Student Loan Repayment Options
I was fortunate enough to graduate college 16 years ago without student loan debt; however, the majority of college students (and my clients) will not be so lucky; and understanding your repayment options and having a plan is critical for long term financial health and well-being.
I’m excited to have Jay Fleischman on the podcast today to discuss these repayment options. Jay is a lawyer who concentrates on Consumer Protection and is the host of the podcast, The Student Loan Show. You can check out Jay on his podcast, http://StudentLoanShow.com or chat with him on Twitter https://twitter.com/JayFleischman
What are we drinking?
Jay — Water because he had a bit of a cold
Shannon — Vodka tonic
- Jay is actually a lawyer and has been practicing bankruptcy law in 1995.
- He now focuses 99% of his career on the law surrounding student loans.
- Having student loans is like having a child.
- The first step to refinancing your student loans after graduating is figuring out what your loans are—federal, private, or a mix of both—because they each have different payment options.
- Jay says federal student loans are really, really good unless you’re in default.
- There are a lot of student loan refinancing companies out there.
- If you refinance your loans from the federal program to a private option, you have to realize that even though you may have a lower interest rate, you also give up a lot of flexibility.
- All federal student loans are listed on nslds.ed.gov
- If you do not see a loan listed there, that means you probably have a private loan.
- If you have a cosigner on your loans, they are definitely federal loans.
- To refinance private loans, you are evaluated on how good your credit is and how much money you make.
- It is better to default on your federal loans than pay them using a credit card because that looks fraudulent in bankruptcy court.
- Private loans have a statute of limitations based on the state you live in (not the state of your school).
- Investing in an attorney like Jay to defend your case is usually always worth it.
- It is not required for you to hire any attorney because you can defend yourself if you do your research, but do not just sit back and do nothing!
- If you have a guarantor for your private loans who is in poor health, an option for defending yourself is to take a life insurance policy out on them incase they pass away.
- Combining your private and federal loans is called consolidation and is done only through U.S. Department of Education and is not credit-based, has no costs attached to it, and also has no market rate on it.
- You have the option to leave out some of your loans if you decide to consolidate.
- There are student loan forgiveness options.
- The public service loan forgiveness program is time-based and requires 30 hours of work a week and 120 payments.
- After making 120 payments that qualify, the amount left of your federal student loans is GONE!
- As a financial planner, Shannon tells her clients that making this option work for her clients is a priority.
- Other payment forgiveness options are pay-as-you-earn income repayment option and the income-based repayment option.
- Jay says after people graduate, their first thought is “what can I do to make my payments as low as possible?”
- Choosing the lowest possible payment amount option doesn’t count towards the 120 payments requirement.
- You have the option to change your repayment plan every year.
- Shannon and Jay agree that you should evaluate your repayment options yearly because your income situation often changes and new repayment plans come up all the time.
- If you become totally and permanently disabled, your debt will be discharged (forgiven) of the date you become disabled.
- Take note that the amount of the loan that is discharged (forgiven) is going to be included on that year’s tax bill unless you fall into an exclusion.
- Some of the forgiveness options are actually not forgiving and can possibly force you into bankruptcy.
- The day you graduate college is the LATEST possible day you should start looking at your student loans and figuring out payment options.
- Jay and Shannon say you should never pay anyone for a repayment solution because you can figure out a solution yourself if you take the time to research the options.
- TAKEAWAY: Remember to become an advocate during your student loan debt repayment journey! The time you devote to understanding it save you money and headaches down the road!
Random Three Questions
- What are some of your favorite TV shows?
- What do you like to do to relax?
- If you won a million dollars tomorrow, what would you do?