As student debt levels — along with delinquencies and defaults — continue to rise, borrowers need to ask: "What can I do to keep my student loans manageable?"
As a recent college graduate, this Student Loan Ranger knows both my mother and I had minimal understanding of student loans in general. And banks and schools aren't doing enough to inform us, so we end up making loan decisions in the dark.
[Find out ways to pay for college.]
To help figure it out, Equal Justice Works recently published an e-book, Take Control of Your Future, which offers five of the following ways to take control of student loan repayment.
1. There are big differences between private and federal loans. It is important to understand these basic distinctions before borrowing and too often, students and parents lack knowledge on the various types of loans and what they entail.
Here are some crucial aspects to pay attention to when deciding how to borrow:
• Keep in mind that commercial or private loans are never eligible for federal relief programs.
• Most private loans offer variable interest rates that may start low, but can — and likely will — increase.
• Federal loans, on the other hand, qualify for federal relief programs and come with borrower protections such as fixed interest rates and deferment and forbearance in times of hardship.
[Discover the ins and outs of financial aid.]
Students should exhaust the federal loans available to them before taking the private loan route.
2. Income-Based Repayment can help many borrowers repay their loans. Federal relief programs inarguably help many borrowers. Among these programs is Income-Based Repayment (IBR), which keeps the amount borrowers must pay each month to 15 percent of their income. A few things to keep in mind:
• Only Federal Direct and federally guaranteed (FFEL) loans are eligible for IBR.
• You must have a partial financial hardship, meaning the amount you owe on your eligible loans exceeds 15 percent of your discretionary income.
• Your monthly payment depends on two things: your income and your family size. When income decreases or family size increases, you pay less (and vice versa).
[Explore income-based and income-contingent repayment.]
• If you remain in IBR you will be eligible for forgiveness of any amount remaining on your loans after 25 years of making qualified payments.
3. Pay As You Earn keeps payments even more manageable. Launched under the direction of President Barack Obama, this program helps a ton if a borrower qualifies. Participants must be a new borrower who experiences a partial financial hardship, and must have taken out their loans on or after Oct. 1, 2007.
Participants must also have at least one loan from Oct. 2011 or later. This includes: receiving a new loan, receiving a disbursement on an existing loan, or consolidating loans on or after Oct. 1, 2011.
Under Pay As You Earn, monthly payments are capped at 10 percent of discretionary income. As long as participants remain in the plan, they will be eligible for forgiveness after making qualifying payments for 20 years.
4. Public Service Loan Forgiveness helps public interest workers with lower salaries. Public Service Loan Forgiveness (PSLF) motivates and helps individuals to work in the public sector. Borrowers must have Federal Direct loans to be eligible, and must be working in a full-time public service job, such as with a local, state, federal or tribal government or a nonprofit.
Participants must make 120 qualifying payments on those eligible loans while employed in public service. After making those 120 qualifying payments, submit the PSLF application for forgiveness. As a bonus, forgiveness receives through PSLF is not taxed.
5. Loan Repayment Assistance Programs can help with payments. Take advantage of Loan Repayment Assistance Programs (LRAPs). If you're eligible, LRAPs provide funds toward your monthly payments. And you may be able to use those funds for your private student loans. Ask your employer, school, and even your professional association if they offer an LRAP. There are even some available from state, local and the federal government.
[Learn how to evaluate an LRAP.]
Download Take Control of Your Future, available in the Kindle Store, to learn more about these options and weave your way through the student debt maze — whether you're just starting to borrow or already in repayment. Every borrower should be informed when making decisions that will affect your future.
Mai Brand is an operations coordinator with Equal Justice Works' Educational Debt Relief program. She first worked with educational debt relief issues as an intern at Equal Justice Works and is a recent graduate of Loyola University Maryland.