federal student loans

Student Loan Forgiveness

Did you even know this is possible? Well it is in some circumstances so cross you fingers and let’s see if you fit into any of the ways to have all or part of your student loan debt forgiven.

Volunteering

With the Peace Corps you are able to defer payments of Stafford and consolidation loans and you are able to get cancellation of Perkins loan debt.  With the debt cancellation you can get up to seventy percent of the total debt canceled, 15% for each year of peace corps service.  Within the AmeriCorps program you can earn cash, up to $7,400 and a credit of $4,725 toward your student loan debt.  The AmeriCorps program lasts 12 months.  Volunteers in Service to America is a network of non-profit and community organizations where when you complete 1,700 hours of community service you can get $4725 credited toward your student loan debt.

Military Service

Depending on recruitment needs of the various branches of the military you can oftentimes enlist and get a student loan credit.  These programs come and go so you need to discuss them with a local recruiter.  One ongoing program is through the Army National Guard, they have a program where you can earn up to $10,000 in student loan money.  For further information and program eligibility you should seek out a local National Guard recruiter.

Teaching

If you are willing to teach school in certain low income areas you can earn significant credits toward your student loan debt, assuming it is a Perkins loan.  Under this program you can earn a 15% credit for each of your first two years of teaching, a 20% credit for each of your third and fourth years teaching, and a 30% credit for your fifth year teaching.  This is an incredible program that was designed to encouraged talented young teachers to lend their talents to schools that are in need of this type of youthful energy.

In addition to the above there are also many Federal Teaching Student Loan Forgiveness programs for both Stafford and Perkins loans.  The rules are similar to the above but the ways in which to qualifying are much more far reaching than simply teaching in select schools.  If you have the willingness to teach, it may be the best way to get your loans forgiven.

Law & Medical School Debt

There are numerous programs that offer significant medical and legal school debt forgiveness.  These programs are offered by various organizations within the government.  If you have this type of debt and are willing to direct your career in a way that will reward you with debt forgiveness, then you should check into these programs.  Even if you feel that you will not be willing to follow a loan forgiveness path, you should still look into the programs, some of them may be along a path you have already chosen for yourself.

Federal Worker Programs

Many Federal agencies have loan forgiveness programs that are specifically designed to recruit workers into public service.  These programs oftentimes range from $10,000 up to $60,000 in debt forgiveness.  These are programs that are certainly worth looking into especially if you are already planning to work for a Federal agency or department.

What is Income Based Repayment?

Income based repayment (IBR) for student loans is just as the name implies, a repayment plan that is based on your income.  There are various types of repayment plans that are offered for each type of student loan, the income based repayment plan is primarily designed for those at a low level of income or for those that are having difficulty making their payments.  For those that are not having difficulty making payments or are at a high level of income, there are other repayment plans that they can utilize.

The IBR program that is available for federal student loans is available for the Federal Family Education Loan (FFEL) programs and all of the Direct Loan programs including the graduate PLUS program but not the parent PLUS program.  In order to qualify for this program the loan must not be currently in default.  This does not mean that it was never in default, it simply means that the payments must be current at the time of application.

How are the payment amount calculated?

The biggest factor within the IBR program is the way in which your payment is calculated.  The IBR program uses your income, your debt, and your amount owed in student loans to determine a specific payment plan given your overall financial situation.  For very low income earners, those below 150% of the federal poverty level, that select this repayment option the payment will be zero.  For those that are making more than 150% of the federal poverty level will have a payment that will be no greater than 15% of the amount of money that they make over the 150% of federal poverty level.  This payment is adjusted every year and can change relative to changes in your underlying income.

The IBR plan does allow for a consolidation analysis for those that are married and it does allow all of the federal poverty income calculations to be based on the total income for the family.  For special hardship considerations both spouses need to qualify for that hardship.  There are many factors that need to be considered when applying for the IBR plan when you are married.  The way in which you file your taxes and if you should consolidate your application or not can affect the resulting IBR payments.  It is best to seek counseling and advice of how applying under different circumstances will affect the analysis and your resulting payment.

For all loans that are issued prior to July 1, 2014 the loan will be completely discharged if the borrower makes payments within the IBR program for 25 years.  For loans issued after that date they will be discharged after IBR payment for 20 years.  When a loan is discharged it is different than if the loan is payed for you or forgiven.  Under this program if the debt is discharged or canceled it will have an impact on your taxes for the year of discharge.  For more information on how this may impact your tax return you should seek the advice of a tax professional.  You should also be prepared for ways in which this discharge may affect any other low income programs that you are qualified under.

Yes, it is possible to defer payments on your Stafford, Parent PLUS, Graduate PLUS, and Federal consolidation loans. There are several valid and acceptable reasons including economic hardship, national service, internships, continuing education, military service, and even unemployment.

Federal Deferment Rules

For federal loans you can get a maximum of 36 months of deferred payments and you need to re-qualify for the deferment every twelve months.  In order to qualify for a Federal deferment you must have already been granted a deferment on your non Federal student loans, be receiving Federal or State public assistance such as food stamps disability SSI or other programs, be serving actively in the Peace Corps, or your income is less than or equal to the larger of either the Federal minimum wage or 150% of the poverty line for your family size.  To get the deferment you must complete the application for deferment and submit proof that you meet any one of these mentioned conditions.

Stafford Loan Deferment

If you are teaching full time in an area of the country where there is a severe shortage of teachers you will not only be eligible for deferment you may also be eligible for substantial loan forgiveness depending in the number of years you plan to stay and teach.

Economic Deferment

The economic deferment applies if you meet one of the above defined federal guidelines or if you meet guidelines set forth by the specific offering agency of your loan.  There is hope in this if you are severely underemployed or even unemployed.  Your loan can be deferred under many low income situations.

Disability Deferment

If you are in a situation where you have been temporarily or permanently disabled you have several options for student loan deferment.  In fact if you cannot maintain certification that you received from the education that was funded by the loan due to your disability you may be able to obtain loan forgiveness.  If you are being rehabilitated after a temporary disability or retrained from a permanent disability, you can also oftentimes qualify for a student loan payment deferment.

Family Leave

If you are pregnant, have a newborn under your care, or if you have recently adopted a newborn child, you may be eligible for a deferment.  This also applies to those that have rights under parental leave laws as well as those that simply have had to leave school temporarily due to a family leave situation.  In all of these cases there is grounds and precedent where you can obtain a student loan payment deferral.

Public Service

There are countless public service deferments available.  In fact many of these deferments are coupled with loan forgiveness if you get into the right track.  These programs were made available in order to attract graduates to Federal jobs and other positions of Federal service.  This includes the military, public health position, teaching positions as well as a number of other positions within the Federal government.  In fact any government agent that is actively recruiting for workers  normally has some power of payment deferment or debt forgiveness in the offer package to prospective employees.

Financing your college dreams can turn out to be quite an experience. Understanding all the different options available from scholarships to grants to federal student loans and private student loans can be daunting and difficult to navigate for both students and parents. This article talks in depth about alternative student loans.

What are Alternative Student Loans?

Alternative student loans are another way of referring to a private student loan. Alternative student loans unlike federal student loans are not funded or guaranteed by the federal government. It is private financial institutions that lend money for an alternative student loan. Banks and credit unions readily spring to mind. Most students look at federal student loans as the main source for lending and this is why student loans from banks and credit unions are sometimes called as alternative student loans. Private student loans is the only alternate option to a federal student loan. Many students find themselves ineligible for federal aid since most federal student loans are need based or face a shortfall in their finances even after being approved for a scholarship or grant or a federal student loan.

When should I apply for an Alternative Student Loan?

Funding for your college must always begin with scholarships and grants. Make sure you search and apply to all eligible grants and scholarships. Scholarships and grants score over student loans any day simple because they do not have to be paid back by the student. Only when all possible avenues for scholarships and college grants have been exhausted should you turn your attention to a loan.

Even with loans your first port of call must be with federal student loans. There are some excellent loans such as the Stafford loan and the Perkins loan that comes with very low rates of interest and often are subsidized thereby allowing the student to go through college without paying any interest on the loan and only start the loan payments after graduation and that too after a deferment period of anywhere between 6 – 8 months.

You should only consider an alternative student loan if you have exhausted all the above options and still need additional funds to cover any shortfall. The interest rates for an alternative student loan will be higher than that of a federal loan and is completely dependent on the student’s credit worthiness, credit score and credit history.

How do I apply for an Alternative Student Loan?

Applying for an alternative student loan is pretty straightforward. Unlike federal aid where you have to fill out the FAFSA application to begin a lengthy process, alternate student loans usually have a short application process and most of it can be done online. A credit check is usually mandatory and if you have no credit or bad credit then applying for a student loan with a cosigner might be an option to consider.

Alternative Student Loan tips

• Do not apply for an alternative student loan simply because you can. Borrowing money when you don’t need it can prove to be very costly.
• Alternate student loans must always be your last option for funding your education.
• Applying with a cosigner might help you negotiate better loan terms than applying for an alternate loan without a cosigner.
• Research your lender and their lending policies thoroughly.
• Check if your lender offers loan deferment and loan forbearance options.

While there are many banks and other financial institutions out there, take your time, understand all the pros and cons and only go ahead with a loan if you are comfortable with the lender, the rate of interest and other loan terms and options.