Student Loan Repayment 101
By Consumers Union on Thursday, June 12th, 2014
Whether you’re a new college graduate (congrats!) or someone who is already repaying student loans, it’s important to know all your options for managing your monthly payments. For federally-backed student loans, you can take advantage of repayment plans that let you pay lower amounts each month to ease the stress of paying the loans.
To get started, check out the Consumer Financial Protection Bureau (CFPB)’s Repay Student Debt site, which helps you compare different repayment plans. Then you should contact your loan servicer – i.e., the company that’s processing your paperwork and taking your loan payments – to request the repayment plan you want.
Then, share your story with us. Lawmakers in Washington and numerous state capitols are considering more repayment options and need to hear your stories to help craft good policy.
Now, here’s some basic info about your options:
If you’re a new borrower, you can take advantage of the “Pay As You Earn” plan, which caps your monthly payments at 10% of your monthly income. After 20 years of making payments, the remaining balance is forgiven. (If you work in public service, you may be able to get your loan forgiven even sooner – after 10 years of payments.) This plan was originally reserved only for loans taken out in 2012 or later, but earlier this week President Obama took executive action to allow student loan borrowers with loans dating back to 2007 to qualify starting next year.
If you took out a loan between 2007 and 2012, you can still get on an income-based repayment plan right now that caps your loan payments at 15% of your monthly income.
If you have even older loans and want to lower your monthly payments, you may want to consider converting them into a Direct Consolidation loan. If you do this, you create a new loan – and that makes you eligible for the new income-based repayment plan.
The new income-based repayment plan is not available to parents with Parent PLUS loans – but those loans are eligible for other flexible repayment plans.
Note that these flexible plans don’t apply to private student loans, but you should still contact your private lender if you’re having trouble repaying your loans, to see if you can work out an alternative plan and stay out of default.
Have you experienced problems repaying your loans? If so, share your story with us today.