Financial Toolkit- Student Loan Repayment Worksheet

We all know that a financial goal is an intention we plan to save or plan our expenditure. The only way it differs from any other goal is that it is expressed completely based upon money. It varies from person to person for instances retirement planning, debt reduction, credit improvement etc.
Writing your financial goals is essential. Written goals bring transparency to your financial situation and make you focus. By reviewing your goals throughout the year, you will be definitely able to secure your future. A goal in written is a powerful reminder that you can track to achieve greater success in your financial life.
It is always advised you should take the least amount of debt possible so that you can start repaying for the student loan as soon as you get your graduation. Higher debt amount may impact on your credit score.  So is it worth paying it off early? Again your money grows with investments. It will be wise not put all your money towards debt payments. Like many experts, I recommend debt payments should be under 10% of your total monthly income.
student loan repayment plans

Student Loan Repayment Options

# Revised Pay As You Earn (REPAYE)

The REPAYE student loan repayment plan is an up gradation of the formerly called Pay As You Earn (PAYE) plan. The Revised Pay As You Earn plan eliminates certain restrictions with loan repayment in the PAYE plan and includes a number of additional benefits for students to pay off their loans while earning consistent income.
The REPAYE plan cops your monthly payments at 10% of your discretionary income and offers loan forgiveness after 20 years of making qualified payments (for undergraduate loans). The same plan provides forgiveness after 25 years for graduate loans.
Qualifying student loan types under this plan:

  • Federal Direct Loans
  • Stafford
  • Graduate Plus Loan

# Pay As You Earn (PAYE)

The Pay As You Earn (PAYE) plan was passed by President Obama to try and improve the existing restrictions and guidelines of the Income-Based Repayment (IBR) option.
The PAYE plan caps your monthly payments at 10% of your discretionary income and reduces the loan forgiveness term from 25 years (IBR) to 20 years in the PAYE.

# Income-Based Repayment

The Income-Based Repayment is a much older plan and offers lesser benefits as compared to the REPAYE and PAYE plans. Being one of the most popular student loan repayment options available, the IBR plan provides some of the strongest benefits to the borrower.
The IBR plan provides loan forgiveness on the first three years of any unpaid interest from the Income-Based Repayment enrollment time for the subsidized portion of your loan.
Students can take advantage of the IBR option, if and when:

  • You are facing a financial hardship.
  • You qualify for a zero loan payment or payment of less than the monthly interest payment on the loan.
  • You do not see a large shift in your income in the near future.
  • If you can see yourself making zero qualified payments always.

# Standard Repayment

In the standard repayment loan option, the loan payment is calculated just like any other normal loan. The term of the loan is based on the size of the loan and the calculation of the payment is based on both the term and size of the loan taken. The standard repayment option can be used when:

  • If you have less than 30 years left on the term.
  • You wish to pay off your student loan debts as soon as possible.
  • Your loan amount is small, in which case you can continue paying a minimal amount over a shorter period of time than elongating the time period for your payments.

# Graduated Repayment Plan

Very similar to the standard repayment plan, the Graduated Repayment plan works with a small difference. Students under the graduated repayment loan need to pay interest only on the loan, due to which you will have to pay smaller amounts as compared to the standard repayment loan option. For the first three years, you can pay interest only on the loan, after which the payment increases depending on the size and term of your loan. A graduated repayment plan can come to use when:

  • Your income is high enough for you to make the payments.
  • If you don’t qualify for the IBR repayment plan.
  • You want to start with paying minimal amounts initially and increase payments once your income increases in the future.

The biggest drawback of this student loan repayment option is that the total amount that you will have to pay at the end of it all will be much higher than that of a student repayment plan.

# Income Contingent Repayment

The Income Contingent Repayment takes into consideration a number of income-based factors to determine your payment during a student loan repayment. The Income Contingent repayment plan is calculated in two ways – Adjusted Gross Income (AGI that excludes your loan size) and AGI (that includes your loan size and value). You can opt for an Income Contingent repayment plan when:

  • You need financial relief
  • You wish to be legible for student loan forgiveness.
  • You do not see a higher income for yourself in the future.

Conclusion:

By selecting any of the above key student loan repayment plans, you can easily secure your education and have a successful financial situation. Don’t be pressed for money when it comes to your graduation or post-graduation. In cases of excessive confusion, you can contact student debt relief organizations to understand the best loan repayment option for you.

The Dangers of Parent College Loan

College costs are high, and students often find that their grant and loan money doesn’t go far enough.  So many parents take out PLUS loans to make up the difference.  At the time it seems like a good investment in the future.  But there are serious downsides to PLUS loans that parents should be aware of.

What Is A PLUS Loan?

A PLUS loan (Parent Loan for Undergraduate Students) is a loan made by the U.S. Department of Education to the parents of a student, to cover part or all of the cost of college.  The loan is in the parents’ name, and the parents are responsible for repaying it, not the student.

Why Do People Take Out PLUS Loans?

PLUS loans look good on the surface.  They’re easy to qualify for, the interest rate is fixed (right now it’s 7.9%), and there are a number of repayment plans.  Besides, for many people, PLUS loans are the only way their child will get through college.  Grants are declining; the last time Pell grants were increased was 2003-2004.  And college costs are ballooning; from 2003 to 2013, college tuition had an average annual growth rate of 5.2%.  PLUS loans make college accessible.

No Limit On The Amount Loaned

According to the Department of Education website, “The maximum PLUS loan amount you can borrow is the cost of attendance (determined by the school) minus any other financial assistance received.”  So if the PLUS loan is covering the whole cost of college, it could be more than $200,000.  In addition, PLUS loans are often made to people with poor credit and little chance of repaying such a big loan.  All that’s needed is for someone with good credit to vouch for the borrowers.

Large Monthly Payments

One couple told msn.com that they’re paying $3000 a month on a $200,000 PLUS loan.  That’s 26% of their $11,250 monthly income.  Things are even worse for PLUS loan borrowers with low incomes.  Department of Education data shows that for people in the lowest 10% of earners, PLUS loan payments take up 38% of their monthly income.  As well as interest and principal, there’s a 4% loan origination fee that’s deducted from every payment.

 Changes In Financial Situation

Many people take out large PLUS loans, and then suffer financial reverses due to illness, layoffs or other circumstances.  They can apply for a deferment, which delays payments up to 3 years, or a forbearance, which delays payments for 12 months.  But during this time, interest on the debt accumulates, and it has to be paid eventually.  Even if nothing else goes wrong, many parents who get PLUS loans are reaching retirement age, but can’t even consider retiring.

Garnishing of Wages and Social Security

If you default on your PLUS loan, there are dire consequences.  The Department of Education will garnish your wages, take your Social Security and pensions, and charge you collection fees and court costs.  You can also lose professional licenses and eligibility for any federal benefits, and be reported to the credit bureaus.

Parents want the best for their children, so it’s easy to sign a PLUS loan promissory note to get that child a college education.  But it may be better to weigh all the factors first.  When you make a leap of faith with college financing, you don’t want a hard landing.

James Pirch is a blogger with two sons in college and thus knows the importance of understanding college loans. In addition to furthering that understanding to keep his family finances stable, he spends some time learning about business bankruptcy to keep his business finances separate from his family’s.

Understanding How Student Loan Debt Affects Your Credit Score

Are you aware of the adverse impact of student loan on your credit score? The peculiarity of student loan is that it scores down your credit point though you have not defaulted on payment and just obtained the fund. The effect is so spontaneous that there is no scope of enjoying better interest rate. 750 point is considered favorable to take advantage of lower interest rate but student loan pulls down the score to 500 or below, thereby leaving you no chance to take advantage of favorable interest rate. As a result, a chunk of your money is drifted towards interest payment that is quite a heavy sum to bear.

Student Credit Score

The question is why student loan inflicts so harsh impact on one’s credit ranking. To understand this point, you need to know the complexities involved in student loan transaction.

Exaggeration of Truth

Yes, that is a common case in student loan borrowing. The amount recorded in the credit report sheet is the triplicate of actual sum you borrowed. For example, if you have taken out $6000 as student loan, it will be entered as $18000 in your credit report. This false statement exacerbates your case not only in terms of drop in credit point but also through the hike in interest rate on principal.

Early Payment Lowers Score

It is hard to believe that early payment negatively impacts one’s credit score instead of pushing it up. But that is the oddity about student loan. The point is the lenders don’t want to lose additional interest rate and never want the borrowers to payback before due date of payment. If you pay off before the scheduled period of time, the creditors might send an unfavorable report to the credit agencies and that will result into further drop in your credit rank.

Long Time of Repayment Drops Your Score

The usual period of repayment for student loan is minimum ten years. Such a long time span induces an unfavorable impact on your credit report. Though the repayment term is agreed by both the parties, still the credit report mentions ‘too long to pay back a debt’ which adversely affects your credit history. Another disadvantage is even a single student loan may be recorded in such a way that equates with seven different types of borrowing. This also scales down your credit point.

A Way Out….

In spite of what may be said against student loan borrowing, it is a good pipeline of monetary resources for those who need support to afford higher education expenses. A good way to evade the negative impacts is to opt for consolidation of all existing loans. When the outstanding dues are combined, regular interest payment is reduced to much an affordable border.

Contact an experienced loan counselor. You can also hire an online service provider to help you with consolidation program. The debt consolidation companies also extend help to those who need to improve their sliding credit score. Following these counter-active tips will help you pay off student loan sooner and at the same time, up your credit point.

What Should You Know About Student Loan Deferments?

Student loans are often the first type of debt that many people take on. They are also next to impossible to eliminate during a bankruptcy, so they have the potential to follow a person for the rest of their lives if they’re not able to pay them off quickly. Unfortunately, it can be difficult to make payments when your income doesn’t provide enough money. Because this is actually a common situation for many new graduates, the option to defer payments is becoming more popular.
As the U.S. Department of Education explains, a student deferment loan is a period during which the repayment of the principal and interest rate of your loan is temporarily delayed.
The above sentence just goes to determining the authority of deferred student loans as a form of student aid.
Financial Tips For New College Students

Definition of student loan deferments:

Deferring student loan payments means delaying payments for a period of time. This can allow a person to pursue higher education or give them the extra time they need in their job search. There are several disadvantages to deferring student loan payments, however.

Period of delayed repayment

There is a limited amount of time that you can defer your loans for. Most federal student loans allow a person to defer their payments for six months to one year. Sometimes this can be extended if a person is continuing their education, depending on the type of loan that you have. At the end of this time, payments must resume.

Claims for deferred student loans

You have to have a good reason to defer. Specifically, you have to be able to prove that you have circumstances that are preventing you from making payments. Being in school at least part-time, being unemployed or having a physical disability can qualify a person for a deferment. You should be aware, however, that you cannot claim financial hardship without giving a reason. This means that you cannot get approved for a deferral in order to get time off from your loan payments to pay off other debt.

One-time deferment of loan

You can only defer payments once. Deferments are only allowed once per loan. This means that once you choose to defer your payments, you will never get another chance to do so again. Because of this, it is important to make sure that you really need to defer your payments before applying for a deferment. If you can make your payments by cutting back on other expenses, then it is usually a good idea to do this rather than getting a deferral. Wait until you can no longer make your loan payments before applying for a deferral.

Accumulation of interest

Interest still accumulates while the loans are in deferment. This is one of the most overlooked facts about deferment. Even though you are not making payments, interest is still accumulating on the balance that you owe. This means that when you go back to making payments on your loan, your loan balance will be higher than when you started deferment. Depending on the type of loan you have, this could mean that your payments will be higher when you come out of deferment or that you will pay off your loans over a longer period of time. In order to avoid this, some people choose to make interest payments while they are in deferment. This prevents interest from accruing on the loan balance.
Loans can be deferred in a number of situations, such as-

  • Enrollment of at least half-time in school
  • If you have been unemployed for maximum three years
  • During periods of economic problems
  • If you serve in the Peace Corps
  • During active military duty and also for the first 13 months after concluding your military activities and duties
  • In the first six to nine months from the commencement of your graduation

Alternatives to student loan deferments:

If you do not wish to get involved or come any closer to something like student loan deferments, then there are alternate ways by which you can reduce your student loan burden.
#1.
You can get in touch with your lender and work out a repayment plan that suits you the best. Lenders are keener on seeing at least some of their money return than to see no returns at all. Talk to your lender and find out if they would be willing to reduce your payments or get you enrolled in a fixed income-based repayment plan.
#2.
For student aid, the federal government plays a major part in offering a variety of income-based repayment plans, where you can make payments depending on your earnings and wages.
#3.
If you are currently employed, your employer may also be able to assist you in repaying your loans and helping you out with your student loans.

Final thoughts

There are both good and bad sides to deferring student loans. While the best part about student loan deferment is that it gives borrowers a break from repayments, especially when they are facing a financial crisis, loan deferment, on the other hand, may also lead to burdening borrowers in the future. The key is to talk to your service provider or lender and explore the possible student loan and repayment plans that work out the best for both of you.