COLLECTION: STUDENT DEBT

Get your student loans squared away for the New Year

Student loan debt is the number one concern of millennials, and a new year is another chance to get your finances squared away.

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Going into the new year, many start thinking about resolutions—start eating healthier, lose 10 pounds, and to stop biting their fingernails. But, the best thing you can do for yourself if you have student loans is to evaluate your current student loan situation and determine if there may be another repayment option available that is better for you.

Student loan debt is the number one concern of Millennials. It’s no wonder, as millions see it limiting their option of starting their own businesses, getting married, raising children, and buying homes. But a new year is another chance to get your finances squared away.

Know Your Loan Details

The best way to get on the right track is to develop a plan. To do so, you’ll need to know some of the details first. A good way to get started is to make a list of the following:

  • All of your student loans—Chances are that if you’re a student loan borrower, you’ve taken more than one student loan. Make a list of all of your student loans, noting down the lender for each.
  • Your service provider for each loan—Though this may seem straight-forward, student loan service providers are often a source of confusion for borrowers. For example, if you take out a Federal Student Loan, your loans may be serviced by one of numerous student loan servicers. Additionally, the Department of Education may change your service provider by “transferring” the loan from one provider to another. It’s important to know these details in order to ensure you can plan and repay your loans in time.
  • How much interest you’re paying and what your repayment term is for each loan—If you have more than one student loan, you most likely have more than one student loan interest rate and repayment period. You should make sure you know both what interest you’re paying on each loan and what the terms are for each loan.
  • When your loans are due and if you are current—Along with knowing the above details, it is important to know your student loan payment due dates, as well as if you are current on all of your payments.

Determine Your Best Repayment Option

Knowing the specific details about each of your loans is the critical first step in devising a plan to get your student loan repayments on the right track. Next is knowing about the many repayment options available to student loan borrowers.

  • Non income-based federal repayment plans
    • Standard repayment is 10 years at $50 per month. This payment may be higher than under other federal repayment plans, but the borrower will likely save money in the long-run.
    • Graduated repayment plan is 10 years and starts lower than a standard repayment plan but increases every two years. This is ideal for borrowers who may not be making much now, but expect to make more in the next several years and over time.
    • Extended repayment may be either fixed or graduated and have a repayment term of up to 25 years. If borrowers need lower monthly payments by extending their repayment terms, this may be a good fit. It is important to note, though, that borrowers will likely pay more in interest.
  • Income-based federal repayment plans typically require borrowers to meet certain eligibility requirements. Payments are based on the borrower’s salary, unlike non income-based federal repayment plans.
    • In order to be eligible for Income-Based Repayment Plan1 (IBR) you must show financial hardship. This plan allows borrowers to pay only 15% of their discretionary income over the course of 25 years, though payments change as income changes.
    • Under Pay As You Earn (PAYE)2 a borrower must also show financial hardship. Maximum monthly payments will only be 10 percent of borrower’s discretionary income, “the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence.” The repayment term is 20 years.
    • Income-Contingent Repayment Plan3 is “calculated each year and are based on your adjusted gross income, family size, and the total amount of your Direct Loans” for up to 25 years.
    • Income-Sensitive Repayment Plan4 has a term of 10 years and calculated based on annual income and changes as income changes.
    • Launching in the next several weeks is Revised Pay As You Earn (REPAYE)5 , which has less criteria that needs to be met than PAYE and extends the repayment term to 25 years for those borrowers who took loans for graduate school.
  • Consolidation and refinancing
    • Both consolidation and student loan refinancing are options for student loan borrowers.
      • Federal consolidation allows borrowers to combine all of their loans into one single loan. During the federal consolidation process, the interest weight is determined by a weighted average of interest on the existing loans, and both terms and loan providers can be changed during this process.
      • Borrowers can also refinance private student loans, but not through the government.
      • Student loan refinancing is similar to consolidation in that the borrower takes out a new loan to pay off the existing loans. But, student loan refinancing allows the borrower to seek better interest rates and repayment terms, potentially reducing both monthly payments and the total repayment amount of student debt. A borrower can refinance both federal and private loans.
      • Borrowers should know that if they privately consolidate or refinance their federal student loans, there are certain benefits that will not transfer.

Now How Do You Make A Plan?

Now that you have all the details about your student loans laid out as well as knowing all of the possible repayment options that you can take advantage of, you can begin to devise a plan.

Do you qualify for any of the federal repayment programs? Take a look at each and do your homework. Make sure to note that if you enroll in a repayment plan that extends the term of your loan, you will likely end up paying more over the lifetime of the loan because of interest. Also, under the federal repayment programs, borrowers typically will need to pay taxes on the student loans forgiven at the end of the repayment term.

Whether or not you qualify for federal repayment plans, look at private options. Many private lenders have similar benefits to those of federal government. And if you have a good credit history, steady job, and the ability to make your student loan payments on time, you may be able to save a significant amount of money over the lifetime of your loan.

Topics:
  • Loans and Debt Management
  • Student Loans
  • Loans and Debt Management
  • Student Loans
  • Loans and Debt Management
  • Student Loans
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This article was written by Stephen Dash from Forbes and was licensed as an article reprint from December 4, 2015. Article copyright 2015 by Forbes.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
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