayment Plan

Income-Based            $274                                121                                     $33,097

income-Contingent   $202                                165                                     $35,787

Pay As You Earn       $183                                142                                     $36,849

Revised Pay As You Earn     $183                   133                                     $34,193

Want a precise projections of your monthly payment amounts? Open the government’s Federal Student Loan Estimator with your Federal Student Aid ID to IMG_6699get them. Different federal repayment plans have different eligibility criteria, so this’ll also help you identify plans for which you do and don’t qualify.

Such research will help you evaluate the repayment plans for which you’re eligible in preparation for the day you tell your student loan servicer the plan under which you want to begin repaying your loans. It’ll also help you know how much you’ll need to budget for your monthly student loan payments — at least during your first year of repayment.

It’s important to remember two things about loan repayment. In general, the longer your repayment period, the lower your monthly payments will be. But also, the longer your repayment period and lower your monthly payments, the more you pay on your college debt in the long run. So it’s usually best to pick the plan requiring the highest monthly payments you can afford.

Also remember — for federal student loans, you may change your repayment plan as necessary. So if your situation changes and the plan you’re using no longer fits your needs, you may always research and pick another loan repayment plan. This makes federal student loans preferable to most, if not all, institutional, private, and state student loans.

Speaking of non-federal loans, to discover how much you owe and your repayment plan options for them, you’ll need to check your lender website(s) and, maybe, call your lender(s).

Forewarned is forearmed so, no matter what type of student loans you have, start now to research what you owe and your options for repaying it!

Want help considering your repayment plan options? Feel free to contact College Affordability Solutions at collegeafford@gmail.com or (512) 366-5354.

Special Bulletin: Proposed Federal Budget Would Reportedly Makes Big Cuts in Programs for College Students and Graduates

The Washington Post reports it has received what a U.S. Education Department staff member described as “near final” documents showing the administration will IMG_6510recommend a 13.6% reduction in federal education spending next week. The budget proposal would reportedly affect federal financial assistance for college students as follows:

  • Child Care for Enrolled Parents: End a $15 million program helping to make child care affordable for low-income parents attending college.
  • Federal Direct Subsidized Loans: Make as yet unannounced cuts that could end this program, which currently serves financially needy students. If this happens, all federal loans for such students would be unsubsidized and begin compiling interest the day they are made — significantly increasing student borrowing costs.
  • Federal Pell Grants: Hold Pell Grants for the nation’s neediest undergraduates at their current levels ($606 to $5,920 for fall and spring combined). Due to inflation, this would decrease Pell’s future “purchasing power.” Some good news is that the budget would fund an extension of 2017’s summer Pell Grants in future years.
  • Federal Work-Study (FWS): Cut FWS funding by $490 million (almost half), significantly reducing federally subsidized on and off-campus jobs that financially needy students use to pay for college.
  • Income-Driven Repayment: Close down all current income-driven repayment plans available to federal college loan borrowers. These plans offer loan forgiveness for balances remaining after borrowers pay 10% to 20% of their incomes over 20 to 25 year periods. They would be replaced with a new income-driven option requiring payments equal to 12.5% of income and limiting loan forgiveness to balances still outstanding after 30 years of such payments.
  • Public Service Loan Forgiveness (PSLF): Eliminate PSLF, which offers tax-free debt cancellation on federal student loan balances owed by ex-students in public service jobs after 10 years of on-time payment. Over 550,000 federal, state, local, and nonprofit employees are already registered for PSLF. It’s not yet clear whether they or public servants not yet registered would be cut off from It.IMG_6511

Presidents propose federal budgets, but Congress ultimately decides them. So if you support or oppose any of these proposed cuts, call or write your U.S. representative and senators to tell them how you feel.

College Affordability Solutions will post more bulletins on this website as additional information becomes available.