Grace Period

Federal Borrowers Get to Skip Another Student Loan Payment

Posted on by Anna Helhoski

Millions of student loan borrowers who haven’t had to make a payment since the pandemic shut down the nation last winter just got an additional reprieve.

The payment pause, known as a forbearance, began March 13 as part of the original coronavirus relief package and has now been extended twice by the Trump administration, most recently through Jan. 31.

The pause has provided around 33 million borrowers with an interest-free respite from payments, preventing delinquency and subsequent default among those struggling to meet payments as the economy buckled.

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says kicking the can down the road will only help borrowers. “Borrowers pursuing [Public Service Loan Forgiveness] get an extra free month toward their total,” she says. “For borrowers in default pursuing loan rehabilitation, it’s another free month. For borrowers getting anxious about being able to afford payments when the waiver is lifted, it’s more time to determine their strategy.”

Despite the fact that the economy hasn’t recovered from the ongoing pandemic (the U.S. unemployment rate in November remained nearly twice as high as in February, at 6.7%, according to the most recent data from the Bureau of Labor Statistics), borrowers can expect their bills to arrive again and autopayments to resume after Jan. 31.

“I think that should be petrifying for everybody,” says Seth Frotman, executive director of the Student Borrower Protection Center. “There is tremendous concern about what’s happening in Washington across the board in terms of land mines and fires being left in the [presidential] transition, but for those of us who have watched this closely, the idea of tens of millions of borrowers’ accounts being turned on in a few short weeks is particularly troubling.”

Will the forbearance be extended again?

Borrowers should plan for the worst and hope for the best when it comes to expecting an additional extension once President-elect Joe Biden takes office, Mayotte says.

“To me it’s an indicator that if Congress hasn’t done anything by the time the waiver ends, Biden probably will do something after he is inaugurated. If they didn’t have that feeling there they wouldn’t have extended by just a month,” says Mayotte.

Biden could act as early as Jan. 20, Inauguration Day, but has not specifically said a forbearance extension is among his plans. Broad loan forgiveness is, but student loan policy experts say not to bank on that happening quickly, if at all.

Legislatively, efforts by House Democrats to extend the forbearance through Sept. 30, 2021, have stalled. Another relief bill could include longer extension of the forbearance; no detailed viable plan has yet emerged.

For now, expect payments to restart sometime after Jan. 31.

What can borrowers expect in the new year?

“The situation lends itself to confusion. I’m not sure how to get out of that,” says Scott Buchanan, executive director of Student Loan Servicing Alliance. “We try to be careful about our communication.”

When your payments restart, Buchanan says:

  • Expect your payment date to remain the same as before.
  • If you are already enrolled in autopay, you will receive a notice before a payment is debited.
  • Borrowers making payments for the first time should watch their inboxes and mailboxes for notice of their new billing date.

“What we’ve been working hard to do is to make this as seamless as possible for those people who are used to it,” Buchanan says, noting the loan servicing system is not one that was meant to turn off and on (and, potentially, off and on again).

What’s especially troubling about payments restarting en masse is the belief expressed by the Federal Student Aid office in a recent report that it and its “servicers will face a heavy burden in ‘converting’ millions of borrowers to active repayment at the same time, with a certain proportion becoming delinquent, at least initially.” The Department of Education did not respond with clarification.

Delinquency means you are late on a payment. At 90 days late, servicers notify credit reporting agencies. At 270 days late, the loan is in default and collections efforts begin, leading to consequences such as wage garnishment and seizure of tax refunds.

What to do if you can’t meet loan payments

“This very moment is when they should be looking at what their options are,” says Mayotte. “If they think they’ll need an income-driven plan, now is the time to get the paperwork in.”

If you think you may have difficulty repaying your debt, your best first option is to enroll in an income-driven repayment plan, which could help keep your payments manageable by setting the amount you pay at a portion of your income. It could even be zero if you’re unemployed or underemployed (earning under 150% of the poverty line).

Your next best option is an unemployment deferment if you’re out of work. It allows you to postpone repayment of federal student loans for up to 36 months if you’re receiving unemployment benefits or working part time while looking for full-time work. The catch is that, unlike the current payment pause, interest may accrue and be added (capitalized) on top of your total loan when you resume payments.

What to ask your servicer

You don’t have to wait to enroll in an income-driven repayment plan or an unemployment deferment, but your application won’t officially be processed until January, Buchanan says. What you can do now is talk to your servicer, gather your documents and get the ball rolling.

Buchanan advises borrowers to contact servicers (or use their websites) now and submit everything needed to change repayment plans or pause payments. You should receive confirmation via email or in your servicer portal that your enrollment is moving forward.

But it’s always a best practice to get anything you discuss over the phone in writing. Keep records of who you spoke with and the date.

When you call your servicer, ask about enrolling in an income-driven plan. There are four plans, but one that’s available to all federal direct loan borrowers is Revised Pay As You Earn, or REPAYE. It sets payments at 10% of your discretionary income and extends repayment to 20 or 25 years.

Parent PLUS borrowers should ask about income-contingent repayment, which caps payments at 20% of your discretionary income and extends repayment to 25 years.

Anna Helhoski is a writer at NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article Federal Borrowers Get to Skip Another Student Loan Payment originally appeared on NerdWallet.

Image provided by 123rf.com

Image ID:

What Exactly Is a Student Loan Grace Period?

Posted on by Melanie Lockert

You’ve graduated college and are ready to enter the “real world.” But even though your school years are behind you, you’ll probably be paying for them for years to come. Fortunately, most federal student loans come with a grace period to give you some breathing room between graduation and when payments are due.

But what is a grace period, exactly? And more importantly, how does it work? Read on to learn what a grace period is and how it impacts student loan borrowers like you.

What is a grace period?

Many federal loans grant student loan borrowers a grace period after they graduate. During this time, borrowers don’t need to start repaying their loans right away.

“A grace period is a temporary period after graduation during which no payments are due on a student loan. Typically it lasts around six months,” said student loan lawyer, Adam S. Minsky.

“The idea is that borrowers may need some time to find employment before their loans become due.”

However, while many federal loans offer a six-month grace period, not all of them do.

“Direct Loans have a six-month grace period before payments are due, but PLUS Loans do not have a grace period (though you may be eligible for an in-school deferment while enrolled),” added Jay Fleischman of the Student Loan Show.

When it comes to private loans, the rules vary, but there is usually no grace period at all. Once you graduate, it’s important to talk to your loan servicer and find out when your grace period is over. Not sure who to call? Find your loan servicer using this guide.

What you need to know about your grace period

Getting a break from paying back your student loans right away is a helpful way to ease into adult life and not be bombarded by your student loan balance. While it’s a nice perk of many federal student loans, it’s not a vacation from student loan repayment.

Depending on the type of student loans you have, the interest may keep accruing on your student loans, even while you’re enjoying your last respite from financial reality.

“It’s important to know that interest continues to accrue on all unsubsidized loans, so your balance will be higher when you begin repayment than when you stopped going to school,” said Fleischman.

If you have a large balance and a high interest rate, an additional six months of interest could mean paying several hundred dollars more than you originally planned.

Another important thing to note is that if you consolidate your student loans through a Direct Consolidation Loan, your grace period may be cut short. Consolidation can seem like a great solution for borrowers with multiple student loans, but it can also mean losing some perks.

Fleischman noted, “You lose any remaining grace period if you consolidate your loans. Therefore, if you’re going to consolidate your federal student loans, it’s best to do so once your grace period expires.”

Though many private student loans don’t offer any kind of grace period, some lenders — such as SoFi — will honor your existing grace period if you refinance with them. So if you’re looking to merge your loan balances and get a better interest rate, refinancing could be a good option.

How to rock the grace period

You should take advantage of your grace period by getting a repayment plan in place and preparing financially.

“Borrowers should contact their loan servicers to find out when their grace period ends, and they should understand their repayment before that first bill arrives,” said Minsky.

If you don’t choose a specific repayment plan, your federal loans will automatically be under the Standard Repayment Plan, which gives borrowers 10 years to pay back their student loans.

Your loan servicer should notify you of when your repayment will start, but you don’t want to be surprised when you get your first bill. You also don’t want to miss any payments, which could potentially lead to delinquency or default if you’re not careful.

For that reason, it’s also really important to stay in touch with your loan servicer and make sure your account information is up-to-date, such as your phone number and email.

“It is important to update your contact information with your loan servicer if it changes during your grace period,” explained student loan expert Heather Jarvis.

Also, if you’re lucky enough to have scored a job right out of college, you CAN start paying back your student loans before your grace period is up. While you’re not required to, doing so can help you put a dent in your debt early on.

If your loans are unsubsidized, you’ll be able to minimize how much interest accrues; if your loans don’t accrue interest during the grace period, you can start attacking the principal balance right away.

Regardless of what you choose, you should mentally and financially prepare for student loan payments during your grace period. Be sure you fully understand your repayment plan and prospective monthly payments. Your grace period is the time to get all your ducks in a row and pick a debt payoff strategy so you can climb out of debt as soon as possible.

 

“This article, What Exactly Is a Student Loan Grace Period, was originally published on studentloanhero.com.”

 

8 Student Loan Tips for the Class of 2016

Posted on by Nicole Callahan

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.

Another New Repayment Option for Federal Direct Student Loan Borrowers (REPAYE)

Posted on by Amy Larson & Lincy Meraz

Have you heard the news? The Department of Education introduced a new student loan repayment plan in December 2015. The new REPAYE (REvised Pay As You Earn) Plan is meant to make repayment easier for more student borrowers. But how does the new plan work? How do you know if it’s the right plan for you? We can help answer your burning questions with a rundown of all of your federal loan repayment options, followed by a quick 101 on the new REPAYE plan

 

REPAYMENT OPTIONS OVERVIEW

Standard Repayment Plan

When federal student loans enter repayment, most are placed under the “Standard Repayment Plan”. This plan is designed to allow you to pay off your loan in 10 years with the same fixed payment every month. If that payment stays affordable each month, this no-hassle plan will get rid of that loan quickly, and with the least amount of interest.

 

Income-Driven Repayment Plans

If the Standard payment starts to put a dent in your wallet, no need to stress – you could potentially set up lower payments based on your annual income and family size, under one of the “Income-Driven Repayment Plans”.

There are a lot of acronyms when it comes to Income-Driven Repayment Plans (IBR, IBR for New Borrowers, PAYE, REPAYE, and ICR). So to keep it simple, we can talk about them as a group. All “Income-Driven Repayment Plans” have some great features in common:

  • Built-in forgiveness after 20-25 years
  • Payments that count toward Public Service Loan Forgiveness (PSLF) requirements
  • Minimum payments that adjust annually as your income or family size changes
  • $0 minimum payments for some borrowers

With Income Driven Repayment Plans, you must submit an application every year to calculate your new minimum monthly payment. The Federal Student Aid Repayment Calculator can help estimate your monthly payment under these plans, or you can contact your loan servicer for more information.

 

NEW REPAYE PLAN

Let’s get to nitty gritty: the brand new “REPAYE” plan, or REvised Pay as You Earn. The big deal about REPAYE is that it will make Income Driven Plans available to more people by removing some restrictions, including:

  • Cutoff date restrictions: Some older plans (PAYE and IBR for New Borrowers) had specific dates that limited access for some borrowers. REPAYE is available to all Direct Loan borrowers. So even if you’ve previously been unable to enroll in an Income Driven Plan, you may be eligible for the REPAYE plan!

 

  • Partial Financial Hardship restrictions: Some older plans (PAYE, IBR, and IBR for New Borrowers) only apply to borrowers whose new payment is less than they what would pay under the Standard repayment plan. REPAYE, on the other hand, welcomes borrowers of any income level, even if the REPAYE payment would be higher than their Standard payment.

 

Major Benefit of REPAYE: Help With Interest

The biggest benefit of the REPAYE plan is a larger interest subsidy when a borrower’s monthly payment doesn’t cover the interest accruing on the loan (this is called “reverse or negative amortization”). Ask your loan servicer how much interest accrues on your loan(s) each month. If your minimum payment on an Income-Driven plan is lower than the interest amount, reverse amortization is causing your balance to keep growing – even though you’re making payments each month. REPAYE may be the most helpful option to minimize the effects of negative amortization.

**Remember, with Income Driven Plans, there’s a light at the end of the tunnel even if your balance won’t decrease with payments. Your monthly payments count toward your built-in forgiveness after 20-25 years, or your Public Service Loan Forgiveness Program (PSLF) forgiveness after 10 years.

 

When REPAYE may not be a good option

  • Your loans are Parent PLUS. The only Income-Driven Plan available for Parent Plus loans is ICR, and it will require you to consolidate the Parent Plus loans first.

 

  • Your loans are Grad PLUS. You may use REPAYE with Grad PLUS loans, but the forgiveness term will be 25 years, instead of the 20 year term associated with the PAYE or IBR for New Borrowers plans. But if you’re planning to qualify for Public Service Loan Forgiveness (PSLF) after 10 years, then the REPAYE plan may still be a strong choice for you.

 

  • Your loans are FFEL. FFEL loans are not Direct Loans, and FFEL loans only work with the more expensive IBR plan. You could consolidate your FFEL loans into the Direct Loan program to make your loans eligible for REPAYE and Public Service Loan Forgiveness (PSLF). Not sure if you have FFEL loans? Check with your servicer or the National Student Loan Data System (NSLDS).

 

  • You struggle to submit updates on time. REPAYE has strict annual requirements for updating your information, and missing the deadline will cause complications with both your payment amount and your progress toward forgiveness.

 

  • You file taxes separately from your spouse. REPAYE is the only Income-Driven Plan that will include your spouse’s income and federal loans in the calculation, even if you file taxes separately. Other Income-Driven Plans exclude your spouse’s information if taxes are not filed jointly. But depending on the numbers, REPAYE might still be your best option. Learn more and compare payment estimates with the Federal Student Loan Repayment Calculator.

 

  • Your income and family size don’t qualify you for a reduced payment. REPAYE allows you to join the program even if your calculated payment would be higher than the Standard plan payment. There is no cap on potential payments you may need to make under REPAYE. So you need to decide: do you prefer a fixed payment (Standard repayment plan), or a payment that increases along with your income (REPAYE)?

 

Even if REPAYE doesn’t sound like the right fit for you, it’s smart to be aware of all your options, including the other Income-Driven Plans, or other traditional plans (like Graduated or Extended). And don’t hesitate to call your loan servicer for a personalized review of the options that will help you achieve successful loan repayment. They’re here to help, too.

 

For more information: studentaid.ed.gov

To compare payment estimates: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

To apply for a repayment plan change or consolidation: studentloans.gov

 

 

Student Loan Grace Period Over? 5 Things You Should Do Next

Posted on by Jeffrey Trull

Your student loan grace period is like spring break for your loans. There’s nothing you need to worry about during this time, and barring other concerns, your financial life should be fairly stress-free. But once the period ends, reality sets in.

The end of your grace period means that it’s time for you to begin repaying all of that money you borrowed. Though no one looks forward to paying off loans, planning the repayment of your student loans now can make your life easier later.

With the grace period set to expire this month for 2015 college graduates, it’s time for student loan bills to start rolling in.

Before you curse the end of your grace period, here are a few tips to make the transition easier and less stressful.

1. Check whether you can further postpone payments

Typically the student loan grace period ends six months after the student’s attendance at college dropped below half-time. For grads, this period begins six months after completing their degree.

Yet, some grace periods don’t end after six months. In certain situations, you can put off payments longer.

Generally, if you return to school at least half-time before your grace period ends, then your loan clock is reset. You won’t need to make payments while you’re taking classes, and you’ll get a new six-month grace period once you graduate or drop below half-time attendance.

If you’re on active military duty, then you also get a break. If you’re called to duty to serve more than 30 days, then you’ll get another six-month student loan grace period once you return.

If neither of these situations applies, then you might still have other options. Your best bet may be to request deferment or forbearance on your loans.

Keep in mind, however, that even if you are allowed to put off payments, you might not want to or simply shouldn’t. No option makes student loans disappear, and some even add to the balance you’ll ultimately owe.

2. Set up your repayment system

Paying back student loans can be confusing, especially if you have statements flying in from all over the place. Believe me: I hate trying to keep track of bills as much as you do. Why not make it easier on yourself?

One way to do that is to track all of your student loans from one place. I’m biased, of course, but you can do that for free with a Student Loan Hero account.

It’s easy to set up, and it can spare you the frustration of handling all of your loans individually. Student Loan Hero even explains how you can save money on your loans, which will help you to pay them off more quickly.

Once you’ve organized your loans, figure out the best strategy for repaying them. Should you sign up, the Student Loan Hero dashboard can even guide you through options for actually paying off your loans.

One popular strategy is to make automatic payments. Instead of manually paying each bill each month, it’s easier to set them up on autopilot. Plus, some federal student loan services will reduce your interest rate by 0.25%. Though it’s not much, it’s free money. Why not take it?

3. Think carefully about consolidation

By now, you’ve probably heard about federal loan consolidation. Though it can be a good strategy, you should know a few things before opting to consolidate.

Consolidation takes all of your loans and groups them together. Interest rates are averaged based on the balances of each loan, meaning that you’ll ultimately pay the same interest whether you consolidate or not. The chief advantage of loan consolidation is paying only one bill instead of many.

So, when shouldn’t you consolidate? Specifically, if you 1) have loans with different interest rates and 2) plan to pay more than the minimum payment each billing cycle, then consolidation may cost you. Since you won’t be able to pay off loans with the highest interest rates first, you won’t save any money on interest.

Keep in mind: once you consolidate, it can’t be undone. Choose wisely.

4. Take a look at your interest rates

There are only three ways to save money while repaying student loans:

  1. Reducing interest rates
  2. Increasing payments
  3. Having loans forgiven

The popular option for reducing interest rates is to refinance with a private lender. Current rates are as low as 2.63% APR, but you must qualify. Want to learn more? Check out the questions to ask before refinancing student loans.

Increasing payments without refinancing or consolidating can be a great option for paying off loans faster while saving money. As mentioned above, your best bet is to pay off student loans with the highest interest rates first.

For example, let’s say you have three loans:

Loan 1: $8,000 balance at 11% interest

Loan 2: $6,000 balance at 3.5% interest

Loan 3: $5,000 balance at 6.8% interest

Since every month you’re charged the most interest on Loan 1, you should pay that loan off as soon as possible.

To do this, make the minimum payments on Loans 2 and 3 each month, and put everything else toward Loan 1.

Once Loan 1 is paid off, pay the minimum on Loan 2 and put everything else toward Loan 3.

By following this strategy, you’ll save the most interest possible on each subsequent payment. Just make sure that your servicer knows to apply extra payments to the principal balance and not to future payments.

5. Don’t skip payments

If you have a loan, one of the worst choices you can make is to skip a payment. It’s a bad decision for a variety of reasons including:

  • You can end up defaulting on your loan, which can mean that your loan becomes a case for collection agencies.
  • Charges can be added to your balance. Not small ones, either. Think up to 40%.
  • You can ruin your credit score. Late payments and loans in default will cripple your credit score. Trust me: Future you will not be happy when he or she gets turned down for an auto loan or mortgage.

Remember that there are nearly always options. Though I’ve explained popular ways to begin paying off your loans, don’t forget that forbearance and deferment are alternative options. When in doubt, call your servicer to see what help is available.

What will be (or was) your first step when your student loan grace period ended?

 

“This article, Student Loan Grace Period Over? 5 Things You Should Do Next, was originally published on studentloanhero.com.”