Student Loans Demystified Part 3: Student Loan Repayment Strategies

Repayment of your student loans can be a daunting task. However, repayment is achievable and many students successfully accomplish this task each year. The best-case scenario would mean that a student loan repayment strategy begins while a student is still in school. This blog post will provide 5 steps to establishing a repayment plan.

Step 1: Estimate the dollar amount of student loans you are on track to borrow while in school. To arrive at this estimate complete simple addition of how much you would have borrowed by the time you graduate if you were to continue to borrow at the same rate each semester.

With an estimate of how much you will borrow while in school you can utilize an online student loan calculator to get a rough estimated calculation on what your monthly repayment amount would be after graduation. To get a more accurate estimate we encourage students to meet with one of our financial coaches and build a projected repayment plan.

We encourage students to weigh this monthly payment amount against what there expected salary (in the career field they have chosen) and cost of living (in the city they would like to live in after school) will be upon graduation to determine whether the amount they are borrowing is an affordable amount.

Step 2: Start repayment of your student loans early. Students are able to begin making payments on their student loans prior to graduating to reduce the balance and get ahead. The steps for a student to make an online account with their loan servicer to make payments are outlined in part 1 of this blog series.

When you graduate or go below half-time as a student you are given a sixth month grace period before you are required to make your first payment. If a student has not already started making repayments we advise that students make payments during the grace period. It will allow the student to get ahead and reduce the monthly payment amount during the repayment period.

Step 3: If I am able to begin making payments early or I am to allocate additional dollars above my required monthly payment amount which of my student loans should I put the money towards? We suggest picking your student loan with the highest interest rate to allocate early or extra payments towards as this reduces the amount of interest that you will pay back over the duration of the loan and save you money

Step 4: Entering Repayment Phase. As mentioned previously six months after graduation or dropping below half-time payments will come due. It is most essential that you prepare ahead of time to make sure that your budget is prepared for the new monthly payment required. A common mistake the graduates make is adding too many fixed expenses to their budget in the six month grace period prior to their loans coming due. This then makes repayment difficult even when a graduate has begun a decent paying job. We strongly encourage students as soon as they land a job to create a space in their budget for their student loan payment.

Secondly, you must decide which repayment plan to choose. Access to the different repayment plan options that you have will be found either by logging into your student loan service account or speaking with a student loan servicer representative.

There a four repayment options that are most common. The standard repayment plans, graduated repayment plans, extended repayment plans and income-based repayment plans.

Standard Repayment Plan: Unless you request an alternative payment plan you usually will be enrolled in the standard repayment plan. This plan means that you will be expected to make a monthly payment for ten years. This means 120 equal payments to pay off your students loans. As with all of the payment plans you are able to make additional payments to reduce your loan balances and pay them off early. We advise students to utilize this payment plan if at all possible. This is because this particular plan will cost a student the least amount of compounded interest charges.

Extended Repayment Plans: These particular plans allow you to extend your payments out over 20 to 25 years. This plan means that your monthly payment will be a reduced payment. It will be either 240 or 300 monthly payments. This repayment plan is kinder on the monthly budget but will cost much more money through more interest compounding over the duration of the loan

Graduated Repayment Plans: These particular plans start with monthly payments that are lower at first and then increase over a ten year period. The payments towards the end of the ten years will a much larger sum. In some instances this plan can expand beyond ten years. Once again this plan is friendlier to a monthly budget at the beginning. If you opt to use this plan it will cost more money over time than the standard repayment plan due to more interest accruing at the beginning portion of the repayment plan.

Income-Based Repayment Plan: There are a number of different forms of this plan. All of the plans of this nature determine your monthly payment amount based off a percentage of your income to ensure to that the payment is affordable. This payment plan takes anywhere from 15 to 25 years of monthly payments to complete. As with all of the plans mentioned except the standard repayment plan choosing this plan will mean additional money will be paid in interest. If you are eligible for the public service loan forgiveness program one of these payment plans may be good for you.

Step 5: Begin making payments! You can do it. Don’t lose hope. Remember, the more proactive you are on the front end with planning and attempting to minimize borrowing while in school the more money you will save! Here is one final tip to save you money. If you schedule an automatic electric monthly payment from your checking or savings account, you receive a 0.25% interest rate deduction on Federal Direct Loans.

We are here to help. If you would like assistance building a plan to minimize student loan debt and repay your student loans the WKU Center for Financial Success is ready to help. Click here to schedule a free financial coaching session today!

If you haven’t had a chance to read the previous posts in the Student Loans Demystified series catch up here:

Student Loans Demystified Part 1: Where do I start?

Student Loans Demystified Part 2: Terminology Simplified

Student Loans Demystified Part 2: Terminology Simplified

It can be difficult enough to know where to start as discussed in part 1. However, once you get started you then are faced with student loan terminology that can almost feel like a foreign language. The good news is that it can be understood and this blog post will help you as you work to become literate in student loan terminology.

Terminology is important because it can cost you extra money or save you money. Terminology included in this post will include interest rates, direct subsidized loans, direct unsubsidized loans, direct parent plus loans, forbearance, deferment, default, repayment plan.

There is not an exciting way to describe these terms. However, it is critical to understand these concepts to successfully manage repay your student loans and save as much money as possible.

Interest Rates

A student loan interest rate is the amount the student loan lender charges for the amount of money borrowed. Interest is repaid over the duration of a loan.

Direct Subsidized Loans vs Direct Unsubsidized Loans

There are two kinds of loans typically borrowed by undergraduate students. 1) Direct subsidized loans and 2) Direct unsubsidized loans. These are the most common loans borrowed by students

  
Type of loanSubsidized LoansUnsubsidized Loans
Eligibility for LoanFor a student to be eligible to borrow a subsidized loan they must demonstrate financial need. This is determined by the fafsa application.Unsubsidized loans are available to all students regardless of financial need.  
Interest AccrualThe Federal government will pay the interest of subsidized loans while you are in school at least half-time.The interest from unsubsidized loans begins to accrue immediately upon borrowing.
Borrowing OrderIf you are eligible for subsidized loans we suggest utilizing this loan firstWe suggest utilizing this loan if you are not eligible for a subsidized loan or have used the entire amount of subsidized loans available to you.
For any given year the interest rate for undergraduate direct subsidized loans and unsubsidized loans is the same percentage. Repayment begins six months after graduation or when you drop below half-time in school.

Direct Parent Plus Loans

A parent plus loan is another form of debt used to pay for the cost of attendance at universities. Parent plus loans differ from direct subsidized and unsubsidized loans in a few ways.

  • The borrower of a parent plus loan is not the student. The borrower is the student’s parent or guardian.
  • The interest rate for this form of debt is much higher than regular subsidized and unsubsidized loans. This means Parent Plus Loans cost will much more money over the duration of a loan.
  • Loans payments are due immediately for Parent Plus Loans, however, deferment of payment can be requested until the student graduates.
  • Interest will begin to accrue immediately, even if payments are deferred.

We caution students to be slow to fund their education by utilizing parent plus loans. There two reasons why we suggest this.

  • First, parent plus loans make paying for college more of a family ordeal at a level that needs to be recognized to avoid future strife. Prior to borrowing this form of debt, a conversation needs to occur with the family member borrowing the parent plus loan in their name. This conversation needs to clearly define what expectations the family member has of the student in regard to assistance in repaying the loan. Some family situations may require that the student solely be responsible for repayment and other families may commit to assist with repayment. If the student’s family member commits to assist with repayment we tend to advise that the student ensures that this decision is not going to have a significant negative impact on the family member’s finances.
  • Second, if a student is having to resort to parent plus loans it means they have already borrowed the maximum amount possible from direct subsidized and unsubsidized loans. This amount of borrowing can create a financially dangerous debt burden that the student will have to pay back upon graduating. This can be especially true if the student’s agreement with their family member is that the expectation is that the student will be expected to pay back the parent plus loan instead of the family member.
  • We strongly advise students that are utilizing parent plus loans to fund their education to schedule an appointment with a CFS Financial Coach. The point of the meeting is to help ensure that a student using parent plus loans are positioned to be able to pay them off after graduation or find other less expensive ways to fund their education.

Repayment Terms

Deferment is when your student loan payments are postponed. Typically, direct subsidized loans and unsubsidized loans are deferred until after sixth months of graduation or when a student drops below half-time in school. This term is used most often for a student loan when the student is still in school.

Forbearance is when payments are temporarily suspended typically due to financial hardship leading to the borrower being unable to make payments. This term is more often used when the student loans are in the repayment phase. In most instances, interest will still accrue during a time of forbearance. If you are in a position where you are not able to make a payment on time make sure you call your student loan servicer and communicate the financial hardship you are experiencing.

Repayment Plans is a straight forward term. Your student loan servicer will provide multiple plan options to repay your student loans. This will include a standard repayment plan, extended repayment plans, graduated and income-based repayment plans. Repayment will be discussed in more depth in part 3.

If you have questions and would like to speak to a trained financial coach about your student loans please visit the WKU Center for Financial Success website and request an appointment at this link https://www.wku.edu/cfs/become-a-client.php.

If you missed part 1 of this series: Where do I start? You can catch up here.

Student Loans Demystified Part 1: Where do I start?

Student loans are no joke. They can be confusing and stressful. On top of the stress in the age of information, there is so much misinformation it is hard to know what to believe or where to start? Here is where we suggest starting.

Where to start:

Determine how much you have borrowed in student loans. The National Student Loan Data System (NSLDS) is one stop location to determine the balances of any student loans that you have borrowed from the Federal Government. To access the information found on NSLDS you will need the user id and the password that you would use for your FAFSA application.

Know the name of your loan servicer. A “loan servicer” is the organization that manages your loans for the federal government. This is the organization where you can make payments towards your student loans. You can learn the name of your loan servicer on the national student loan data system website.

Establish an online account with your student loan servicer’s website. As mentioned above you will be able to make payments as often as you would like. You do not have to wait until you graduate to start making payments. We will provide strategies for repayment plans including early repayment of loans in part three of this blog series.

For undergraduate students, the utilization of parent plus loans is not common for all students and private loans are even less common. However, they are utilized by a number of students. Private student loans and parent plus loans will not be found on NSLDS or your Student Loan Servicer account. Private loan amounts will be found by inquiring directly with the lender. Parent Plus loan information can be found by the individual (most likely a parent or guardian) who borrowed the loans for your education.

If you are unsure if you have utilized these loans to fund your education visit the financial aid tab on Topnet and review your “account summary by term” to see if these loans were used to fund your education.

If you have questions and would like to speak to a trained financial coach about your student loans please visit the WKU Center for Financial Success website and request an appointment at this link https://www.wku.edu/cfs/become-a-client.php.

The next segment will focus on simplifying the all too confusing terminology for student loans into easy to understand language. Click here to read it.

The CARES Act and Student Loans

At a time when so much is uncertain, the last thing you want to be stressing about is your student loans. Luckily, WKU’s Center for Financial Success is here to help you. The newest federal law, the CARES Act, passed to aid those affected by the COVID-19 pandemic contains many provisions that may affect you. Below are some answers to questions that you may be having about student loans, but feel free to contact us to talk about your unique situation. 

For a quick crash course in student loans, refer to: https://www.wku.edu/cfs/quickstartstudentloans.pdf.

What loans are included in the CARES Act?

All federal loans (loans owned by the Department of Education) are included. This contains Federal Perkins Loans, Direct Loans, and Federal Family Education Loan (FFEL) Program loans (except those owned by private lenders). Perkins Loans that are owned by your university are also not included. Private loans are NOT included. 

What exactly does the CARES Act mean for me?

If you have student loans that are included in the CARES Act then your payments are temporarily suspended and your interest isn’t accruing from March 13th to September 30th. 

How can I take advantage of paying my student loans since there is no interest accruing?

If you have public student loans, you can take advantage of this time by making a plan to pay down the loans if you are financially able. Once you pay all interest up to March 13th, any additional payments will be applied to the principal. 

Can I get a refund if I made a payment during March?

Yes, you can get a refund for any payments made after March 13th. To request your refund, contact your loan servicer. 

What does this mean if I’m on an income-driven repayment (IRD) plan?

Your suspended payments will count toward the IDR forgiveness. 

What should I do if I have private student loans?

You should still contact your servicer and see if they are offering any sort of payment or interest assistance. Be cautious of any third-party offering assistance as this could be a scam! 

How can I take advantage of the CARES Act if my loans are in default?

If you have defaulted on your loans, it is important to get a plan in place to begin repayment. Now is an excellent time to do that! 

You have two options- consolidation and rehabilitation. To see the differences, click here. There are a few major distinctions between the two plans. Loan rehabilitation can take a few months to get enrolled in, but it removes the record of default from your credit history. Loan consolidation is a much quicker process, but the payment plans for loan consolidation have limitations. There are very specific requirements for both processes. To find out which way to get out of default is best for your situation, talk to one of our coaches.

For those involved in the loan rehabilitation process, the CARES Act allows the temporarily suspended payments to still count as if you were making payments. In order to get out of default for loan rehabilitation, you must make 9 consecutive payments in the amount and time agreed upon for your situation. The six months (March 13th to September 30th) act as if you made payments under the new law. This is great news for those already in the process, but this provision of the act offers an incentive to begin the process of getting rid of those student loans now!

Still have questions? Visit wku.edu/cfs or email financialsuccess@wku.edu to get in contact with one of our financial coaches. We are here to help you during this difficult time!

How to Quit Stressing About Student Loans

If you’re reading this, you probably have student loan debt. It’s just a fact of life. The average student loan debt at graduation for WKU students is $28,000.

While the debt is a fact, the stress that ensues from it can be overwhelming and debilitating.

And everybody knows, the best thing to do when something is overwhelming is to suppress, suppress, suppress. When someone mentions student loans you just make like Andy Grammer and say, “Nah, nah, honey I’m good” and go about your day.

The great Michael Scott, long-time Regional Manager of Dunder Mifflin Scranton once said, “And I knew exactly what to do. But in a much more real sense, I had no idea what to do.”

You probably know exactly what you must do: pay back student loans after graduation. But how can you do that when you aren’t sure of your balance, the types of loans you have, who your loan servicer is, and repayment strategies? Answer: you can’t.

These amounts aren’t arbitrary. They are important and relevant to your life at this very moment. There are things you can and should be doing this month and this semester and this year to poise yourself for financial success now and into the future!

You have a couple things you can do. One is to whine! This is terrible, they don’t teach you this in school, school should be free, etc., etc., blah, blah, blah. Okay, now that were done whining, we will move on.

Next is to accept the reality. You are making an investment in yourself by attending WKU. You clearly value knowledge and are poising yourself for a successful career in an area you care about. And there are costs. Let’s not ignore these costs, but instead weigh them with the benefits!

We as humans tend to ignore what overwhelms us, especially finances because we lack the prowess to effectively manage them.

You, however, made a very intelligent decision to attend WKU. As a student you have full access to the counselors at the WKU Center for Financial Success, who will sit down with you one-on-one and go over each student loan, your WKU costs, as well as the other aspects of your financial life and create a financial strategy with you.

The problem with student loans is the uncertainty of it all. You’ll come into a one-on-one meeting feeling nervous and stressed, but you’ll leave with an attack strategy. We cannot erase your student debt, but we can help you handle it.