8 Common Student Loan Mistakes

Mistake #1: Letting your contact information become out-of-date

Moving away from campus?

Changing your cell phone number or e-mail address?

Make sure you let your loan servicer know. Their services are provided free of charge, but they can only help you if they can reach you.


Mistake #2: Paying for student loan help

You may have seen an ad on Facebook, or gotten phone calls or letters from companies offering to help you lower your payment or apply for loan forgiveness for a fee. If someone asks you to pay for these services, you are not dealing with the U.S. Department of Education or our loan servicers.

We don’t charge application or maintenance fees.  If you’re asked to pay, walk away (or hang up).

Contact your loan servicer for free student loan help.


Mistake #3: Choosing the wrong repayment plan (or not choosing a repayment plan)

Your repayment plan determines your monthly student loan payment and how long it will take you to pay your loans back.

We offer several repayment plans, but your choice really comes down to what your goal is: to pay off your loan quickly or to have a low monthly payment. The 10-year standard plan will allow you to pay off your loan quickly and save you money in interest. An income-driven plan will allow you to have low monthly payments, but you will be in repayment for longer and pay more interest. If you take no action, you’ll automatically be placed on the 10-year plan.

Student Loan Table Pay Quicker vs Pay Less

The best way to compare your options is to use our repayment calculator.

TIP: Seeking Public Service Loan Forgiveness?  You need to choose an income-driven repayment plan to benefit from the program.


Mistake #4: Not consolidating your loans when you should

Took out federal student loans before 2011?

Then you probably need to consolidate your loans for better repayment options, like Public Service Loan Forgiveness or the best income-driven repayment plans. Make sure you know the pros and cons of consolidation and contact us for help deciding.


Mistake #5: Not setting up automatic payments

Never miss a payment!

Sign up for automatic debit through your loan servicer, and monthly payments will automatically be made from your bank account.

And, you’ll get a 0.25% interest rate deduction when you enroll!


Mistake #6: Not paying extra (when you can)

Interest on your student loan accrues every day.

An easy way to save money is to pay extra whenever you can.

You can pay off your loan faster if tell your servicer these two things:

  1. The extra payments should not be put toward any future payments, and to
  2. apply extra payments to the highest interest rate loan.

This will reduce the interest you pay, and over time, reduce the total cost of your loan.


Mistake #7: Paying late or missing payments

Late or missed payments hurt your credit score and will affect your future ability to get loans for things like a car or a home.

If you miss multiple payments and go into default, your wages could be garnished and your tax refund withheld.

If you’re overwhelmed or can’t afford your next payment, contact your loan servicer as soon as possible. They can recommend options to reduce or postpone your paymentand keep your loan in good standing.

The worst thing you can do it to stop paying your loan.


Mistake #8: Postponing payments (without considering other options first)

There are two ways you can temporarily stop (postpone) your payments: through adeferment or forbearance.

They can be helpful solutions if you’re experiencing a temporary hardship, but they aren’t good long-term solutions because they don’t actually help you pay the loan back.

In most cases, interest on your loan continues to accrue (accumulate) even while you’re not making payments.  Eventually, it may capitalize (interest accruing on interest).  When you resume payments (which you‘ll have to do) your loan balance will be higher than before.

Deferment or forbearance may set you back even further, so it makes sense to consider other options.

For example, you may want to consider an income-driven repayment plan instead. Under these plans, if you’re single and make less than $1,486 per month, your monthly “payment” could be set at $0, which is technically what it would be with a deferment or forbearance. The benefit of choosing an income-driven plan over postponing payments is two-fold:

(1) Interest subsidies*, meaning if your payment doesn’t cover the interest that’s accruing on your loans, the government will cover some or all of that interest for you, and

(2) Loan forgiveness is built in to the plans, so even if you aren’t paying your loan back as quickly, there is light at the end of the tunnel.

 

* The government may pay the interest on certain types of loans if you choose a deferment.


If you ever need one-on-one help with your student loans, contact your loan servicer.

Your loan servicer works on behalf of the Department of Education to collect payments and answer questions about your student loans. Your loan servicer should be your go-to resource throughout the repayment process.

Their advice and assistance is always FREE! You never have to pay for help with your student loans.

Nicole Callahan is a Digital Engagement Strategist at Federal Student Aid.

 

This article originally appeared on blog.ed.gov.

5 Must DOs Before Repaying Your Student Loans

Almost time to start paying back your student loans?  Contrary to popular belief, your student loan payments don’t have to stop you from living your life. You just have to weigh your options and find a strategy that works within your budget. Here are some steps to get you started.

1. Compare monthly payment amounts

The amount you pay each month toward your student loans will depend on the repayment plan you choose. If you take no action, you will be automatically enrolled in the 10-year Standard Repayment Plan. If you don’t think you can afford that amount or you want a lower monthly payment, consider switching to an income-driven repayment plan, where your monthly payment could be as low as $0 per month. Just know that when you make payments based on your income your monthly payment amount may be lower, but you will likely pay more in total over a longer period of time.

Use our repayment calculator to compare the different repayment options.

repayment estimator output

Calculate

TIP: If you’re interested in the Public Service Loan Forgiveness Program, you should apply for an income-driven repayment plan and submit an Employment Certification Form.

2. Decide whether to consolidate

If you borrowed federal student loans before 2011, you may need to consolidate any FFEL loans into the Direct Loan program before you can qualify for the better income-driven repayment plans or Public Service Loan Forgiveness. You may also want to consolidate if you have multiple loans and/or servicers and want a single monthly payment. The application takes about 10 minutes.

Consolidate my Loans

3. Choose an affordable repayment plan

If you decide to consolidate, you will choose a repayment plan from within the consolidation application. If you’d like to choose an income-driven plan, choose the Pay As You Earn Plan. It’s the best plan available, and if you don’t qualify for it, your servicer will put you on the next best income-driven repayment plan.

If you aren’t going to consolidate and you’d like to enroll in one of the income-driven repayment plans, learn how to choose the right income-driven repayment plan and apply here. The application takes about 10 minutes.

Choose recommended option in IDR app

Apply for an income-driven repayment plan

If you’re interested in a plan other than the standard or one of the income-driven plans, contact your servicer to ask how to enroll.

 4. Set up your payments

You will never pay the U.S. Department of Education directly. In most cases, federal student loan borrowers will make payments to one of our loan servicers. Loan servicers work on behalf of the U.S. Department of Education to collect your payments and provide customer service. If you don’t know who your loan servicer is, find out here.

Your loan servicer will contact to let you know when your first payment is due and how to make a payment, so it’s very important that you provide your servicer with updated contact information.

TIP: To simplify the repayment process, consider enrolling in auto debit and your payments will be automatically taken from your bank account each month. As an added bonus, you get a 0.25% interest rate deduction when you enroll. Ask your servicer how to enroll.

5. Know who to contact if you need help with your student loans

Beware of student loan scams.  You never have to pay for help with your student loans. As you’re researching repayment and forgiveness options, make sure you’re getting information from trusted sources, like .gov websites or your servicer’s website. The government and your servicer will never charge application or maintenance fees, so if you’re asked to pay, walk away.

If you have questions or need help, contact your servicer.

TIP: Save your servicer’s contact information in your phone so you can access it when you need to.

 

Nicole Callahan is a Digital Engagement Strategist at the U.S. Department of Education’s office of Federal Student Aid.

This article was originally found on blog.ed.gov.

8 Student Loan Tips for the Class of 2016

Nothing says, “Welcome to adulthood” quite like getting your first student loan bill in the mail. If student loans are your reality, here are some tips that may help you (from someone who is going through this too).

1. Don’t ignore your student loans!

I think everyone can agree that student loans are no fun to pay back, but ignoring them can have serious consequences (and it won’t make them go away.) If you’re worried about your student loans or don’t think you can afford your payments, contact us for help. No matter what your financial situation is, we can help you find an affordable repayment option. For many, that could mean payments as low as $0 per month.

2. Set a budget.

Life after graduation gets real, real fast. To make a plan to tackle your student loans, you need to understand what money you have coming in, and what expenses you have going out. If you haven’t already, it’s important that you create a budget. This will help determine your repayment strategy. Here are some budgeting tips to help you get started.

3. Choose an affordable payment amount.

There is no one-size-fits-all approach to paying back student loans. The key question you need to answer is: Do you want to get rid of your loans quickly or do you want to pay the lowest amount possible per month?

With our Standard Repayment Plan, the plan you’ll enter if you don’t take any action, you’ll have your loans paid off in 10 years. If you can’t afford that amount or if you need or want lower payments because you haven’t found a job, aren’t making much money, or want to free up room in your budget for other expenses and goals, you should apply for an income-driven repayment plan. Your monthly payments will likely be lower than they would on the standard plan—in fact they could be as low as $0 per month—but you’ll likely be paying more and for a longer period of time. If you choose an income-driven plan, you must provide documentation of your income to your loan servicer each year (even if your income hasn’t changed) so that your payment can be recalculated. To compare the different repayment options based on your loan debt, family size, and income, use our repayment calculator.


repayment estimator output

 

4. Research forgiveness options.

There are legitimate ways to have your loans forgiven, but there are often very specific requirements you must meet in order to qualify. Research forgiveness programs ASAP, as it may affect your repayment strategy. For example, if you’re interested in Public Service Loan Forgiveness, you’ll want to make sure you have the right type of loans from the get-go (which may mean you have to consolidate), and you’ll want to make sure to get on an income-driven repayment plan.

5. Sign up for automatic payments.

If you don’t like thinking about your student loans, this is a great solution! Ok, ok, so you’ll still have to think about your loans and make sure you have the money in your account to cover your monthly payments, but you won’t have to worry about missing payments, writing checks, or logging into websites every month to pay your loans manually. Sign up for automatic debit through your loan servicer and your payments will be automatically taken from your bank account each month. As an added bonus, you get a 0.25% interest rate deduction when you enroll!

6. Make extra payments whenever you can (and specify how you want those payments applied).

Pay early. Pay often. Pay extra. If you want to ensure that your loan is paid off faster, tell your servicer two things. First, tell them that the extra you pay is not intended to be put toward future payments. Second, tell them to apply the additional payments to your loan with the highest interest rate. By doing this, you can reduce the amount of interest you pay and reduce the total cost of your loan over time.

7. Don’t postpone payments unless you really need to.

One of the flexible repayment options we offer is the ability to temporarily stop (postpone) your student loan payments. This is called a deferment or forbearance. While they can be helpful solutions if you’re experiencing a temporary hardship, these are not good long-term solutions. Why? Because in most cases, interest will continue to accrue (accumulate) on your loan while you’re not making payments and may be capitalized (cause interest to accrue on interest). When you resume repayment (which you will have to do eventually) your loan balance will probably be even higher than it was before. If you’re having financial trouble, why set yourself back even further by doing this? There are often better solutions available. Before choosing deferment or forbearance, ask about enrolling in an income-driven repayment plan. Under those plans, if you make little or nothing, you pay little or nothing. Additionally, with the income-driven repayment plans, you’re working toward loan forgiveness while making a lower payment. Before postponing your payments, consider your other options.

8. Take advantage of the FREE federal student loan assistance the government provides.  

Each federal student loan borrower is assigned to a loan servicer (some borrowers may have more than one servicer, depending on the types of loans you have). Your loan servicer is a company that collects your student loan payments and provides customer service on behalf of the U.S. Department of Education. This is a FREE service. There are many companies out there who offer to help you with your student loans for a fee. Do not trust these companies. Remember: You never have to pay for help with your student loans. If you need advice, assistance, or help applying for one of our repayment programs, contact your loan servicer. They can help you for free. Just remember to keep your contact information up to date so they can reach you when they need to.

Student loans can seem overwhelming at first, but by taking this advice and setting up a repayment strategy that works for you, you’ll master your student loans in no time!

 

Nicole Callahan is a Digital Engagement Strategist at the U.S. Department of Education’s office of Federal Student Aid.

8 Student Loan Tips for the Class of 2016” was originally published on blog.ed.gov.

11 Common FAFSA Mistakes

The 2016–17 FAFSA® is now available! The online FAFSA has gotten a lot easier over the last few years. Thanks to improvements like skip logic, where you only see questions that are applicable to you; and the IRS Data Retrieval Tool, which allows you to import your tax information from the IRS directly into the FAFSA application, the FAFSA takes less than 30 minutes to complete. Just make sure to take your time so you don’t make one of these mistakes:

 

1. Not Completing the FAFSA®

I hear all kinds of reasons: “The FAFSA is too hard,” “It takes too long to complete,” I never qualify anyway, so why does it matter?” It does matter. By not completing the FAFSA, you are missing the opportunity to qualify for what could be thousands of dollars to help you pay for college. The FAFSA takes little time to complete, and there is help provided throughout the application. Oh, and contrary to popular belief, there is no income cut-offwhen it comes to federal student aid.

2. Not Using the Correct Website

The official FAFSA website is fafsa.gov. That’s .gov! You never have to pay to complete the FAFSA. If you’re asked for credit card information, you’re not on the official government site.

3. Not Getting an FSA ID Ahead of Time

We’ve made a big change to the FAFSA process this year in order to increase security. Students and parents can no longer use a Federal Student Aid PIN to log in and sign the FAFSA online. You must, instead, use the new FSA IDa username and password. Once you register for an FSA ID, you may need to wait up to three days before you can use it to sign your FAFSA. If you don’t want your FAFSA to be delayed, register for an FSA ID now. If you’re a dependent student, your parent will need to create an FSA ID too.

The key to making the FAFSA simple is being prepared. The process will go much smoother if you register for an FSA ID and gather everything you need to complete the FAFSA before you start the application.

4. Waiting to Fill Out The FAFSA Until After You File Taxes

Because some financial aid is awarded on a first-come, first-served basis, it’s important to fill out the FAFSA early. However, the 2016–17 FAFSA is available beginning January 1, 2016, well before most people have their 2015 taxes filed. This, however, shouldn’t stop you from getting the FAFSA submitted. If your income from 2014 is similar to your income from 2015, you can use your 2014 taxes to estimate the financial information on the FAFSA and get it submitted now. You can then update the FAFSA after you file 2015 taxes, preferably using the IRS Data Retrieval Tool.

5. Not Filing by the Deadline

States, schools, and the federal government each have their own FAFSA deadlines. To maximize the amount of your financial aid, you should fill out your FAFSA (and any other financial aid applications that may be required by your state or school), by the earliest ofthese three deadlines, if not sooner!

6. Not Reading Definitions Carefully

When it comes to completing the FAFSA, you want to read each definition and question carefully. Too many students see delays in their financial aid for simple mistakes that could have been easily avoided.

Don’t rush through these questions:

  • Your Number of Family Members (Household size): The FAFSA has a specific definition of how your or your parents’ household size should be determined. Read the instructions carefully. Many students incorrectly report this number.
  • Legal Guardianship: One question on the FAFSA asks: “As determined by a court in your state of legal residence, are you or were you in legal guardianship?” Many students incorrectly answer “yes” here. For this question, the definition of legal guardianship does not include your parents, even if they were appointed by a court to be your guardian. You are also not considered a legal guardian of yourself.

7. Inputting Incorrect Information

Here are some examples of common errors we see on the FAFSA:

  • Confusing Parent and Student Information: I know there are many parents out there who fill out the FAFSA for their child, but remember, the FAFSA is the student’s application. When the FAFSA says “you” or “your”, it’s referring to the student, so make sure to enter the student’s information. If we are asking for parent information, we will specify that in the question.
  • Entering the Wrong Name (Yes, I’m serious): You wouldn’t believe how many people have issues with their FAFSA because they entered an incorrect name on the application. It doesn’t matter if you’re Madonna, or Drake, or whatever Snoop Lion is calling himself these days. You must enter your full name as it appears on official government documents. No nicknames.
  • Entering the Wrong Social Security Number (SSN): When we process FAFSAs, we cross check your social security number with the Social Security Administration. To avoid delays in processing your application, triple check that you have entered the correct SSN. If you meet our basic eligibility criteria, but you or your parents don’t have a SSN, follow these instructions.
  • Amount of Your Income Tax: Income tax is not the same as income. It is the amount of tax that you (and if married, your spouse) paid on your income earned from work. Your income tax amount should not be the same as your adjusted gross income (AGI). Where you find the amount of your income tax depends on which IRS form you filed.

Tip: If you use the IRS Data Retrieval Tool, this number will be pulled for you, directly from your income tax return.

8. Not Reporting Parent Information

Even if you fully support yourself, pay your own bills, and file your own taxes, you may still be considered a dependent student for federal student aid purposes, and therefore, you’ll need to provide parent information on your FAFSA. Dependency guidelines for the FAFSA are determined by Congress and are different from those of the IRS. Find out whether or not you need to provide parent information by answering these questions.

Bonus: Who is my parent when I fill out the FAFSA?

Who's My Parent When I Fill Out My FAFSA? Graphic

9. Listing only one college

Two-thirds of freshmen FAFSA applicants list only one college on their applications. Do not make this mistake! Colleges can’t see the other schools you’ve added, so you should add ANY college you are considering to your FAFSA, even if you aren’t sure whether you’ll apply or be accepted. It doesn’t hurt your application to add more schools. If you’re applying to more than 10 schools, follow these steps.

10. Not Using the IRS Data Retrieval Tool

For many, the most difficult part about filling out the FAFSA is entering in the financial information. But now, thanks to a partnership with the IRS, students and parents who are eligible can automatically transfer the necessary tax info into the FAFSA using the IRS Data Retrieval Tool. This year, the tool will launch on February 7, 2016. In most cases, your information will be available from the IRS two weeks after you file. It’s also one of the best ways to prevent errors on your FAFSA and avoid any processing delays.

Tip: If you used income estimates to file your FAFSA early, you can use the IRS Data Retrieval Tool to update your FAFSA shortly after after you file your 2015 taxes.

 

11. Not Signing the FAFSA

So many students answer every single question that is asked, but fail to actually sign the FAFSA with their FSA ID and submit it. This happens for many reasons, maybe they forgot their FSA ID, or their parent isn’t with them to sign with the parent FSA ID, so the FAFSA is left incomplete. Don’t let this happen to you. If you don’t have or don’t know your FSA ID,register for one. If you would like confirmation that your FAFSA has been submitted, you can check your status immediately after you submit your FAFSA online.

 

“This article, 11 Common FAFSA Mistakes, was originally published on blog.ed.gov.”