The Next Step: Navigating Challenges of Repaying Student Loans

Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents Podcast. I'm Jessica Quindlen. Today, we're diving back into the topic of student loan repayment.

As many of you probably know, student loan repayment has officially restarted, and I wanted to bring in some folks to discuss everything that's going on with that so we can really sort of tackle this together. I have today, Katie Griffin, our Supervisor of Community Education. Hello, Katie.

Katie Griffin: Hello.

Jessica Quindlen: And Laura Straub, our Community Education Lead. Hello, Laura.

Laura Straub: Hey.

Jessica Quindlen: All right. So let's just dive right in. One of the most common challenges I think a lot of student loan borrowers face, especially now that it's come back, is this struggle to actually just make those monthly payments. You know, myself included.

It's just this sort of daunting number that feels like it came out of nowhere. People have tight budgets, life changes. The financial economy right now is quite stressful. How can we address this issue so that we don't default on these loans and mess with our credit?

Laura Straub: That's a fabulous question [00:01:00] to start with. The biggest thing is just reevaluating your budget, seeing where you're at right now. But then as you said, budgets are tight. This time of year, especially, and so just really looking at the options that are available to you.

There are income driven repayment options to help kind of lower that monthly amount to each month. They have reevaluated that formula and there's different types of that income driven plans, such as the repay plan and the SAVE plan. These take into account your discretionary income and have this lovely little formula where they calculate what their going to have you then pay per month.

There is an interest cap, so that is nice because some of the income driven repayment plans, make your monthly payment so low that it wasn't even touching the interest, it was just going to the principal. And so, People are paying a lot more in interest over the length of that loan. So there are some now interest caps with it. Definitely talk to your student loan [00:02:00] officer with the service provider that you have and see if these plans are a benefit to you, what it'll look like, how much it'll be monthly, and everything that goes into that. How long will it drag it out or is it going to stay the same yearly amount that you have? So there are some options out there, so be sure to check them out. Because as Katie will get into here in a little bit, the forbearance and deferment plans too, can have some other implications where the income driven repayment really just helps you out monthly.

Jessica Quindlen: I love that. And is that something you have to reapply for?

Laura Straub: Yeah, some of them you do have to recertify every year just to see where you're at.

Jessica Quindlen: Do you know, is that calendar year? So let's say I apply today, it's December 1st. Do I have to reapply in January or do I reapply December 1st, 2024?

Laura Straub: Whenever you apply.

Jessica Quindlen: That year, not calendar. Okay. Thank you.

Laura Straub: No, that's a good clarifying question.

Jessica Quindlen: Okay. Fantastic. And then for these, do you typically go through your current provider? [00:03:00]

Laura Straub: Yep. You'll work with your student loan provider and if you don't know who that is studentaid.gov is the place to check out who is your loan service provider, what company and what those phone numbers and stuff. You would be working with them on what those plans can look like for you.

Jessica Quindlen: Great. So, correct me if I'm wrong, but this started in October, right? So, we've had two, in theory, two-ish payments, maybe three if you had December, correct?

So what happens when you can't make your payments or when you've missed a payment? I'm sure we have some listeners out there who perhaps have not started paying at all or perhaps missed one of the last two. So what's happening there?

Katie Griffin: Yeah, that's a great question because with all this starting up it's hard. And it's a holiday season. So yeah, great time for this.

Jessica Quindlen: Yes, of course, right? There's no Black Friday student loan deals.

Katie Griffin: No, but so if you are struggling to make your payments the first thing that I'm going to suggest is that you reach out and talk to them. Whether they're [00:04:00] federal student loans, reach out, talk to them or whoever your creditor is. Folks want to help.

They don't want to see people struggling to make these. So, first thing I would recommend is just reach out, have that conversation. Say, “I'm struggling to make this, what can we do to move forward?”

There is a new program that was just implemented when the repayments restarted. It's a grace period. So, if you miss a payment one month between up until when this expires, which it expires September 30th, 2024, it won't affect your credit, which is great news. Interest will continue to accrue but that credit piece is a major one. So that grace period is going on right now.

Now if you're still having trouble making your payments there are a couple other options. There is what's known as either forbearance or deferment. These are options for federal student loans where it will pause your student loan payments if [00:05:00] you can't afford them right now, so it'll put that pause on them.

These are agreements that you're making with the lender and there is a key difference between the two, between forbearance and deferment. And that's that deferment might not accrue interest depending on the type of loan it is. And that can last up to three years. While forbearance always accrues interest and it's only for twelve months at a time.

So that's the main differences between the two, but those are some options out there if you just really need some more time to figure out these payments and work it into the budget and everything. You can do these pauses. They're not great long-term solutions, but if you need a temporary fix, then that is an option.

Jessica Quindlen: And is this something you, similar to income driven, you apply for?

Katie Griffin: Yeah.

Jessica Quindlen: What are the requirements for this? Is this sort of also income driven and those kind of things, or is it just something anyone can get, you're just agreeing to 12 [00:06:00] months and you're getting interest? We don't really care what you make or what your situation is. Fine. Whatever is, is your life choice?

Katie Griffin: Yeah. There can be certain qualifications to get approved. It might be something like unemployment. or if you're still in school as a student.

Jessica Quindlen: Right, that happened to me when I first went to grad school, when I went to deferment.

Katie Griffin: So there's a variety of different qualifications that may have to be met in order to be able to accept.

Jessica Quindlen: Okay, so not anyone can get this necessarily?

Katie Griffin: Yeah, but it's still worth it. Just speak with your officer, apply for it and just see what happens. Now if you are unable to make your payments, you know, aren't looking into these different options and it's just because, life is crazy sometimes and just, we miss our payments.

If that does continue, just know that if you miss nine payments, so about nine months in a row of payments, then you will face a default which means that your loan is now delinquent. So know that that is something that, can [00:07:00] happen.

Jessica Quindlen: What are those consequences?

Katie Griffin: If your loan becomes delinquent then there's a few things. So, now the loan is due in full, which is a really scary thought.

Jessica Quindlen: My heart just like, da, da, da, da, da, da.

Katie Griffin: It will have a negative impact on your credit score. And you will also lose eligibility and benefits like repayment plan options.

And there is the option that they could garnish your wages, which means that they could just automatically take money out of your paycheck, which nobody wants.

Jessica Quindlen: My advice to everyone today is call your loan people and just start that conversation. Absolutely. Do it right now, actually. Pause this podcast. Give them a call.

Katie Griffin: That's the best thing you can do is just have that conversation. As soon as you know that you're struggling to make those payments or you’re having trouble fitting it into a budget or just need more time to figure it out, just call.

And if you do like end up in that default situation you do have some options to get out of it. Of course, one option is just to pay in full, which [00:08:00] if we could have done that in the first place, then I'm sure we would have.

Jessica Quindlen: If that was an option, we'd be doing that, but in theory, that is an option.

Katie Griffin: Yeah. There is also the option to consolidate federal student loans which means they just kind of average out the interest rate, which can make your loan payment each month lower. Which could bring it to a point where you could afford it a little better.

Or there's another option of rehabilitation, which is when a new payment is determined based on income. And if you can make nine out of 10 payments under the rehabilitation, then the loan is returned to good standing. The default status is removed from your credit history. but know that rehabilitation is a one shot deal. You have one chance to do rehabilitation. So, if it doesn't work out the first time you can't try again.

Jessica Quindlen: Okay, good to know Alright, so let's address a sticky subject: student loan forgiveness.

Laura Straub: Yeah, it's continuing to change right now. There is still lots of gray out there about this. So the best [00:09:00] thing is to continue to make those monthly payments, reach out to your loan officers and monitor studentaid.gov for more answers when it comes to this loan forgiveness.

Now, depending on your line of work, though, there is some loan forgiveness. programs out there already in place. So I know higher education has one or education industry has one. So if you work for education for 10 years, you were in good standing with your loans, you were making those payments, et cetera, you can apply for loan forgiveness.

So there are different lines of industry where they do have loan forgiveness programs out there. Again, your service provider will be able to help you with that if that is something that you might qualify for. With that though, you do want to consider tax implications because you will have to pay taxes on the excess of the loan that they're forgiving.

And then you also want to be aware of any scams out there. There are so many places that are trying to say, “apply here for loan [00:10:00] forgiveness,” and they're getting all of our information. So definitely have your guard up, follow those good scam rules that we've said on other podcasts of just avoiding putting in information into a website that you're kind of unsure about.

So again, just kind of be aware of scams, but there are some loan forgiveness programs that are already in place. Especially if you went to a school that was fraudulent. A lot of those for profit schools that shut down. There are some loan programs out there to help you with that if that's your case as well.

So studentaid.gov does have some good resources for those loan forgiveness programs that are already in place. But again, just kind of keep monitoring the situation. We'll see what happens.

Jessica Quindlen: Keep our fingers crossed. You never know. All right. I think we touched on this a bit when we discussed consolidation, but what are some ways you can manage multiple loans with different interest rates and servicers?

I think this is pretty common just given how long people are in school and things change and all of that kind of stuff. So what do we do in that case? [00:11:00]

Katie Griffin: Yes, that's a great question. I remember like when I first got out of school, I had so many different payments going everywhere and it was hard to manage and keep track of.

So the first option is just to take advantage of setting up automatic payments. It can be a lot to juggle, so just automating as much as possible so the payments just happen. You don't have to think about it. That can make your life easier. But the other option, as you mentioned, is consolidation.

Consolidation doesn't only have to happen if you're trying to get out of default. Consolidation can happen at any time. If you have federal student loans, then you can consolidate everything into one. Or if you have some private student loans, then you can take those plus the federal loans and consolidate it into one private loan. That's another option as well.

So going through this process with private loans that is considered refinancing and it does impact your credit because you're taking out a new loan to pay off all the other existing [00:12:00] loans.

If you're consolidating just your federal student loans, it won't impact your credit and they're just going to average out whatever the interest rate is across the board of all those federal student loans, which as I mentioned earlier, talking about default, can lower your monthly payment.

Laura Straub: And if I can add on too Katie, if you do have one of your federal loans that has a really good, low interest in it, you don't necessarily have to do all of them. You can pick some because it will do that averaging. So you can leave the one that has the lowest off of there if you would like and just consolidate the others.

You really can have that flexibility with that, which is nice. I would definitely do that math and see what that interest will be. Because it may not make sense to, even though it will help us manage, but if we can save some money too. So just do the math and see what's best for you with that.

Katie Griffin: Yeah, absolutely. And just a few things to keep in mind. If you are consolidating federal student loans, if you are on an income driven repayment plan for loan forgiveness, you could [00:13:00] lose credit for the payments you had made up until that point before consolidation. So a really important thing to check into and also just know that while consolidating can make your monthly payments lower it could extend your repayment term out longer, which would result in like paying more interest overall.

Jessica Quindlen: All right. So last question here. What is the impact of student loans on long term financial goals?

Laura Straub: Yeah, with this one, it really comes down to what else can we be using that money for? The amount that we're paying monthly for student loans can then be used for other purchases for retirement savings or whatever our other long-term goals might be.

It could really impact our future plans when it comes to how long are we going to be continuing to pay these student loans. So really trying to figure out how we can pay them off sooner might just help us in the long-term have more flexibility and freedom when it comes to our monthly payments and expenses.

Jessica Quindlen: Makes perfect sense. Well, that brings us to the end of our [00:14:00] show. Katie, Laura, thanks so much for being here.

Laura Straub: Thanks for having us.

Katie Griffin: Yeah. Thank you.

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.