Thursday, June 16, 2022

Government Help With Student Loan Debt

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Forgiveness With Pay As You Earn

Does canceling student loan debt actually help those in most need?

Pay As You Earn is similar to Income-Based Repayment, in that it isnt a typical forgiveness program. However, you could be eligible for forgiveness after a certain period of time.

The PAYE plan caps your monthly payment at 10% of your discretionary income. After borrowers make payments for 20 years, any remaining balance becomes eligible for forgiveness.

As with IBR, your forgiven balance might be treated as taxable income.

Federal Loan Repayment Plans

There are a number of different federal loan repayment plans available to Direct and FFEL loan borrowers. Your loan repayment options depend on your loan type, balance, status, and time in repayment. To learn more about your loans, visit the National Student Loan Data System .

Tips:

  • There are no prepayment penalties for federal student loans.
  • You can generally change your federal student loan repayment plan at any time. However, note that not all plans are available to all borrowers.

If you do not choose a repayment plan, your loan is automatically placed into the Standard Plan, which provides a ten-year repayment term and requires payments of at least $50 per month. However, a number of other repayment plans are available if you cannot afford the monthly payment under the Standard Plan. These alternative plans offer their own benefits and drawbacks as compared with the Standard Plan. However, they can be a good choice for someone who cannot afford the monthly payments required under the Standard Plan.

Applying For Federal Aid

To apply for federal student aid, including grants and loans, you must complete the Free Application for Federal Student Aid . This form allows your school to determine your federal aid eligibility. You can access the FAFSA Online.

You should resubmit the FAFSA each school year, as your aid package can change depending on your financial need.

A Student Aid Report is generated based on your FAFSA. The SAR includes your expected family contribution, or EFC. The EFC is a measure of your familys financial circumstance that indicates the amount that your family can reasonably be expected to contribute to your education during that academic year.

Get in-depth information on federal student aid programs, applying for financial aid, and repaying student loans at StudentAid.gov.

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Changes To The Public Service Loan Forgiveness Program

On October 6, 2021, the Department of Education announced temporary changes to the Public Service Loan Forgiveness Program. The benefits from those changes are available until October 31, 2022 and include:

  • A limited waiver that allows PSLF credit for all payments on federal loans made by student borrowers to count toward PSLF, regardless of the kind of federal loan, or payment plan you were on.
  • For borrowers with at least one FFEL, Perkins, or non-Direct loan, you will need to consolidate your loans prior to October 31, 2022 for those previous payments to be counted.
  • To find out more about loan consolidation please visit StudentAid.gov/Manage-Loans/Consolidation.
  • Automatic credit toward PSLF for military service members and federal employees using federal data matches.
  • A full review of previously denied PSLF applications for errors.
  • It is important to note that these benefits apply only to federal loans taken out by students , and you will still need to have worked or are working full time at a qualifying employer to be eligible for PSLF.

    You may need to take action, such as consolidating your loans or applying for PSLF forgiveness or certified employment, prior to October 31, 2022. For more information, please visit StudentAid.gov/PSLFWaiver and .

    Circumstances For Student Loan Discharge

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    • Permanent disability or death
    • Unauthorized signature of the loan by the school without your knowledge
    • False certification of student eligibility
    • Unpaid refund, which is when you withdrew from school and it didnt return the required loan funds to your loan servicer
    • School closure while you were enrolled

    Discharging student loans through bankruptcy is extremely rare. It is technically not impossible, but demonstrating undue hardship is very difficult. Read more about the differences between forgiveness and discharge.

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    Student Loans Cancelled: The Facts

    No, the federal government doesnt make more money if your student loans get cancelled. The latest student loan debt statistics show that 45 million student loan borrowers collectively owe more than $1.7 trillion. Of this total, student loan borrowers collectively owe more than $1.5 trillion to the federal government.

    You Can Apply For A Direct Consolidation Loan By One Of The Following Methods:

    You must make three complete, on-time, consecutive monthly payments to get the loan back on track.

    • Accept the terms of a repayment plan based on your income.

    If you have loans with a collection agency, you may begin the consolidation process by contacting them, or you can go to studentaid.gov to get started.

    • You will still have a default line on your credit report if you consolidate your debts.

    You may be able to consolidate again if you have already done so. FFEL Consolidation Loan holders are permitted to reduce again. The Direct Loan Program will be used to disburse the new loan.

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    Loan Forgiveness For Doctors

    The healthcare professions, especially physicians, dentists, pharmacists and mental healthcare workers, have several options, both national and local, to receive loan forgiveness.

    The requirements and the amount forgiven vary dramatically, depending upon which program you enter. Check out the links to see the amount of loan forgiveness available and requirements for Army doctors Indian Health Services, National Institute of Health, as well as state-by-state programs.

    How To Explore Federal Loan Repayment Options On Your Own

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    Step 1:Create your FSA ID and log in to studentaid.gov to review information about your loans.

    Step 2: Learn aboutincome-driven repayment plans. Under income-driven repayment plans, payments are based on income and family size and can be as low as $0 per month. Income-driven repayment plans also offer potential interest subsidies and the possibility of loan forgiveness after 20 or 25 years of qualifying payments.

    Step 3: If you work for the government or a qualifying nonprofit organization, learn about Public Service Loan Forgiveness and Temporary Expanded Public Service Loan Forgiveness . These programs have many detailed requirements but enable public servants to receive forgiveness of their remaining loan balance after 10 years of qualifying payments in a qualifying repayment plan.

    Step 4: Use the U.S. Department of Educations Loan Repayment Plan Simulator to estimate your monthly payments, the projected total costs, and potential forgiveness amounts under income-driven repayment plans and/or the PSLF program.

    Step 5: Apply for an income-driven repayment plan through studentaid.gov or mail the application to your federal loan servicer with your income documentation.

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    Include Payments In Your Budget

    Build your student debt payments into your budget and make payments that are larger than the minimum payments. You can also speak with your financial institution about setting up automatic payments.

    When planning your budget and automatic payments, make sure you know when your payments are due. Remember that if you have more than one loan or line of credit, you may have more than one payment due date.

    Will Biden Cancel More Student Loans

    Yes, the expectation is that Biden will continue to cancel more student loan debt. Expect Biden to enact more student loan forgiveness under existing law such as for student loan borrowers with total and permanent disabilities and student loan borrowers under the borrower defense to repayment rule. Biden also may help improve student loan repayment and student loan forgiveness through income-driven repayment and the Public Service Loan Forgiveness program, for example, so that more student loan borrowers have access to student loan cancellation. .

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    How Student Debt Affects Your Credit Score

    Student loans and lines of credit form part of your credit history. If you miss or are late with your payments, it can affect your credit score.

    Your credit score shows future lenders how risky it can be for them to lend you money. A poor credit score can also affect your ability to get a job, rent an apartment or get credit.

    Federal Scholarships And Grants

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    The federal government offers many different education grants which do not have to be repaid. Most of these grants require a showing of financial need.

    Federal grants include Federal Pell Grants and Teacher Education Assistance for College and Higher Education Grants. You need to submit a Free Application for Federal Student Aid to be considered for federal grants.

    Learn more about Federal Scholarships and Grants on Federal Student Aid, an office of the U.S. Department of Education.

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    Managing Your Student Loans

    If youre struggling to repay your student loans and work for a government agency, student loan forgiveness for federal employees might sound too good to be true. However, this repayment program is real, so ask your employer today if youre eligible to receive the funds for your loans. Speaking up could save you money.

    Want more ideas for student loan forgiveness? Check out this complete list to find even more options.

    Anne Bouleanu contributed to this report.

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    Choose The Aid That Is Right For You

    Once your school evaluates your Free Application for Federal Student Aid , the financial aid office will compile a financial aid package, and send you a letter outlining your aid award. Your award may include grants, work-study employment up to a certain dollar amount, and both federal and private loan options be sure to recognize the differences between the types of funding that you are offered.

    Once you decide the amount and type of funding that best fits your needs, you will sign a promissory note that commits you to repaying the loans that you choose. Borrow only what you need. You are not required to accept the full proposed financial aid package.

    Consider taking any work-study employment offered, provided you can balance your studies with part-time employment.

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    Q Which Student Loan Borrowers Are Most Likely To Default

    A. Accordingto researchby Judy Scott-Clayton of Columbia University, Black graduates with abachelors degree default at five times the rate of white bachelors graduates21%compared with 4%. Among all college students who started college in 200304 , 38% of Black students defaulted within 12 years, comparedto 12% of white students.

    Part ofthe disparity is because Black students are more likely to attend for-profitcolleges, where almost half of students default within 12 years of collegeentry. And Black students borrow more and have lower levels of family income,wealth, and parental education. Even after accounting for types of schoolsattended, family background characteristics, and post-college income, however, thereremains an 11-percentage-point Blackwhite disparity in default rates.

    Resolve Student Loan Disputes

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    If you and your loan servicer disagree about the balance or status of your loan, follow these steps to resolve your disputes:

    1. Talk with your loan servicer

    You may be able to solve a dispute by simply contacting your loan servicer and discussing the issue. Get tips on working through an issue with your loan servicer to resolve the dispute.

    2. Request help from the FSA Ombudsman Group

    If you have followed the guide and still cannot resolve your issue, as a last resort, contact the Federal Student Aid Ombudsman Group. The FSA Ombudsman works with student loan borrowers to informally resolve loan disputes and problems. Use FSA’s checklist to gather information youll need to discuss the dispute with them.

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    Select A Repayment Plan For Your Federal Student Loans

    Within the grace period you may receive information about repayment from your lender. Youll have a choice of several repayment plans. Find the right one for you.

    Most federal student loans are eligible for at least one income-driven or income-based repayment plan . These repayment plans are based on a percentage of your discretionary income. Theyre designed to make your student loan debt more manageable by reducing your monthly payment amount.

    Relief For Those Who Have ‘had Our Back’

    The Education Department says it’s shaking up the government’s Public Service Loan Forgiveness program, which was launched in 2007 on a promise that student loan debts of various public service employees would be canceled after 10 years on the job, and after 10 years of qualifying payments.

    That promise has largely been unkept. Government data released earlier this year showed more than 98% who requested forgiveness through the program were turned down, primarily because of bureaucratic hassles.

    “Teachers, nurses, first responders, servicemembers, and so many public service workers have had our back especially amid the challenges of the pandemic,” Education Secretary Miguel Cardona says in a statement. “Today, the Biden Administration is showing that we have their backs, too.”

    Thanks to changes announced by Cardona’s department this week, 22,000 borrowers are now eligible for $1.74 billion in immediate student cancellation. Another 27,000 will see $2.82 billion in loans erased if the workers’ length of employment in government service checks out.

    Plus, the rules on what constitutes “qualifying payments” under the program are being eased, so 550,000 public service employees will move an average two years closer toward having their loan balances forgiven, officials say.

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    Q Is College Worth The Money Even If One Has To Borrow For It Or Is Borrowing For College A Mistake

    A. It depends. On average, an associate degree or a bachelors degree pays off handsomely in the job market borrowing to earn a degree can make economic sense. Over the course of a career, the typical worker with a bachelors degree earns nearly $1 million more than an otherwise similar worker with just a high school diploma if both work fulltime, year-round from age 25. A similar worker with an associate degree earns $360,000 more than a high school grad. And individuals with college degrees experience lower unemployment rates and increased odds of moving up the economic ladder. The payoff is not so great for students who borrow and dont get a degree or those who pay a lot for a certificate or degree that employers dont value, a problem that has been particularly acute among for-profit schools. Indeed, the variation in outcomes across colleges and across individual academic programs within a college can be enormousso students should choose carefully.

    Student Loan Forgiveness: The Cost Of Ignoring Student Loan Cancellation

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    Supporters of wide-scale student loan forgiveness that theres also a cost to not cancelling student loans. . Student loan borrowers would face life-changing debt levels, further delay getting married or starting a family, and forgo saving for retirement. They say the economy would be adversely impacted, which can affect student loan borrowers and non-student loan borrowers alike. They believe that failure to cancel student loans could increase inequality and further the divide between haves and have-nots. Supporters of student loan forgiveness dont view mass student loan cancellation as a necessary option. Rather, student loan cancellation for them is a requirement. . Without this essential student loan relief, they believe the higher education system will remain broken and student loan borrowers will continue to swim in debt they cant afford to repay.

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    Compare Education Funding Sources

    It can be difficult to determine how to best finance your education. While everyone’s specific circumstances are different, there are some general rules of thumb to consider in choosing a suitable aid package.

  • FREE FIRST. Try to exhaust your sources of “free” money that you do not need to repay — i.e. grants and scholarships, as well as work-study employment — before taking out any loans.
  • THEN FEDERAL. If you have to borrow to finance your education, consider the loan package that makes sense for you and for your family. As a general rule, most borrowers benefit from exhausting funding from federal loans before turning to private funding.
  • SUBSIDIZED IF YOU CAN: Take out the maximum amount of subsidized federal aid that you qualify for before turning to unsubsidized federal loans. The government pays the interest that accrues on subsidized loans while you are in school, and during any grace or deferment period.
  • PRIVATE LAST, IF YOU MUST. You should generally turn to private student loans as a last result.
  • Compared to private loans, federal loans offer:

    How Do You Apply For Public Service Loan Forgiveness

    Fill out and submit the Employment Certification Form each year, or as you change jobs.

    FedLoan Servicing will review your information and let you know if you qualify. They might ask for more information, like pay stubs, W-2s or other documentation.

    FedLoan Servicing will let you know how many qualified payments you have made, and how many payments you will need to make until you qualify for forgiveness.

    Currently, there is no limit on the amount forgiven under PSLF. The full amount of your federal student loans is eligible for forgiveness.

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    Calculating Total Loan Cost

    When you are deciding which loans to accept, be sure to make comparisons based on the loans total cost. The total cost of a loan includes three different amounts: the PRINCIPAL, the INTEREST, and the FEES.

    • The principal is the original amount that you borrow.
    • The interest is the cost of borrowing money from the lender.
    • The interest amount accrues over time. Interest rates on student loans can be fixed or variable.
    • A fixed interest rate does not change over the life of the loan.
    • A variable interest rate can change over the life of the loan.
  • Lenders may charge you various fees when you borrow a loan. Common fees include:
  • An origination fee, which is charged to cover the cost of providing the loan.
  • A deferment fee, which is a charge for postponing the payments due on your loan for a specified period.
  • To help you understand the total cost of your student loan, private student loan lenders must clearly disclose the loans annual percentage rate, finance charge, amount financed, and total of payments before you sign the loan agreement. These disclosures may look something like this:

    Annual Percentage Rate

    The cost of your credit as a yearly rate.

    The dollar amount the credit will cost you.

    The amount of credit provided to you.

    The amount you will have paid when you have made all scheduled payments.

    Note: Your private student loan lender must provide you with loan-cost disclosures at three different points in the application process:

  • With any application or solicitation
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