Many Americans currently owe a bundle in student loans, but not all have a solid repayment plan. Nitro, an aggregate for student loan lenders, reports that Americans currently owe a whopping $1.5 trillion in student loans and the average loan debt is over $37,000. In fact, over the third quarter of 2019, nationwide student loan debt increased by $20 billion from the previous quarter, according to the Federal Reserve Bank of New York.
Federal student loans are one of the most common vehicles for financing post-secondary education. There are two main kinds of federal loans: subsidized and unsubsidized. The biggest difference is in how interest accumulates; while subsidized loans do not accrue interest while during school or for the first six months after graduation, unsubsidized loans begin accruing interest after disbursement.
Then, these federal student loans are managed through a federally approved loan servicer, who will help develop a sound strategy to repay student loans and address any issues that might arise.
FedLoan Servicing is one of the few approved federal student loan servicers that help manage student loans. It offers student loan repayment plans, loan forgiveness for qualified borrowers, consolidation and more. It also provides a library of educational resources and tools for students to better understand student loan debt and repayment strategies.
Paying back loans with FedLoan
Repaying student loans with FedLoan Servicing is simple. The student loan servicer offers different income-driven repayment plans, each of which requires annual recertification. Payments can be as little as $0, depending on income and family size.
Its Pay As You Earn plan generally reduces payments to about 10% of discretionary income and payments come with a term of up to 20 years.
The Income-Based Repayment plan similarly reduces monthly payments, but payments are usually about 15% of the borrower’s annual income. However, that rate can drop to 10% for new borrowers. People who qualify can take up to 25 years under this plan to repay loans.
The Income Contingent Repayment plan considers the lesser of either 20% of discretionary income or the fixed amount that would be otherwise paid over a 12-year period. The term is up to 25 years.
Then there is the Revised Pay As You Earn plan, designed for borrowers who aren’t eligible for other income-driven repayment plans. It’s based on 10% of your income with a term of up to 20 years. However, if you borrowed a direct loan for graduate or professional study, then the REPAYE term extends to 25 years.
Remember, married couples preparing to file a joint tax return should consider that spouse’s student loan debt and income are also considered in most cases.
There are several advantages to using FedLoan Servicing as a student loan servicer. First, it provides online and mobile access to accounts to check loan balances, see payment statuses, make a payment and more. Finally, FedLoan Servicing has seven ways to make a payment: advance payments, automatic payments, mail, mobile app, online, phone, and third-party bill pay. Setting up a recurring automatic payment results in a 0.25% interest rate reduction.
What to do if you can’t pay back federal loans
Life can get in the way and make it difficult to pay back those federal loans on a set timeline. However, it’s important to never let life stop you from working toward that financial freedom if you can’t pay back federal loans. However, using an online calculator can help keep a budget in order to pay back loans faster. But, if you can’t pay back student loans, don’t just ignore it.
“My No. 1 tip is to talk with the lender or servicer first,” says Mark Kantrowitz, nationally recognized leading expert on student financial aid. “Ignoring the problem will not make it go away. It may even get worse. For example, if you default on federal loans, you lose deferments and forbearances.”
Missing one payment results in delinquency, but miss several payments and you’ll find yourself in default, negatively impacting your credit score. So working with a FedLoan Servicing agent is vital. Adverse events will happen in life: you lose a job or a portion of your monthly income for one reason or another, and now your budget is off. That’s OK — there are ways your loan servicer can work with you until you are back on your feet.
How the situation is handled depends on the factors involved such as whether it is short-term or long-term, due to financial hardship, disability, and so on. Options are available to meet your needs.
A deferment or forbearance, for example, might be a good option in some short-term situations.
“These are temporary suspensions of the obligation to make payments on the loan,” Kantrowitz explains. “Interest may continue to accrue and will be capitalized — added to the loan, if unpaid. They are good options for medical or maternity leave.”
This may differ, however, if the long-term financial situation is due to a disability. Disabilities can be short-term, long-term or permanent. Kantrowitz has a suggestion for the latter two: “If the difficulty is due to a disability, you might be able to qualify for a total and permanent disability discharge.”
The only way to determine which option might be right for you is to work with your loan servicer. Call them to discuss your situation and options.
Paying off loans faster with FedLoans
Although unsubsidized student loan begins accruing interest during school, there’s an option to pay the interest at this time. Paying interest while in school has two benefits:
First, this interest does not capitalize on your loan.
Second, since it doesn’t capitalize, repayment will be less than someone else who borrows the same amount but chooses not to pay the interest while in school. Paying the interest while in school can shave thousands of dollars off the loan balance and help you repay your loans faster.
You can get help from your school’s financial aid counselors or TRIO advisors, according to Todd Christensen, education manager at Money Fit, a non-profit that offers credit counseling, personal finance education, and debt relief programs. Christensen advises borrowers to contact their local TRIO offices for guidance and help. Although you could turn to a third party for help, it’s not always advisable and you’ll need to do your homework.
“There is a difference between a hand-holding company like nonprofit credit counseling agencies that charge up to a few hundred dollars for help filling out the right applications and even getting on the phone with your lender,” says Christensen.
Christensen also warns borrowers to be wary of the scams and predatory companies that charge thousands of dollars for little to no help except for an application and where to send it.
The bottom line
FedLoan Servicing offers many options to match a variety of incomes and budgets and may also be able to help you find a solution during short-term or long-term financial distress. However, communication and having a solid repayment strategy are the keys to success.
Sometimes paying off student loans faster means paying on the interest while still in school. There are many ways to do this, from working a few extra hours when to finding creative, new ways to boost cash flow. Use a student loan budgeting calculator for help, and don’t forget to review your finances. After all, any good budget begins with knowing your assets — and your sources of money coming in.
Prioritize your monthly debts from most important to least important. Is there anything that you could do without for a while? This is one question that you can ask yourself when looking for new ways to find extra cash to repay your student loans sooner. Above all, work with your FedLoan Servicing adviser to find the solution you need.