Understanding Student Loans Repayment Options, Forgiveness, and More

Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents Podcast. I'm Jessica Quindlen. Today we are discussing all things student loans.

I am joined today by Sarah Bickers, Community Educator Lead.

Hello, Sarah.

Sara Bickers: Hi Jess. How are you doing?

Jessica Quindlen: I'm good. How are you?

Sara Bickers: I'm doing well.

Jessica Quindlen: Good. And Katie Griffin, Supervisor of Community Education. How are you, Katie?

Katie Griffin: Hey, great. How are you?

Jessica Quindlen: I'm good. All right, so let's just dive right in. Katie, when is student loan repayment restarting?

Katie Griffin: That is a really great question.

So if you've been paying attention to the headlines over the past, what year, two years, few years? Few years now? It's been very uncertain. You know, it's been, it seems like every week the headline is saying something different, but, there is a schedule now for repayments to actually start back this year in 2023.

So there are still court proceedings going on concerning [00:01:00] student loan forgiveness. But the schedule of the kind of timeline we're looking at is the repayments will either begin 60 days after those court proceedings conclude, or 60 days after June 30th.

So whichever one of those comes first, that's when repayment is going to begin.

Jessica Quindlen: Okay, fantastic. So, Sarah, let's discuss, so we have private, we have federal student loans. Can you talk to me about the difference between those two?

Sara Bickers: Yeah, absolutely. So, private student loans come from financial institutions.

They require a credit check, unlike the federal student loans. Unlike federal student loans, they don't have the same borrowing limits. So a lot of borrowers, oftentimes, if they can't meet their student loan needs with federal student loans, they will seek private student loans to meet those needs.

Now, private student loans are not part of the federal repayment freeze. So if you have private student loans, it's likely that you still were expected to pay those over the past few years. [00:02:00] Federal student loans, on the other hand, are backed by the government and the repayment requirements for them have been frozen over the past few years because of covid.

 But federal student loans come with benefits such as different repayment options and options to postpone or reduce your payments if you're struggling. Now they do have borrowing limits, as I mentioned. So there are caps to how much you can borrow with federal student loans and to figure out what you qualify for, you apply using the FAFSA so the Free Application for Federal Student Aid.

Jessica Quindlen: Okay, fantastic. That makes sense. So, Katie, what should we know about our federal loans to prepare for repayment?

Katie Griffin: So, there's a few pieces of information that are going to be really helpful, and the first is just knowing what type of loan you actually have.

There are a lot of different types of loans out there, and two of the biggest ones are going to be either subsidized or unsubsidized loans.

Jessica Quindlen: Okay. Can you walk me through the difference between those two?

Katie Griffin: Yeah, absolutely. So subsidized loans with [00:03:00] those, the government's been paying the interest while you're in school.

 So the interest doesn't start accruing for you as the student until you are done with school. With unsubsidized loans, the interest has been accruing the entire time. The whole time that you're in school, the interest has been accruing.

Jessica Quindlen: Okay, and then how about during this freeze, during the pandemic and you know, the time since then, what's going on with interest now?

Katie Griffin: That is really great question for Sarah.

Sara Bickers: Yeah. So, with the federal repayment freeze, your interest has not been accruing. So luckily they froze the requirement to repay them and they didn't let it build interest during that time because that would've been pretty terrible.

Jessica Quindlen: Marvelous! Good news.

Yes, it would have, but I just wanted to confirm for everyone out there. Fantastic. Okay, so going back. So now I know I have, you know, subsidized, unsubsidized. What other things do I need to know to prepare for this repayment?

Katie Griffin: Well, there are still a few other types of loans that of course you could have.

 Why, why would this be simple?

Jessica Quindlen: Of course. Yes.

Katie Griffin: Why would this be simple? So, there could also be plus loans. That might [00:04:00] be another option that you have. Plus loans are typically for parents taking loans out for their kids that are students or plus loans could be used for graduate students.

So someone that is continuing their education further into a graduate program, they could also have a plus loan to be able to pay for that. And to make things even more complicated, there might be a loan type that you have that no longer exists, that isn't offered anymore. However, repayment is still required for those loans, even though they aren't offered.

Jessica Quindlen: Of course. Is there any sort of nuance that would need to be known about these loans or they'll just kind of be a certain type, you got to pay 'em back? There's not too much that needs to be known.

Sara Bickers: There are some nuances with them, especially with which repayment programs or different forgiveness options that you might qualify for.

Jessica Quindlen: Okay.

Sara Bickers: So if you have a specific type of loan, it's just checking through your loan servicer and on student aid.gov, what sort of programs you'll qualify for.

Jessica Quindlen: Fantastic. And that was student [00:05:00] aid.gov?

Sara Bickers: Mm-hmm. Yeah.

Jessica Quindlen: Fantastic. We'll put that in the show notes. Okay, so now I know what type of loan I have subsidized, unsubsidized, plus, something that doesn't exist anymore. Whatever it is, I'm in this spot. What's next? What else do I need to know?

Katie Griffin: Yeah. So along with knowing the type of loan that you have, it's also helpful to know what your balance is and what the interest rate is.

So having those three pieces of information, you got your loan type, the balance, and the interest rate, having all of that ready will be helpful because some repayment programs are going to be dependent on those factors. You know, a repayment program might be dependent on the type of loan you have or what your interest rate is.

So having all that ready to go will help you make those decisions.

Jessica Quindlen: Okay, fantastic. So now I know my loan type. I know the balance; I know my interest rate. I'm feeling good, or as good as I'm going to feel about this repayment. What are my options?

Sara Bickers: Yeah, so with federal student loans, there are a lot of different [00:06:00] options for repayment.

The standard one that you will see takes your loan balance and divides it into 120 equal payments. So, that's over 10 years, dividing the balance equally. Now, with that, there are options for if you feel like when you get started with your career, you might not be able to make the standard payment for graduating your payments, which means you start low and it steps up over time to end higher with those monthly payments.

And then if you have a certain loan balance, there are options for extending your repayment terms from that average of 10 years, or that standard of 10 years to 25 years, which brings your monthly payments down, but means that you're going to be paying more interest overall.

So when you're selecting your repayment option, pay attention both to those monthly payments because we want to make sure we can make those each month, but also to how much you're paying over the life of the loan, for the total balance of that [00:07:00] loan. Because extending it or selecting graduated options could mean you're paying a lot more in interest, so just pay attention to that.

Now if you feel like standard graduated or extended options are still not the best options for you, there is an option to do income-driven repayment plans. There are several different types of fees, but how they work is rather than basing how much you pay off of your loan balance, it bases how much you pay off of your income.

So there's calculations that they run for different types of income driven repayment plans, but all of them, they make it a portion or percentage of your discretionary income, which compares how much you make to the poverty line. So it's aimed to help people make payments that they can afford to make depending on what their income is.

Now you do have to apply for this every year. Reconfirm your income, and they can extend your repayment term to 20 or 25 years depending on which [00:08:00] like sub income driven repayment program you're in. Now, I already mentioned extending your repayment term does often mean you pay more in interest.

So, pay attention to that. But income driven repayment plans are often great options for people who are seeking certain types of loan forgiveness depending on what their careers may be. So that's a great option if those standard payments aren't working for you. So check that out and you can compare all these different repayment programs and look at all of your options for your loans on student aid.gov using the simulator.

So that website we mentioned earlier.

Jessica Quindlen: Fantastic. That's great. And I hear you mention loan forgiveness. So now let's sort of jump to that topic. What are the options for loan forgiveness?

Katie Griffin: So, there are some existing programs out there for loan forgiveness. They will have certain stipulations and qualifications.

 And those qualifications there's a wide range. It could be anything from the type of career that the student is in to something [00:09:00] like, a student being defrauded by a school. So, a lot of different qualifications and stipulations out there. But honestly, the best thing that you can do to learn more about the options is to go back to that same website, student aid.gov, and you'll be able to see the loan forgiveness options, read through the qualifications.

So you know, if you are unsure, if you qualify or think there's the tiniest chance that you could go to that website. Read through all of it, you know, the more research that you do and check things out, you know, it's not going to hurt anything. So this is the more informed you can be and that'll help work through that.

Jessica Quindlen: Yeah, that's fantastic. This sounds like a great resource. I'm really excited about it. All right, so let's, you know, we've done this research, we're in this spot. We've done all these forgiveness and everything, and I just cannot make my payments. I can't, it's not going to happen. What happens?

Sara Bickers: Yeah, so obviously my first recommendation would be to look at those other repayment options like income driven [00:10:00] repayment.

But if you've already done that and you're like, ah, that's still not working for me, then there are options with federal student loans for forbearance or deferment. So both of those programs would postpone or reduce your loan payments.

Now there are requirements for these. So, qualification requirements, such as certain hardships you're going through certain life events that might happen, and there are time limits to them as well that range depending on what exactly you're applying for. But they can be great programs to make sure that you're enrolled in something to say like, "Hey, I can't make my payments right now."

But you're not taking any hits like you would be if you just didn't make your payments. So in the case that you don't make your payments, then your loan could default, which could have a really bad negative impact on your credit score. You would lose eligibility for repayment programs like income driven repayment. It could have a lot of other negative legal implications as well.

So [00:11:00] aiming to not default to there, by enrolling in some sort of program, be it income driven repayment, forbearance or deferment. So that way those boxes are checked and you don't default, is a really good thing to do just to help you out overall. And then checking out all that information on student a.gov that we mentioned already.

Those simulators comparing different options, looking at those different programs can help you a lot. And then if you're still struggling, if you're still not sure after checking out all those resources reach out to a professional for guidance. Somebody who works in student loan helps, and they can walk you through all those different things to find what's going to work best for you.

Jessica Quindlen: That's fantastic. This is all so great. Do we have anything else we'd like to add or, or shout out for everybody?

Katie Griffin: I was just going to add in to that last question is like this, this can be really scary and stressful. And I know that when I finished school and I definitely couldn't afford my student loan payments and I wasn't aware of what all the options were.

Just know your resources, know that there are resources available to help you work through this. If [00:12:00] you feel like you can't make your payments, you know, walk through all those options that Sarah just covered and just know that, you know, it's going to be okay. And there's a lot of options and programs out there that can help.

So just the more that you stay informed and do that research piece it'll help. I didn't do that and it was super stressful. It doesn't have to be like that.

Sara Bickers: Yeah, I will add one thing based off of my own experience. I got out of college, I was working a part-time job, wasn't really making a lot of money to help with my student loan debt repayment. And income driven repayment programs, depending on how much you make, your official payment could be $0 a month.

Jessica Quindlen: Oh, wow.

Sara Bickers: Depending if you're making a certain amount like near the poverty line. So, look into those programs. It is a percentage of your income and they can help a lot.

Jessica Quindlen: Okay. That's fantastic. And I assume that you can, but I just want to confirm you can change between these options.

So let's say initially you need income repayment and then in four years, five years, whatever. You're in [00:13:00] a new situation. I assume you can change that, but also vice versa. Let's say I'm fine out of college, life happens and then I need to switch. Those are options for people?

Sara Bickers: Yeah, absolutely. It's not set in stone. You can go through and change your repayment option or apply for programs if something comes up at any time throughout the year.

Jessica Quindlen: Fantastic. And are you able to refinance at all to lower your interest rate at any point?

Sara Bickers: So, refinancing student loans looks a little different. That's a great question.

So through the government, there are options to consolidate your student loans. It doesn't work like a typical refinance. So rather than you applying and them looking at your credit to see what you are approved for, they average out your interest rates. So it can, if you have multiple loans, bring your payments lower, help you out a little bit there with how much you pay overall.

 So that's a great way to maintain the benefits that come with federal student loans. But if you're in a scenario where you think that [00:14:00] refinancing and moving your federal student loan to a private student loan would be advantageous for you, then you can do that. Just know that by doing that, you might get a great interest rate if your credit score is great, but that does mean that you lose those federal benefits that come with loans like forgiveness programs, like the various repayment plans we mentioned, et cetera.

Jessica Quindlen: Fantastic. All right. Anything else ladies?

Sara Bickers: That's it. Thank you.

Jessica Quindlen: Well, great. No, thank you so much. And I think we'll definitely have you both back, even if it's a short session, once we actually start this repayment to just make sure everyone's feeling comfortable.

Well, that brings us to the end of our show. Katie, Sarah, thank you so much for being here. It was great having you.

Katie Griffin: Thank you.

Sara Bickers: Thank you, Jess.

Jessica Quindlen: Thank you for listening to Sound Cents from Ent Credit Union. Be sure to follow our podcast as well as rate and review us. I'm Jessica Quindlen, I will see you next week.

Same time, same place.