Student loan debt continues to make the news. The novel coronavirus pandemic has resulted in millions of loan holders being furloughed and outright released. People who were just barely keeping their heads above water are trying to stay afloat and those already drowning in debt feel they may never be able to pull themselves out. I often help clients determine the best way to handle student loan debt and provide information on the payment plans that could work best for them.
Temporary Suspension of Payments
Congress passed the Coronavirus Aid, Relief, and Economic Security Act CARES Act in March 2020. This emergency legislation is intended to help student loan borrowers get temporary relief by suspending payments and freezing interest. For now, the U.S. government has halted all interest charges and suspended federal student loan payments. All garnishments and collections on student loans in default also stop. How does this help you handle your student loan debt?
First, it freezes your existing loan payments and interest stops accruing.
Second, it gives you time to make other arrangements with your servicer. Payments, interest collections and garnishments are all suspended through September 30, 2020.
What is a Student Loan Servicer?
A loan servicer is the organization assigned by the Federal Student Aid program to handle the billing and other services related to your federal student loan. You are assigned a servicer when your loan is disbursed.
If you’re not sure which organization handles your federal student loan, you can check the most recent communication or bill regarding the payments. Here are some of the largest organizations in this space:
- American Education Services (AES)
- FedLoan Servicing (PHEAA)
- Granite State (GSMR)
- EdFinancial (HESC)
- OSLA Servicing
- Great Lakes Educational Loan Services, Inc
There are other servicers listed on the Federal Student Aid website if you don’t see yours here. On occasion, loans are transferred from one servicer to another.
Federal Student Loan Repayment Plans
Did you know you have options when it comes to making payments on your federal student loans? If you are like many loan holders, you simply started paying the bill when it arrived, six months after graduation. If you didn’t make other arrangements with your servicer, this is the Standard Repayment Plan for non-consolidated loans. Fixed payments for a maximum of ten years can help you save money because it has the least amount of interest over the life of the loan. Although this plan has the shortest repayment period, the monthly payments are higher than those in other programs.
The repayment period may range from 10 years to 30 years if you consolidate your loans, depending on your total debt. If you’re currently on this repayment plan and it doesn’t work, you have seven other options.
Graduated Repayment Plan
Low payments to start with increases every two years are the primary features of this 10-year student loan repayment plan. However, the monthly requirements are variable. Some months the payment about equal to the amount of monthly interest accrued (never less), and for others the payment will be three times more than any other payment.
If you want to pay your loan off fast and expect your income to grow over the next 10 years, this could suit your needs the best. The downside is that if your income doesn’t increase as expected, your finances could become tight.
Extended Repayment Plan
If paying off your loans fast is not your primary goal, consider the Extended Repayment Plan. You can take up to 25 years to pay off your loans, and payments may be fixed or graduated. Although you’ll pay more interested over the life of the loan, your monthly requirement is smaller. You may choose this plan if you have a high income as well as significant financial obligations.
Income-Driven Repayment Plans
According to the U.S. Department of Education, the four options are intended to be affordable based on your income. The payment is fixed and set to a percentage of your income and considers family size. During times of hardship, such as underemployment or unemployment, the payment may be zero.
This is a good option if your student loan balance or income is on the lower side. At the end of the 20 to 25 year repayment period, if a balance remains, the government will forgive it. If you are seeking Public Service Loan Forgiveness, you must choose one of these plans:
Income-Based Repayment Plan (IBR) – If your income increases to where payments would be equal to or more than the Standard Repayment Plan, you’ll pay the SRP, but never more.
Income-Contingent Repayment Plan (ICR) – Payments are a fixed 20% of your discretionary income, with loan forgiveness at the end of the plan, which may be for up to 25 years. You must recertify your income annually.
Pay as You Earn Repayment Plan (PAYE) – Your payments stay relatively low and may decrease if your income decreases. Annual recertification of your income sets the payment amount.
Revised Pay as You Earn Repayment Plan (REPAYE) – The repayment period is 20 to 25 years, depending on whether the loan is for undergraduate or graduate studies. Payments are 10% of discretionary income, and the government may subsidize some of the interest if your monthly payment doesn’t cover the interest.
Contact a Student Loan Lawyer Today
By making the changes now, you may be able to get monthly payments that you can afford and take steps to pay off your student loans once and for all. A Student Loan Lawyer will answer your questions and help you determine which option can help you the most.
With payments suspended until September 30, now is the time to get organized. If you have a student loan garnishment, you may have more options available to you than you did before, including student loan forgiveness.