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.

A Year of College Affordability Solutions

College Affordability Solutions is dedicated to helping families keep higher education spending within their means. It uses this website to highlight postsecondary educational cost-management strategies at the times of the year when you and/or your student are most likely to need them.

21-of-the-most-beautiful-college-campuses-in-amer-2-20243-1428837186-9_dblbigDespite those who’ll try to talk your student out of college, postsecondary education is still worthwhile even if he or she has to borrow to pay for it. But student loans increase the cost of college, so do everything possible to minimize their use.

Over the last year, we’ve covered several approaches to keeping college and college-related debt affordable. Click on any of the links below to learn more . . .

Before College

Various investment and savings programs can help you prepare for college bills. Among these are 529 plans and college savings bonds, but you should explore them all – the sooner the better.

And be sure to apply for financial for every year of college. Complete the Free Application for Federal Student Aid (FAFSA) as soon as possible after October 1 but, by all means, before your FAFSA priority deadline arrives.

Student dependency status plays a big role in who completes the FAFSA. Other family factors do, too. But it isn’t as hard to complete as you’ve heard, especially if you fulfill 5 key steps, gather all the documents you need, and get answers to your last-minute FAFSA questions before doing so.

Long before the FAFSA, your student needs to begin aggressively searching for scholarships. It’s critical to know about the when and where and the how of doing this.

Pay close attention after you file your FAFSA to make sure you handle what happens next. Then carefully assess your financial aid offers as they arrive from colleges.

But it’s not all about financial aid and scholarships. A critical factor in college affordability is for your student to enroll in a college and major that fits him or her well.

During College

Once college begins, you can help your student keep his or her expenses within reason.140815_FF_BestCollegeCard Limited spending and indebtedness is important even with today’s low college loan interest rates.

Some of the most effective strategies for minimizing student borrowing include your student getting through college in 4 years or less while carefully managing money and avoiding rip offs such as the recent “student tax” scam. A little-known but highly-effective cost-saver involves returning unneeded federal loan dollars with 4 months of disbursement.

Help your student keep college more affordable by giving him or her some holiday gifts that’ll lower his or her reduce expenses upon returning to school and by recommending he or she generate funds through seasonal employment instead of borrowing.

After College

Seven out of 10 students borrow before earning their degrees, and over 90% of their loans come from federal loan programs. Fortunately, the government has designed  post-graduation strategies to help keep educational debt manageable.

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Your student needs to understand what happens to college loans after graduation. It’s worthwhile to consider the pros and cons of student loan consolidation, an often-used tactic for reducing monthly debt payments. Equally important is knowing how your student might qualify for forgiveness on all or part of what he or she owes.

Coming in 2017

We’re taking a few weeks off for the holidays, but beginning January 4 we’ll start publishing again about plans for keeping college affordable. Here’s hoping you have the happiest of holiday seasons, and that you’ll rejoin us then!

 Find out more about College Affordability Solutions and its services at https://collegeafford.com, or by calling (512) 366-5354.

Federal Student Loan Consolidation Advantages

If you graduated from college this past spring, chances are you’ll soon enter the time when you’ll be required to pay off your federal student loan debt — i.e. your repayment period. At this point you ought to be asking, “Should I consolidate my federal student loans?”

To consolidate, you need to have at least one Federal Direct Loan or Federal Family Education Loan. You may designate all or some of them, along with your Federal Perkins Loans, for consolidation. The government’s consolidation loan repays the debts you designated. Depending upon how much you owe on your total federal student loan debt, screenshot-from-2016-06-08-135849 you’ll get more time to pay off your consolidation loan than you had to pay off the loans it replaces.

Here are good things that’ll happen if you consolidate:

(1) You’ll Lower Your Monthly Payments: The longer you repay, the lower your monthly payment amount. Use the Federal Student Loan Repayment Estimator to figure out the repayment plans for which you qualify, estimate the monthly payment amount for each plan, and see how long that plan gives you to pay off your debt.

If none of your monthly payments looks affordable, you should consider borrowing a Federal Direct Consolidation Loan. Chances are it’ll give you more years to repay and lower your monthly payments.

(2) You May Expand Your Repayment Options: A consolidation loan may qualify for repayment plans for not open to your individual federal loans, but which may be helpful to you.

(3) You’ll Maximize Loan Forgiveness Benefits: If you’re starting a career as a public school teacher or in another form of public service, you should pursue the Federal Direct Teacher Loan Forgiveness or Public Service Loan Forgiveness Programs. The lower your monthly payments, the more you’ll get forgiven by these programs. Conversely, consolidating a Federal Perkins Loan can have disadvantages.11-3-is-student-loan-consolidation-right-for-you

(4) You’ll Simplify Repayment: As its name implies, all your consolidated debts get combined with one loan servicer (a company the government pays to collect your debt(s) and give you loan-related assistance). The result? A single monthly payment and just one party to contact if you need help.

(5) You Pick Your Servicer: The government picks the servicer for all your other federal education loans. But under consolidation you make this selection. As you do, think about whether your current servicer(s) have met your needs and ask friends about experiences with their servicers.

(6) You Get One Fixed Interest Rate: All debts you consolidate will get the same interest rate. It’ll average out to the rate for each consolidated loan, rounded up to the nearest one-eighth of 1%. It’ll be fixed for the life of your consolidation loan. If you have old federal loans whose interest rates change annually, consolidation will bring that to an end.no_fees

(7) You Incur No Costs: You pay nothing for anything related to consolidating your loans.

Consolidation’s a good thing for most borrowers. But it’s also got some disadvantages. Definitely consider these before deciding whether to consolidate your federal student loan debts.

College Affordability Solutions can help you better understand the pros and cons of federal student loan consolidation. Call (512) 366-5354 or email collegeafford@gmail.com.

 

Federal Student Loan Consolidation Disadvantages

Consolidating your federal student loans has many advantages. There are also some disadvantages to be considered before making the choice to consolidate:

(1) You May Pay More in the Long Run: Consolidating generally lowers your monthly thrm34yz8xpayments by giving you extra years to repay. But the longer you take to repay, the more of your lifetime income that goes to repayment.

The “Total Amount Paid” column on your Federal Student Loan Repayment Estimator can show how much you’ll on your loans and consolidated versions of your loans.

On the other hand, federal loans may always be prepaid without penalty, and paying your debt down faster than required will reduce your total amount paid.

(2) No More Perkins Cancellation/Discharge: If you consolidate Federal Perkins Loan debt, your access to the Perkins Loan Cancellation and Discharge programs goes away. These programs write off all or part of your Perkins debt in return for working in certain occupations, with a portion of the debt written off annually. These programs are the surest way to have student debt cancelled or discharged so, if you borrowed Perkins Loans, think carefully before consolidating them.

(3) Monthly Payments Could Start Earlier: Normally, federal student loan payments aren’t required during a 6-month grace period that begins when you graduate, withdraw, or drop below half-time enrollment. But consolidation repayment starts 60 days after the loan is made. If you’re applying for consolidation before your grace period ends, you may keep the full period by asking for repayment to be delayed until that period ends.

(4) Federal Loans Only, Please: State and private education loans aren’t eligible for federal consolidation. And, oh yeah, you’ll need to resolve any federal loan defaults you might have before you may consolidate them.

(5) Beware of Private Consolidations: Banks and other financial services companies can page_federal_versus_privateconsolidate your federal student loans, but you probably don’t want them to. Why? You’ll likely lose all or most of the benefits of borrowing from the government. Check this out carefully before you even consider private consolidation.

(6) For Your Loans Only: A borrower may only have his or her own federal loans consolidated. This means students and parents cannot consolidate their federal educational debts, nor can spouses.

(7) All Consolidations Are Final: You can’t reverse the process. Once a Federal Direct Consolidation Loan pays off your other federal student loans, those debts no longer exist.

Despite these drawbacks and limitations, there are lots of advantages to consolidating federal student loans. Don’t take a pass on consolidation before reviewing them.

 College Affordability Solutions can help you better understand the pros and cons of federal student loan consolidation. Call (512) 366-5354 or email collegeafford@gmail.com.

Getting Your Federal Student Loans Forgiven

Do you owe on federal student loans? Did you know that, under certain circumstances, the U.S. government will forgive (or “cancel” or “discharge”) all or part of it? You need to know about these if you are or soon will be on the job market!

Public Service Loan Forgiveness (PSLF): Ten years ago Congress realized many baby boomers who performed public service will soon retire, requiring lots of well-educated young workers to replace them. So now PSLF will forgive any Federal Direct Loan Program (FDLP) debt you owe after you (1) work full-time for 10 years for federal, state, or local government, or for a 501(c)(3) nonprofit, and (2) make on-time monthly loan payments for all 10 of those years.

You’ll also need make to make your monthly payments under the government’s standardpublic%20workers%20cropped%20shrunk repayment plan or one of its income-driven repayment plans. The standard plan normally requires you to pay your debt in full within 10 years, eliminating your opportunity for forgiveness. But if you replace your current federal loans (including your Perkins Loans) with a Federal Direct Consolidation Loan of $7,500 or more, you’ll get a 12 to 30 year repayment period. This lowers your monthly payments and helps you qualify for the maximum amount of loan forgiveness once you hit the 10 year mark.

Teacher Loan Forgiveness: Congress also knows our nation has a tough time getting teachers to teach, and keep teaching, vitally important subjects, especially in our poorest schools. So under this program you’ll qualify for forgiveness of your FDLP and Federal Family Education Loan Program (FFELP) loans – although loans made to parents don’t qualify for Teacher Loan Forgiveness — once you hit five complete, consecutive years of full-time teaching in a Title I or low-income school as a highly-qualified teacher. Up to $17,500 of your debt may be forgiven if you teach math or science to high school students or special education children with disabilities. Teaching other elementary or secondary school subjects qualifies you for up to $5,000 of forgiveness.

Perkins Loan Teacher Loan Cancellation: This program — under which you can have up to 100% of your Federal Perkins Loan debt cancelled — began when the Soviet Union launched Sputnik in the 1950s, causing Congress to realize that we needed more teachers for national security purposes. It’s been amended a bit through the years. Now, to qualify for it, you must have served full-time in a public or nonprofit elementary or secondary school system while (1) teaching students from low-income families; or (2) providing special education services to infants, toddlers, children, or youth with disabilities; or (3) teaching math, science, foreign languages, bilingual education, or any other field in which your state education has a shortage of qualified teachers.

If you’re eligible, your Perkins debt will be canceled in the following increments:

Ÿ  – 15% each for your first and second years of teaching; and

Ÿ  – 20% each for your third and fourth years of teaching; and

Ÿ  – 30% for your fifth year of teaching.

Interest that accrued during each year gets cancelled, too, and you may defer repayment while performing teaching service that qualifies for cancellation. Contact the college or university that made your loan to you for information about deferment.

Other Perkins Loan Cancellation and Discharge: Washington also has programs to cancel your Federal Perkins Loan debt if you perform various types of service. These include but aren’t limited to serving as a nurse or medical technician, in law enforcement or corrections, in the U.S. armed forces in areas of hostilities, in ACTION or the Peace Corps, and in child or family services. The amount that may be canceled depends on what service you perform. Depending on when you took out your loan, you may be eligible to cancel part of or all of it.

The government also forgives federal student debt if you die or become totally and permanently disabled (not recommended). It also has a few other, highly specialized and little used discharge programs for students whose colleges misbehaved. Follow the links embedded above for more information on all types of federal student loan forgiveness.

College Affordability Solutions has decades of experience with the federal student loan forgiveness programs. Need help understanding them? Call (512) 477-5354 or email www.collegeafford.com to find out how we can help you.

Hey Graduate! What’s Next for Your Student Loans?

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College commencement was fun, wasn’t it? It’s the only time in higher education when we celebrate academic achievement with all the gusto of a football victory. But if you borrowed while getting that degree, it was also when your student loan repayment process commenced. So, what happens next?

(1)  When does your repayment obligation begin? You get a full six-month “grace period” to find a job and get yourself established financially before you’re required to start repaying your federal student loans. A loan servicer hired by the government to collect your loans will contact you during this period to share vitally important information with you. This includes the exact date your first payment is due — generally within 60 days of the end of your grace period.

Private educational loans may or may not have grace periods. Review the “promissory note” you entered into with your private loan provider for anything you need to know about repayment including your first payment due date. If what you’re looking for isn’t there, contact your loan provider and ask.

(2)  When do your payments start? Virtually all student loans require once-a-month payments on the same date of each month. If the repayment date assigned to you doesn’t work, contact your loan servicer. Servicers will usually renegotiate this date upon request.

(3)  What do you need to do? Any time you move to a new address, or begin using a new email service, provide your loan servicer with your new contact information. Otherwise, information you need to repay your debt won’t reach you. But that won’t absolve you of your payment obligation and, if you begin missing payments, bad things happen to you!

(4)  What decisions do you face? Your biggest decision is your choice of repayment plans. The government offers six options. Its standard plan is the quickest and least expensive way to eliminate college debt. It requires you to repay your loan in 120 equal monthly installments. But what if those monthly payments are too high early in your career, when you’ll probably earn the least you’ll ever earn? Then you should request one of the income-driven repayment plans that limit your monthly payments to a small percentage of your earnings. Such a plan will cost you more in the long run, but it’ll minimize your monthly payments early on. And remember, you can change your repayment plan whenever you want.

You may also need to consider whether you want to consolidate your federal loans in order to qualify for the lowest possible payments and the longest possible repayment period. This can be especially helpful if you are interested in having what’s left of your debt forgiven after 10 or 20 years.

There’ll be more on repayment plans and loan consolidation in the future. For now, congratulations on earning that degree and getting on the road to jettisoning your educational indebtedness!

Up next — how to get your federal student loans forgiven.

College Affordability Solutions has 40 years’ experience in advising borrowers on how to manage their parent and student loans. Call (512) 366-5354 or email collegeafford@gmail.com for help.