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
Podcast Notes
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
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If you won a million dollars tomorrow, what would you do?