Midday Fix: What to do about student loan debt and details on all Money Smart Week events

Karen Chan of Karen Chan Financial Education & Consulting, LLC

https://karenchanfinancialed.com/

Events:

-Money Smart Week 2019 Offers Hundreds of Free Events in the Chicagoland area - March 30-April 6.

https://www.moneysmartweek.org/events

-MSW event titled “I Graduated with Student Loans, Now What?”  Attendees will learn to determine the types of loans and the rules that apply to each. They will learn to compare balance-based and income-driven repayment plans and learn to choose the best one for his/her situation. Attendees will also learn about loan forgiveness programs, loan consolidation and how to “cure” a loan that’s in default.

At the Harold Washington Library Center in Chicago on April 5 – 400 S. State St., Chicago – 12:00 p.m.

https://www.moneysmartweek.org/6274/i_graduated_with_student_loans_now_what

Tips/Discussion:

Why are student loans such a hot topic right now?

o    The amount of student loan debt is staggering.

  • According to Forbes, it hit $1.5 trillion this year.
  • More than 44 million people have student loan debt
  • Graduates on average owe over $28,000.
  • The amount of the debt impacts decisions people make about purchasing a home, saving for retirement, starting a family.

o    The number of people affected

  • Parents are also affected. They often take out Parent Plus loans, or cosign private loans for their children.
  • There are even retirees who are still making payments on student loans.
  • What are the different types of student loans? 

o    Two main types: Federal and Private

  • Private loans include any loan that isn’t made by the federal government.

o    Starting in 2018, all new Federal loans are Direct Loans, also known as William D. Ford Federal Direct Loans. But under that program, there are several different types of loans

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS loans made to students
  • Direct PLUS loans made to parents
  • Direct Consolidation loans

o    Older loans could be Perkins loans or Federal Family Educational Loans (FFEL)

  • How do I know what type of loans I have? 

o    All of your Federal loans will be listed on the National Student Loan Data System for Students (NSLDS)

o    Then check your credit report. Get your free annual credit report at www.annualcreditreport.com

o    Any student loans on your credit report that weren’t on NSLDS are private loans.

What kinds of repayment plans are available?

o    For Federal loans:

  • Balance-based plans – similar to what you have with other types of loans like car loans.
  • Standard – fixed payments for 10 years
  • Graduated – increasing payments for up to 10 years
  • Extended – For larger loan balances, make payments for up to 25 years; payments can be fixed or graduated.
  • Income driven plans
  • Payments are based on your income, family size, and the federal poverty rate.
  • You must apply and then recertify annually.
  • If your income or family size has changed, your payment can go up or down.
  • Any remaining balance after either 20 or 25 years (depending on the exact repayment plan) is forgiven.
  • Are there ways to have a loan forgiven earlier than 20 or 25 years?

o    The best-known forgiveness program is the Public Service Loan Forgiveness

  • PSLF can forgive the balance of your loan after 10 years of payments.
  • You must work for:
  • Federal, state or local government
  • Public schools
  • Public hospitals
  • Some nonprofits
  • AmeriCorps and Peace Corps
  • Must work at least 30 hours a week
  • Your loan must be a Direct Federal Loan.
  • If you have a different type of federal loan, you can consolidate into a Direct loan, but no payments made prior to consolidation will count.
  • To count, each of the 120 payments must be made
  • For the full amount
  • No later than 15 days after the due date
  • During a time you were required to be making a payment, i.e., not while you were in school, during a grace period, in deferment.
  • To date, only about 1% of the people who have applied for Public Service Loan Forgiveness have succeeded have been approved. Applying early, and again whenever you change employers, can help you avoid problems.
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