student loan

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.

We have talked about Student loan repayment quite a bit. Some of the articles that come to mind are the student loan employment repayment, Perkins loan repayment amongst many others. In this article, let us look at what your repayment options are when it comes to student loans. Looking at your repayment options might be especially helpful when it becomes difficult to make those loan payments and a default is staring at you in the face.

As with all types of loans it is best to work with your lender on repayment options prior to having missed any payments.  Stepping forward and not only taking responsibility for the situation but also showing the lender that you are planning ahead and are foreseeing a problem.  This shows them that you are responsible and that you intend on following through with any agreements you make.  Prior to default your repayment arrangements are made with a department within the lender that wants to work with you and is focused on customer service.  After default you are always forced to work with the lender’s collections department and the collections department is not as friendly nor are they willing to “help” in any way.  The collections department simply wants to collect payments.

The following is a brief summary of  federal student loan repayment options.  It is important to note that if you have a Perkins loan or a private loan that there are different options that relate to each of these.  To make some of the options and exceptions consult this outline:

1. Direct Loan
   1. Same as the options available for the Federal Family Education Loan (FFEL).
   2. The Exception is the Direct Loan Income Contingent Repayment Program (ICR).
   3. Public service forgiveness program is available.
2. PLUS Loan
   1. Similar options to other loans with some exceptions.
   2. Primary exception is the income based” options such as ICR and income based repayment (IBR) cannot be used with Parent PLUS loans.
   3. ICR & IBR are available to Graduate PLUS Loans.

Traditional Repayment

This is also referred to as the standard repayment plan.  This is the default plan should you fail to select another option.  Under this plan the loan can be amortized at a term between 5 and 10 years.  This is also the payment option that is automatically applied to all FFEL loans should you not respond to their request for you to select a repayment plan within 45 days of their requesting you to make a repayment plan selection.  Under this plan you will pay off the loan faster than any other available option but you will also have a payment that is higher than the other options.

Extended Repayment

This student loan payment option allows you to amortize your loan over a longer period of time than traditional options.  The extended repayment option allows the term of the loan to go up to 25 years.  It is only offered to those that owe over $30,000 in any one particular type of loan.  Borrowers that have a FFEL, a Direct Loan, or both you need to have an outstanding balance of $30,000 or more in each type of loan in which you wish to utilize the extended repayment option.

Graduated Repayment

This option is designed to be used by those that expect to have an increase in earnings over time.  The loan payment amount is increased every two years for the life of the loan.  The maximum term for a traditional graduated repayment option is ten years.  If you owe more than $30,000 and you qualify for the extended repayment option you may be able to use the graduated repayment option in conjunction with the extended repayment option.

Perkins Repayment

The Perkins loan has its own set of rules with regard to repayment.  With the Perkins loans the minimum payment is listed in the law that allows for Perkins loans.  As a result, the school that offered the loan is limited in the repayment options they can use.  There are special circumstances that qualify for special repayment treatment such as for those that are sick, unemployed, or are considered low income.  For Perkins loans it is best to seek counseling from the issuer in order to determine all of the available Perkins Loan Repayment options.

Income Based Repayment Options

There are two primary Income Base options when it comes to student loans.  The first is the Income Based Repayment option (IBR).  With this option your payment will be relative to your income.  This is particularly useful for those that have a low income.  If you are a high income earner, the resultant payment for this option can exceed the traditional repayment option.  Though it does allow a lower payment for those at a high income that also have high debts.  This option was designed for those at lower income levels.

The second income based option is the Income Contingent Repayment options (ICR).  This option is only available to Direct Loan borrowers.  Under this program your payment will never be more than 20% of the amount of income that you are earning above the federal poverty guidelines.  This program is designed for those that have a low income.  If you pay this low payment for 25 year, the remaining loan balance will be forgiven.

What is Student Loan Wage Garnishment?

Garnishment of your wages is one of the remedies that can be sought by the government to recover money owed on defaulted student loan debt.  The garnishment itself is normally deducted from your paycheck by your employer’s payroll department and the amount taken from your check is sent to the government as payment on your defaulted student loan.  The amount of the garnishment is not to exceed fifteen percent of what the government deems to be your disposable income.  The garnishment is not allowed to exceed thirty times the federally mandated minimum wage.

Courts & Judgments

To begin you must understand that the garnishment can be ordered by the government without judicial process and procedure.  Many students wrongly that believe that their wages cannot be garnished without a court judgment or court order.  While this is mostly true for other types of debt, for student loan defaults, the courts do not need to be involved.  This means that, unlike for other types of judgments and debts owed, you cannot avoid the garnishment by avoiding being served a summons for a court hearing.

Wage Garnishment Notification

The government is required to notify all borrowers that they are in default prior to the issuance of an order for a non-judicial garnishment.  This notification will have a time period within which the defaulted borrower can pay the debt, catch up on the defaulted amount, and resume payments, or dispute the garnishment or request a formal hearing.  Clearly if you comply with the notification and bring the loan up to date in payments or pay it off then you need to ensure that the government acknowledges that you have brought the loan to current status and to ensure that they discontinue their pursuit of a garnishment.

Disputing The Garnishment

If you wish to dispute the garnishment because you are disputing what you owe, disputing the loan debt, claiming the garnishment will create undue hardship, or for some other reason then you need to respond to the notification by following all of the procedures listed in the notification by which you are allowed to request a hearing.  If you fail to dispute the garnishment within the time specified in the notification then the garnishment will proceed.  You can still file an objection in order to dispute the garnishment but it is possible and in fact probable that the garnishment will begin prior tp the hearing date.  Garnishments will only continue for 60 days after a late dispute is filed.

Other Consequences

It is important to note that under the provision in most student loans the one that holds the loan can demand payment in full anytime the loan enters into default.  What this means is that you would not only be responsible for bringing the loan up to date and current, but that you would be responsible for paying the loan debt off in its entirety.  This is not a common practice because oftentimes the student that is in default is also not in a position to payoff the debt in full.  But you must understand that it is a possible consequence to any default.

What is Student Loan Employer Repayment?

There are two things that people are searching for when referring to student loan repayment.  The first is the specific programs offered by employers that will pay off or pay down your student loan and the second is those that want to know the repayment options available for a borrower when they are paying off their own loans.  This page covers both of these topics.

Private Sector Employer Repayment

When it comes to employers many have incentives that they can give prospective employees in their compensation plan that includes the repayment of their student loans.  These compensation packages are common for highly competitive industries where there is a shortage of workers or where there is high competition to attract the best and the brightest.  There is no limitation on the amounts that a private sector employer can offer to a job candidate as part of their overall compensation plan.

Public Sector Employer Repayment

These programs are not limited to the private sector, in fact the federal government offers more student loan repayment programs than any other employer.  The federal program allows different federal agencies and departments to payoff or pay down the federal student loans of the individuals that they are trying to recruit.  Oftentimes this repayment is tied to a particular employment contract or commitment of service.  The maximum amount of student loan repayment that can be offered by a federal agency or department is $10,000 per year of employment up to a maximum of $60,000 for a single person.

Borrower Repayment

If you are paying the loan back yourself, as the borrower, then you should know that your first payment normally starts six months after you leave school (for graduation or other reason) or reduce your class load to less that half that of a full time student if you have a federal direct or Federal Family Educational Loan.  If you have a federal Perkins loan then your first payment will start nine months after the conditions above are met.  For private loans the time between graduation or leaving school and your first payment varies, you need to consult your lender and your loan documentation.

For graduate and professional studies students under the Federal PLUS student loan program the first payment is due 60 days after the final reimbursement for the loan is made.  Even though payment is due, the PLUS student can apply for a payment deferment as long as they are still attending school.  The loan will still continue to accrue interest, but no payment will be due until the student leaves school, graduates, or reduces class load to less than half the load that is considered full time for their particular field of study.

Repayment Strategy

There are many different strategies to payoff student loan debt.  These strategies include loan forgiveness programs such as those offered by the Peace Corps and certain occupations such as teaching as well as loan credits that are offered for working through numerous non profit agencies such as AmeriCorps.  If your strategy is to pay the loan yourself be certain to take advantage of loan consolidations and refinances that offer lower interest rates.  The key to refinancing to lower rates is that you want to make certain that you make a payment that does not extend the term of the loan.  Even if the loan refinances to a full term, you need to make a payment that will amortize that loan in a shorter period of time.

Can filing for bankruptcy dissolve my student loan debt?

As it stands today, you cannot have your student loan debt reduced or eliminated through bankruptcy proceedings.  This was the law of the land for publicly funded student loans prior to 2005, but in 2005 the law was extended to make it so that you could not extinguish any student loan debt by filing for bankruptcy.

Proposed Law Changes

Since 2005 there have been several attempts to modify this law to its pre 2005 wording.  As a result this would allow students that received private student loans to have the debt extinguished through a bankruptcy.   The student who had publicly funded student loans would still not be able to discharge their debt.

This has become an increasingly visible issue in recent years as so many graduates are not able to find work that will enable them to meet their financial obligations.  It was found in 2010 that over 50% of graduates were not able to find work and that many of those that did find work were significantly underemployed given their skills and education.

New Paradigm

All of this is a problem as the society at large adjusts into a new economy where formerly the cost of higher education was automatically rewarded with a high paying career where one could manage the debt.  What we find now is that many who incur their debt for undergraduate degrees find themselves fighting for entry level positions with those that do not have the same educational background nor the burdensome educational debt.  As a result the one with the debt is under much more financial stress and burdens than the one without the debt.  Now of course studies show that the one with the undergraduate degree will out earn the one without the degree over time, as the one with the degree surpasses the one without, but this does not normally occur until 3-7 years into a career, making the first 3-7 years very difficult for the one carrying the burden of significant student loan debt.

New Proposals

It is possible that instead of disallowing discharge of student loan debt through bankruptcy that those with undergraduate educations be allowed to defer the repayment until they are 5-10 years into their careers.  This would give them ample time to become established and give them time to realize the increased earning capacity that is common with those that have college degrees.  This is one alternative to forcing those that are under financial stress into bankruptcy and even into overly stressful situations when they should be working on their careers.  It is as if society wants to put extra burdens on the best and the brightest, making life even more difficult for them when they are just starting out.

No matter what solution comes along, one thing is for certain, the laws will be changed in favor of giving relief to those that are suffering under substantial student loan debt and yet find themselves looking for work in tough economic times.  Bankruptcy discharge may not given to everyone, but allowing for payment deferrals and other creative means to ensure repayment is certainly a step in the right direction.

With Federal student loans there is a counseling requirement that needs to be met by each borrower. We already talked a bit about student loan entrance counseling in our previous article. Similarly student loan exit counseling is a part, and meets part of the requirements for, this counseling component of any federal loan.  The counseling component can be completed off line or online as specified and required by your educational institution.  Each school handles the exit counseling component differently and it is the student/borrowers responsibility to meet this requirement as specified by their school.

Who Needs It

Exit counseling is a requirement for all student loan borrowers and is something that must be completed prior to the student withdrawing from, graduating from, or dropping below what is considered “half full time” attendance.  If the student is transferring to a different school they must complete exit counseling if any of the above apply.

What Loans Require It

Exit counseling is required for all borrowers that utilize the William Ford loans or the Federal Family Education Loans.  The William Ford loans are also known as direct loans, direct subsidized and unsubsidized loans, and as the direct PLUS loans which are normally for professional or graduate students.  The Federal Family Education Loans are also known as subsidized and unsubsidized federal Stafford loans and as federal PLUS loans which also are normally for graduate and professional students.

What To Expect

The counseling itself is broken into five separate sections.  The getting started section covers the types of federal student loans and the specific lexicon and terminology that is used when discussing student loans.  The counseling then moves into a discussion of the repayment of the loan.  In this section you learn and review the interest rate, the payment schedule, how to make payments, the incentive behind making payments, and the various plans that are available for repayment.  The third section covers what happens if you have difficulty in making your monthly student loan payments. In this section the counseling covers the issues of payment deferment, payment forbearance, loan default and loan consolidation.  The fourth section covers the possibility of loan discharge as well as loan forgiveness and the various ways in which a student may accomplish this.  The final section covers resources where the student can go for more information as well as going into details about the students rights and responsibilities with regard to the money that has been borrowed.

The counseling is filled with quizzes and questions in order to ensure that the student is comprehending the information given.  The student loan program is a critical element in ensuring that higher education is made available to those that have attained high levels of achievement regardless of their financial status.  But with the public assistance in helping those that have made these achievements comes a burden of responsibility to pay back this assistance.  The Student loan exit counseling is designed to help the student understand their commitments as well as what is expected of them.  It also helps the student understand what they can do should they fall short on being able to meet these commitments.

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What is Student Loan Entrance Counseling?

Student loan entrance counseling is a government required program that all student loan applicants must go through.  The counseling itself is so that the borrower understands how the loans work, how to chose a loan, how to budget for loans, and how the loan will affect their lives after graduation.  The program itself is very comprehensive and contains a lot of important information that the student needs in order to make the right decisions with regard to getting student loans.

Loans 101

The counseling begins with helping the student understand how a loan works.  It covers interest rates, payments, and loan terms.  It also covers the implications of not making payments and how making additional payments will help payoff the loan faster than making minimum payments.

Borrowing Amounts

The counseling also covers way to calculate the appropriate amount of money that a person should consider borrowing.  This is important because student loan debt can be a burden to a person after they finish their education and begin working.  The borrowing amount section shows the student how to calculate all of their expenses and ways to offset and minimize overall borrowing.

Loan Choices

Entrance counseling then covers many of the types of student loans that are available.  This is important because different educational paths require different loans and different careers offer different potential employer credits and payoffs of student loan debt.  It is also important so the student understands their expected payment structure, underlying interest rates, loan terms, and flexibility with deferments should one or more be required.

Paperwork

The counseling also covers the unique paperwork involved in a student loan transaction.  One of the most important parts is the student loan specific promissory note. This is unlike any promissory note you will sign in the future for other loans like for cars or mortgages, the student loan promissory note is signed one time and allows the lender to loan to you more than one time.  While this is convenient, critics oftentimes claim that this ease of additional borrowing, without having to complete additional paperwork, can lure the student into borrowing more than they need and cause potential financial hardships in the future.  All of these implications, concerns, and facts are covered in Student Loan Entrance Counseling.

Post Education

At the end of your education, most student lenders also want you to attend a Student Loan Exit Counseling class.  But the fact is that many students never attend because their education is already over.  But the fact is that attending these types of classes is important and can help you avoid future headaches.  All of the exit counseling program material is covered in this post education part of the entrance counseling program.  The material covered within this section relates to making payments, refinancing, consolidating, deferments, and default.  The student is also given extensive resources to which they can look to in order to payoff their loans quicker, attain loan forgiveness, or even obtain loan credits from their employers.  The reason for these educational programs is to ensure the student is fully equipped to handle their loan in the most effective and responsible manner possible.

What is Student Loan Amortization?

When we talk about student loan amortization what most people want to know is the amount of their monthly payment, how many years they have to make that payment, and how principal and interest is allocated toward the loan from each payment.

Variables

When determining the payment we must first determine the amount that you will owe, the interest rate, and the number of years you will be making the payment.  From this we can extrapolate an monthly payment and an amortization schedule.  For example, a $20,000 loan at 5% interest over 10 years will equal a monthly payment of $212.13 per month.  The chart below shows how the payment changes each time you change one of the underlying variables of the amortization equation.  The changed variable is highlighted in the chart with the payment changing each time a variable is changed.

Amortization Schedule

The amortization schedule of the loan is simply a chart that shows how each payment of the loan is going to be allocated toward the principal and interest of the loan for each month.  The way it works is that each month interest accrues on the loan and then a payment is applied to the loan.  The interest is first subtracted from the payment and then the remaining amount is allocated toward the balance of the loan.

Notice how the payment stays the same, the interest is calculated monthly and the principal is reduced monthly by an amount equal to the payment minus the accrued interest.  The interest calculation itself varies between lenders, for purposes of this example we used a 360 day year and a 30 day month for simplicity.  Some lenders use a 365 day year and others a 360 day year, most all lenders use a 28-31 day month depending on the actual number of days in the month.

Student loan amortizations work exactly as does this example and the number of payments extends until the balance in the fifth column reduces to $0.00.  Anytime there is an interruption to the schedule, for example if you pay a little extra toward the principal of the loan, then the entire amortization schedule will change.  This is also the case if the underlying interest rate changes, if the loan term changes, or if a payment is missed.  Once anything happens outside of the original schedule, in other words, anytime an underlying variable changes, the entire amortization schedule from that point forward changes.

It is important to note on this schedule that only $83 of the original payment is begin applied to the principal reduction of the loan.  Should you want to pay an extra couple hundred dollars toward principal it would significantly change the interest calculations for payments from that point forward.  This is the reality of all amortizations schedules, making extra payments toward principal accelerates the schedule and pays the loan off much faster than it would have been paid without the extra payment.

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.

Student Loan Realities

Having too much student loan debt is a major problem for many college graduates.  If you’ve managed your college expenses prudently or have had the good fortune to snag that scholarship or federal grant to pay for your college expenses, then you are among the tiny fraction of students that come out of college with manageable or no debt whatsoever to worry about.

For the large majority though, the situation is all too familiar. Saddled with huge debt the minute they step of college, paying back your loans is a rude awakening to the realities of life. There is no free ride. Finding a federal or private student loan might have paid your bills and there is no denying that the availability of financial aid in the form of loans is what gets most students through college these days, it is time however to pay back those loans. The interesting thing from all of this is that this is actually a very powerful life lesson that the graduates will learn early on and in fact is something that supplements their education with a dose of real world economics. It goes without saying that this is not what anyone wants to hear. In the United States it is all too common that a college graduate begins their life with amassing a large credit card debt and then spends a decade or more paying it off only to repeat the cycle over and over again throughout their lives.  In this instance, the sting of paying off the money that came all too easily in college, will leave a life lesson that will hopefully bring about a new generation of spending and debt conscious individuals.

Below are a few simple tips and suggestions that if you follow diligently, you will keep that student loans in check and avoid it from taking over your life.

Pay Down the Principal

Take a look at your loan statement each month, do you notice something?  How about the fact that most of the money you are paying goes straight to the interest on the loan and not to the actual principal.  Whenever possible, even if it is simply $50 extra per payment, send extra money with your payment and make certain the lender is crediting your principal with that extra payment.  This means sending a note with the payment and checking the next statement to ensure you were properly credited.  There is no more powerful way to retire student loan debt quickly than to pay down the principal by paying a little extra each month.  This is the same concept that you will see people learning in finance classes about paying off a home mortgage, pay direct to principal and the loan will pay off years earlier than it would otherwise.

Bi-Weekly Payments

If you are on a strict budget and you are paid by your employer every two weeks then you likely are allocating half the student loan payment from each paycheck.  If you do this and actually pay half the payment with each check you will inevitably pay the loan off faster.  Of course you need to make certain your lender allows this.  The reason this will pay it off faster is because when you are paid once every two weeks you actually receive 26 paychecks per year.  If you are allocating 50% of the loan payment per paycheck then that comes to thirteen 100% payments.  This means that you are paying one extra payment per year, normally you would pay 12 monthly payments.  As a result, if you make certain that extra money is allocated to principal, you will pay the loan off much faster and yet not even feel the change in your monthly budget.

Consolidate & Pay Extra

Consolidating your many student loans into a single loan with a lower interest rate and monthly payment is only in your best interest if you continue to pay the same payment after the consolidation as you did before the consolidation.  As a result you will be paying much more to principal with the same monthly payment.  Even if the consolidation allows for much lower payments, if your goal is to get out of debt, then pay the highest payment you can afford and the loan will pay off much faster.

If you noticed two themes in this it is that you need to first learn discipline and budgeting and second you need to pay extra to principal at every chance you get.  But do not limit yourself to the ideas above, every time you get a tax return, a employment bonus, or even some Christmas cash, consider paying some or all of it toward the principal of your student loans.  I know it is not any fun to not use the cash for fun, but think how fun it will be when you do not have any more student loan debt and everything is paid off.

While there are a few options to get rid of your student loans legally, for the most of us though paying back your loans one installment at a time is the only option. Be smart and follow these tips to get rid of that debt as soon as you can.

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