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Worried about student loan repayment? Don’t stress, we are here to help!

Are you a graduating college and worried about student loan repayment? With midterms, finals week, and projects all wrapping up and coming to an end, the last thing we want to think about is student loans, but with a little planning, they are nothing to be concerned about! We will discuss the process of paying back student loans and how to insure the process is a breeze!

Step 1: Figure out who your student loan servicer is:

Many times, people think that student loans are paid back to their university or the government directly. This is NOT the case. While you are borrowing the money from the government, they have loan servicers who handle the repayment of student loans. If you do not know who your servicer is, the first step is to log in to the federal student aid website (WWW. Studentaid.ed.gov). After logging in, you will find all of your student loans listed, with information such as loan balance, interest rate, loan servicer, and type of loan. After reviewing your loans and finding your loan servicer (CornerStone, FedLoan Servicing, Granite State, Great Lakes Educational Loan Services Inc, HESC/Edfinancial, MOHELA, Navient, Nelnet, OSLA Servicing) you can log in to their personal website and create an account!

Step 2: How much will you pay each month:

Student loans are paid back on a monthly basis. There are many different repayment plans that are listed below in the next section, but before you pick a repayment plan, it is good to figure out how large of a payment you can financially handle each month. There are many different student loan repayment calculators online but the easiest to use is the Federal Student Aid calculator. You can find it at www.studentaid.ed.gov. This calculator automatically loads your student loan information into the calculator and offers a table of monthly repayment estimates for each specific loan repayment option. With this, you can get a good idea of which monthly repayment plan will work best with your financial budget.

Step 3: Student Loan repayment options:

Once you have created an account on your servicers website, it is time to decide how to take on student loans repayment. The great thing about student loans is that you have a 6-month grace period before you have to begin repayment, with most loans. If you have not used any of your grace period, you do not have to start repayment on the loans for six months. *With unsubsidized loans, we recommend that borrowers begin repayment on the accruing interest before the sixth month grace period ends. Once the grace period ends, any interest that has accrued on your loans will be tacked onto your loan balance, which will cause you to pay interest on top of that accruing interest.* There are many different repayment plans that are offered when paying back student loans. The standard repayment plan is equal monthly payments for ten years (120 months). If your loan balance is above $30,000 and you are worried that monthly payment will be too high, you can apply for extended repayments, which divide the loan up into equal monthly payments over 12-30 years. There are also income based repayment plans. These are for borrowers who believe that they will not make as much money in their first few years working, but by the end of repayment will have a higher income. With this plan, you will pay a lower monthly payment in the beginning, but periodically through repayment, your monthly payment will increase. Another option available is Income-driven plans. Under this plan there are a few different options that take a percentage of your income and formulates a payment based off of the information provided. If you do not specify, you will be put on a standard repayment plan and will need to contact your loan servicer to be put on a different repayment plan.

Step 4: How to save money with loan repayment:

There are a few different tips and tricks that you can utilize to save money with student loan repayment. The first step is to enroll in an automatic payment plan. Loan servicers offer a .25% interest rate discount to customers who enroll in an autopay program. This will also insure that you do not miss a payment, which could hurt your credit score.

Another way to save money is to be proactive with the loan repayment process. When you make the monthly payment, specify that you would like the put the payment towards the loan with the highest interest rates. Paying down loans with the highest interest rates first, will insure that over time, you are paying the lowest amount of interest possible on your student loans.

There are also ways to get a portion of your student forgiven. If you are planning on working in a public service sector, you are eligible for some type of loan forgiveness. The Public Service Loan Forgiveness is for anyone who works in the public sector (nonprofit, government, state job), and makes 120 qualifying payments. These payments do not have to be consecutive to qualify. If you are a teacher and new borrower, there is a Teacher Loan Forgiveness plan as well. Under this plan, you must have taught full time at a low income school for five consecutive years. Under this plan, you are eligible to have up to $17,500 of your student loan balance forgiven.

To be eligible for these forgiveness programs, you are required to make the minimum required monthly payment until you meet the time requirement.

There are also rural opportunity zones within Kansas that allow for student loan forgiveness. To be eligible, you must live in a rural Kansas County and hold at least an associate’s degree. Under this plan, up to $15,000 can be forgiven (20% of loan balance each year up to $3,000, for 5 years). For more info on this, visit www.kansascomerce.com/rural

Step 5: Don’t Stress

Armed with these tips, you are ready to take on the task of repaying student loans. With proper planning, student loan repayment can be easy and stress free. If you have any more questions regarding student loan repayment, or any other topics, please feel free to schedule an appointment with Powercat Financial. Either I, or another counselor would be happy to assist you!

Preston Tucker – Peer Counselor I

Repaying Student Loans

Image result for student loan interest

For those of you with student loans, you may have noticed that your unsubsidized loans have already started to accrue interest while your subsidized loans have not.  This is because subsidized loans are need-based loans that don’t accrue interest during deferment. On the other hand, unsubsidized loans begin accruing interest when they are disbursed.  Even though you don’t have to start paying the interest that has started accruing on your unsubsidized loans until you have your grace period has passed, it helps in the long run if you do.

In this example, a student takes out a $5,000 unsubsidized loan with an interest rate of 3.76% during their freshman year of college.  After four years, the student graduates college and then takes advantage of the six month grace period before paying back any of the interest or principal on the loan.  During that time, the student accrued interest of $846 on the loan, increasing the loan balance to $5,846.  If the student uses the standard repayment plan, which is the loan balance divided up into 120 equal monthly payments over 10 years, then the student will have to pay a total of $7,036 in repaying the loan.

Now, let’s say that the student paid the interest that accrued during deferment of $846 before the grace period ended, keeping the balance of the loan at $5,000.  If the student uses the standard repayment plan, then the student will have to pay $6,018 to repay the loan, bringing the total amount spent on the loan to $6,864.  By paying the interest that accrued during deferment before the end of the grace period, the student will save $172 by the end of the repayment.

That student was able to save $172 by paying the interest that accrued on the unsubsidized loan during deferment because of avoiding capitalization.  Capitalization on student loans is when the loan servicer adds the interest that accrued during deferment to the principle balance of the student loans.  By doing this, when it comes time to repaying the student loan, the student will then have to pay interest on the principal and the interest accrued.  Therefore, the student will be paying interest on interest.

While it may seem like the student in our example didn’t end up saving much in the long run because it was only $172, the student only borrowed $5,000.  Our example student’s loan debt is extremely low compared to the average student.  According to Student Loan Hero, “the average Class of 2016 has $37,172 in student loan debt.”  This means that the average student has over seven times the amount in student loans than the student in our example.  As the amount of loan debt increases, the more important it is to avoid capitalization.

Timothy Stricker
Graduate Assistant
Powercat Financial Counseling

How to Choose the Right Student Loan Repayment Plan for You

Student loans can be complicated, and if you are one of the nearly 40 million Americans with student loans, as reported by NerdWallet.com, it is important to know your options for repayment.  Out of those reported borrowers who are currently repaying their student loans, nearly 30% of them are more than 30 days late on their payments, according to the Federal Reserve Bank of St. Louis.  Student loan default, defined as failure to repay a student loan according to the agreed upon terms, can carry major consequences, such as a negative credit rating and making it difficult to borrow money in the future, set up utilities, receive approval for rent, or get a cellphone plan, along with other credit approval required services.

Federal Loan Repayment Options

There are three basic repayment plans:  the standard plan, the graduated plan, the extended plan.  There are also income-driven plans, allowing you to pay between 10% and 20% of your discretionary income.  A general rule of thumb to remember is that interest on your loans will increase as you decrease your monthly payments.

  • Standard repayment- For many students, this will be the default plan you are automatically placed into if you do not choose another plan prior to repayment.  The loan balance will be divided into 120 equal payments over 10 years.  This repayment option will save you money over time, but your payments may be higher than payments made under other plans.  There is a fixed monthly minimum payment of at least $50 a month.
  • Graduated repayment– Think of this plan as walking up a set of stairs.  The payments will start lower than in in the standard plan, but will increase every 2 years, for 10 years, making the last half of your payments higher than the standard plan. Keep in mind the payment to this plan will increase even if your income does not.
  • Extended repayment– This repayment option is applicable if you have more than $30,000 of federal student loan debt.  The extended option follows the same stair step agenda as the graduated plan, but this pattern will take place over 12-30 years, instead of 10 years.  With this repayment plan you will pay more interest, as well as pay for a longer amount of time.
  • Income-based repayment– For new borrowers, those who borrowed on or after July 1, 2014, 10% of your discretionary income will be calculated to determine your monthly payment. For those who are not new borrowers, on or after July 1, 2014, 15% of your discretionary income will be used to determine your monthly payment. However, it is important to note the calculated monthly payment will never be more than the payment under the 10-year standard repayment plan. An annual application is required for this repayment plan.  If you are on this plan for 20 year (new borrowers) or 25 years, the remaining balance of your loans may be forgiven.  This will be taxed in the year it is forgiven.
  • Pay-as-you-earn repayment– This repayment option is is for borrowers who took out their first loan on or after October 1, 2007.  Monthly payments will be calculated based on 10% of your discretionary income.  Borrowers can get their remaining balance forgiven if they are on the plan for 20 years and will be taxed for the amount forgiven.
  • Income-contingent repayment– This repayment option allows you to pay the lesser of 20% of your of discretionary income, or what you would pay under a repayment plan with a fixed payment over 12 years, adjusted according to your income.  This repayment plan will also require an annual application, and only direct loans will qualify.

Although these repayment options can be confusing, there are several resources designed to help answer your questions.  Powercat Financial Counseling offers free and confidential peer-to-peer consultations on campus.  Visit our website at www.ksu.edu/pfc to schedule an appointment.  SALT, a website designed as a one-stop-shop for students, offer greats tips as well as a loan repayment calculator.  Set up a profile today at SaltMoney.org. You may also visit the federal student aid website at StudentAid.ed.gov to find out how much you owe in student loans, as well how to reach out to your loan servicer.

Emily Koochel
Graduate Research Assistant
Powercat Financial Counseling
www.ksu.edu/pfc

 

 

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