Focus on Repaying Student Loans

Your time at college is winding down and you’re already looking to the future. You’re polishing your résumé, scanning the job market, and getting ready for the big leap into the real world. So you’re all done with college, right?

Not so fast. If you borrowed money to attend your college or university, this is the moment they warned you about. It’s time to repay your student loans. But how do you repay your student loans? Where do you send your monthly payments? How long will it take to repay your loan? Are there benefits to refinancing your student loan? Is loan forgiveness an option for you?

Obviously, you have a lot of questions. We’ll help you find the answers that pertain to your particular situation.

Understand Student Loan Debt

Let’s start with something you probably already know. Student loan debt is an enormous financial burden on countless Americans. Collectively, we owe nearly $1.75 trillion in student loans. In 2018, more than 65% of graduates carried student loan debt into the real world. The average college graduate reported more than $29,000 in debt while the average U.S. household owes more than $47,000 in student loans. This number is even higher for students who pursue graduate degrees.

More students than ever before are taking college debt into their post-graduate careers and family lives. This means that the majority of students attending, graduating, or dropping out of college must at some point begin repaying student loan debts. If you are among them, and you’re unsure of where to begin, follow the steps below on your way to repayment.

Complete Exit Counseling

The Office of Federal Student Aid notes that all graduating students who have received a subsidized, unsubsidized, or PLUS loan must complete exit counseling after dropping below half-time enrollment, leaving school, or graduating. Exit counseling is a single-session process that usually lasts roughly 30 minutes. During this session, you will receive input from the Office of Federal Student Aid on how to begin repaying your federal student loan.

In order to complete your exit counseling, you will need:

• Your FSA ID
• Details on your income, financial aid, and living expenses
• Your name, address, email address, and phone number

Initiate the process for this exit counseling session through the Federal Student Aid website.

Know Your Student Loan Servicer(s)

Many students borrow from a combination of different sources. Your student debt may be comprised of several federal and private student loans. Be sure that you know exactly which servicers you’ll be paying each month. In most cases, your servicers will have already reached out to you via mail or email to lay out your repayment terms.

Regardless, you should take additional steps to establish contact with your loan servicers prior to graduating just to ensure that you fully understand your repayment terms, the monthly amounts you’ll be responsible for paying, and how your repayment process will be structured. Your loan servicer will also be your first point of contact if there are errors in the repayment plan provided to you or if you feel that you aren’t yet able or prepared to begin repayment. There may be options for deferment or forbearance based on financial hardship. These are matters you will need to discuss directly with your loan servicer(s) before beginning repayment.

Federal Loan Servicers

There are a number of loan servicers that provide loans on behalf of the U.S. Department of Education. In order to find out who your loan servicer is, you can call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243.

If you already know your student loan servicer, find and keep handy the contact information listed below:

For more information on your federal loan servicer, visit the Office of Federal Student Aid.

A Note on Federal Loan Servicers and the Next Gen platform

You should also be aware that this repayment landscape is currently undergoing some changes. U.S. government contracts with the loan servicers above expired in 2019. In July 2020, the U.S. Department of Education announced contracts with five new loan servicers.

According to StudentLoanHero: “F.H. Cann & Associates, Maximus Federal Services and Trellis Company, along with two holdovers from the current list of nine servicers - the Missouri Higher Education Loan Authority (MOHELA) and EdFinancial Services - will provide ‘customer support’ and ‘back-office processing.’”

These new contracts are part of an array of changes that will likely soon alter the repayment landscape. The goal of these changes is to ultimately streamline and simplify the repayment process for borrowers. The Department of Education is working toward the rollout of The Next Generation Financial Services Environment, a single-stop platform where borrowers can seamlessly handle all loan repayment matters regardless of servicer.

The timeline for transition is not set in stone, but borrowers with loans through servicers that are no longer under contract (such as Nelnet and Great Lakes) may see their loans transferred to another servicer by the end of 2020.

The intention behind this major overhaul of the repayment system is to promote greater accountability and government oversight of loan servicers. It will also likely diminish the relevance of the borrower-servicer relationships as the Next Gen platform becomes the intermediary between borrowers and lenders.

The rollout of Next Gen may have a profound impact on the repayment landscape. Check in with Inflection Weekly for news and updates as these changes solidify.

Private Loan Servicers

If you’ve supplemented your federal student loans with private loans, you’ll also want to reach out directly to these private lender(s) or servicer(s) so that you can fully understand your loan repayment terms and repayment options. Private loans may differ from federal loans in a number of ways. Most particularly, whereas federal student loan repayment is always deferred until you’ve departed or graduated from school, some private loans may require repayment while you’re still in school.

If you have private loans that must be repaid while you’re still in school, you may be able to apply for In-School Payment Assistance. This option will postpone your repayment schedule, but you will continue to accumulate interest on the principal amount.

That said, every lender is different, and each offers a different set of terms and limitations. Be sure to communicate directly with your private loan servicer to learn more. You can also access information about your private loans, learn more about your repayment options, or apply for assistance by logging in to your online Sallie Mae account.

Know Your Student Loan Repayment Options

Loans come in different forms, and your individual decisions and circumstances will have a direct bearing on your repayment options. While some aspects of the repayment schedule are predetermined from the moment you begin borrowing, you will likely have some repayment options to choose from upon graduation. Understand the options available to you so you can choose the best plan for your personal circumstances. Do your best to understand the options before you commit to a repayment schedule.

Federal Student Loan Repayment Options

You’ll have a number of repayment plan options for your federal student loans. You’ll typically choose your repayment option at the beginning of your loan. The repayment plan options available to you will depend on your financial profile. Before making any concrete decisions, you will likely want to consult an advisor from your school’s financial aid office. Be sure that you make an informed decision about your repayment plan because you will be responsible for honoring that commitment upon graduation.

Regardless of the repayment plan you choose, once payments begin, you will most likely pay monthly installments on your principal amount along with an additional fixed interest charge based on the nature of your loan. (i.e. Stafford, PLUS, private, or otherwise). Any payment deferments or forbearance options will be specific to your loan type. The following are the most common repayment plans.

• Standard Repayment Plan: Borrowers have up to 10 years to repay the full loan amount at a fixed monthly amount.
• Graduated Repayment Plan: Borrowers have up to 10 years to repay the full loan amount, starting with low monthly payments which increase every two years, but which may not exceed three times the amount of any prior monthly payment.
• Extended Repayment Plan: Borrowers with more than $30,000 in Direct or FFEL Program loans will have up to 25 years to repay the full amount, with a choice of either fixed or graduated monthly payments.
• Revised Pay as You Earn Repayment (REPAYE) Plan: Only for Direct Loan borrowers, monthly payment amount is based on 10% of the borrowers discretionary income.
• Pay As You Earn Repayment (PAYE) Plan: Only for Direct Loan Borrowers whose loan originated after 10/1/07; who received a disbursement on or after 10/1/11; whose fixed monthly payment is derived from a 10-year Standard Repayment Plan; and whose student loan debt is high relative to income. Maximum monthly payments are 10% of the borrower’s discretionary income.
• Income-Based Repayment (IBR) Plan: For Direct Loan and FFEL Program borrowers with a monthly payment amount determined under the 10-year Standard Repayment Plan, monthly payments are either 10 or 15% of the borrower’s discretionary income.
• Income-Contingent Repayment (ICR) Plan:For Direct Loan borrowers, monthly payments are the lesser sum between 20% of the borrower’s discretionary income or the fixed amount that would be paid on a 12-year repayment period, adjusted for income.

Private Loan Repayment Options

Terms and options for private education loan repayment will vary significantly from one lender to the next, as well as from one borrower to the next. Moreover, private loans often carry larger interest rates, and fewer options for deferment or forbearance. Be sure to speak with your private lender about your options, and have a full understanding of your repayment commitment before you must begin making monthly payments.

In general, there are two primary types of private loan repayment:

• Deferred Repayment, which delays repayment until after departure or graduation from school, as well as following a designated grace period.
• Fixed Repayment, which requires a monthly payment while still in school, and which includes no grace period.

In each of these cases, you will continue to accumulate and pay monthly interest on top of your monthly payment on the principal amount.

Managing Your Loans with Financial Hardship

Many borrowers struggle with financial hardship after leaving school, particularly recent graduates or those who leave school without a degree. It is especially critical that you take all appropriate steps to manage this financial hardship before it becomes an overwhelming burden.

Avoid Defaulting

Many individuals struggle to pay their student loans upon leaving school or graduating, even those who are working full-time. According to Forbes, roughly 1 in 10 borrowers who entered repayment in 2016 have since defaulted on their loans. With roughly one-third of those defaults coming from the for-profit sector, and an additional 26% accounted for by public community colleges, the remaining defaults belong to students from public and private non-profit four-year schools.

Loan defaulting occurs when you’ve missed multiple consecutive monthly loan payments. In most cases, your federal loans will be considered in default after nine months of non-payment.

As a borrower, you should do everything in your power to avoid this occurrence. Once you are in default on your loan, you will likely be unable to access the array of support programs designed for borrowers who are struggling financially. There is also a possibility, according to Nerdwallet, that falling into default on your loans could result in wage garnishment.

With wage garnishment, Nerdwallet reports that the U.S. government can elect to take up to 15% of each paycheck in order to fulfill your financial obligation. This can cause additional financial strain on individuals who are already struggling to make ends meet.

This is why it is of particular importance that you reach out to your loan servicer before this can occur. Ideally, you should make this contact before you begin to miss payments. This is because, in addition to accumulating late fees, you will need to address any outstanding payments before you will be allowed to access support programs like loan forbearance.

Request Temporary Relief

If you do struggle to meet your monthly repayment commitments, it’s important that you take the appropriate steps by reaching out to your lender. Do not let late payments pile up, and do not risk defaulting on your loan repayment responsibilities. This can result in late payments, can delay the long-term prospects of repaying your loan and can, consequently, cost you a great deal more in interest rates. It may also damage your credit rating, and that of any cosigners such as a parent or spouse.

Be aware that most federal loan repayment plans include options for relief, either through deferment or forbearance. These are typically granted in the event that the borrower is facing financial hardship. If you qualify, you could be relieved of monthly payments for a predetermined amount of time (usually a few months). This relief may come in the form of deferment (where loan repayment is halted and interest does not accrue) or in the form of forbearance (in which loan repayment is halted but interest does continue to accrue).

Though you will still accrue interest during such periods of forbearance, you would not incur any late fees or sustain damage to your credit rating. Forbearance may also allow you to simply lower your repayment amount while continuing to make payments.

As an alternative to forbearance, the Office of Federal Student Aid recommends moving to an income-driven repayment strategy. Ask your lender about an Income-Based Repayment (IBR) Plan or an Income-Contingent Repayment (ICR) Plan.

If you feel that you may not be able to handle your current loan payments, or are facing a moment of financial hardship, take advantage of these programs as soon as possible. The sooner you reach out to your lender to learn about your options, the more likely you are to avoid late fees or defaulting.

Visit the Office of Federal Student Aid to learn more about deferment or forbearance on federal loans. For private loans, contact your lender to learn more about forbearance for financial hardship.

Student Loan Consolidation

If you have multiple federal student loans, you could benefit from a Direct Consolidation Loan. This type of loan will consolidate multiple federal loans into a single monthly payment. In most cases, your single monthly payment will be lower than the combined total of multiple monthly payments. This is because the repayment period for most consolidated loans is expanded to 30 years. By consolidating your loans, you will also gain access to additional repayment plans and loan forgiveness programs.

However, you should also be aware that loan consolidation can carry some heightened costs. For instance, because the loan repayment period is longer, you would likely make more payments, and thus be responsible for more interest payments during the life of the loan. Likewise, any unpaid interest on your pre-consolidated loans would now become part of the principal sum of your consolidated loan. This means that the principal number will be higher, which will consequently raise your interest payments.

You should also avoid consolidation if you’re already begun repayment under an income-driven repayment plan, or if you’ve made qualifying payments toward Public Service Loan Forgiveness. Consolidation would cause you to lose credit for any such payments.

To learn more about consolidation, visit the Office of Federal Student Aid.

Refinancing Student Loan Debt

For many students, loan repayment can be a complicated and costly undertaking that includes multiple lenders, multiple monthly repayment commitments, and multiple monthly deadlines. Loan refinancing can help simplify this process and control your costs. Major private lenders like Lending Tree, LendKey, and SoFi offer student loan refinancing programs that allow you to consolidate your existing federal and private loans under a single, new private loan.

By refinancing, you will typically be able to lower your monthly interest rate, and reduce your collection of loan installment plans to a single, manageable monthly payment plan.

In order to be eligible for loan refinancing, you must have at least a “good” credit rating and a reliable source of income. If you don’t meet these conditions, you may need a parent or spouse to cosign. If you do require a cosigner, remember that failure to make timely payments will negatively impact their credit rating.

But if you do meet the basic conditions for loan refinancing, it is usually beneficial to pursue this option. You will likely save money over the life of your repayment plan.

Learn more with a look at our Focus on Student Loan Refinancing.

Loan Forgiveness Programs

There are a number of federal loan forgiveness programs aimed at relieving the burden and improving the financial outlook for borrowers who fall into an array of categories. Some loan forgiveness programs are subject to change, expansion, or elimination based on current policy orientation. However, at the time of writing in 2020, the following are current loan forgiveness programs.

• REPAYE/PAYE/IBR/ICR Plan Forgiveness: If your loan remains unpaid in full after 20 or 25 years, the remaining balance will be forgiven, though you may be responsible for income tax on the forgiven sum.
• Public Service Loan Forgiveness (PSLF) Program: Reserved for Direct Loan borrowers who become public service employees (including government, not-for-profit, and AmeriCorps/Peace Corps employees), loans may be forgiven only after the borrower has made 120 qualifying payments without defaulting.

  Visit the Federal Student Aid portal to learn more about current loan forgiveness programs.

• Federal Perkins Loan Cancellation: The need-based Federal Perkins Loan program was discontinued by the Trump Administration in 2018, which means no new Federal Perkins Loans are being granted. However, prior recipients of the Perkins Loan who become full-time nurses, medical technicians, disability intervention providers, speech pathologists, and others may be eligible for total loan cancellation.

  Visit the Federal Student Aid portal to find out if you are eligible for the Perkins Loan cancellation program.

• State Loan Repayment Program (SLRP): Many states also offer their own student loan forgiveness programs. Terms and eligibility will vary.

  Visit The College Investor to learn more about possible forgiveness programs in your state of residence or the state where your college or university is located.

• Professional Loan Repayment Programs: There are also numerous specialized loan forgiveness plans related to specific professional pathways. For instance, the healthcare profession offers an array of programs such as the NURSE Corps Loan Repayment Plan and the National Health Service Corps Loan Repayment Program (NHSC LRP). Attorneys can apply for the Attorney Student Loan Repayment Program (ASLRP) or the John R. Justice Student Loan Repayment Plan. Many of these programs are geared toward graduate students with higher debt burdens.

For more on loan forgiveness, particularly programs specific to your profession, take a look at our Focus on Student Loan Forgiveness.

For more on applying for student loans, pursuing federal grants, and more, check out our Guide to Financial Aid for College.