What Is the NSLDS? A Tool to Keep Track of Student Loans

iStock

Over the course of a college career, a student may take out multiple education loans of different amounts and term lengths. Loans are often granted on an annual basis, and by the time you graduate, it’s easy to lose track of your total borrowing.

What’s more, holders of federal loans get a short reprieve from repayment after graduation — up to six or nine months, depending on the loan time — making it can be easy to forget that you’ve got money due. It’s smart to use that grace period to begin planning for repayment, rather than viewing it as a vacation from thinking about your college loans.

One of the best ways to keep track of your federal student loans and payments is through the National Student Loan Data System, a centralized database for federal student loan and grant information managed by the U.S. Department of Education. By checking in regularly on the NSLDS, you can stay on top of how much you owe, the repayment terms of your loans and the monthly payment amounts.

For new graduates making a budget — sometimes for the first time — this student loan information can help them understand how much money they need to set aside for monthly payments, or if they need to look into alternative loan repayment programs.

“It’s a helpful tool, and so often as humans, we’re inclined to denial or procrastination,” says Melinda Opperman, executive vice president with Credit.org, a nonprofit organization focused on personal finance education. “By ignoring that tool, you could have a problem compounding. See what’s in there, and get yourself anchored and prepared.”

What’s the purpose of the National Student Loan Data System (NSLDS)?

The NSLDS was authorized as part of the 1986 Higher Education Act (HEA) Amendments and is administered by the Office of Federal Student Aid. It was formed with three purposes:

  • To better the quality of student aid data and its accessibility
  • To decrease the administrative work required for Title IV Aid
  • To decrease fraud and abuse of student aid programs

The NSLDS initially focused on federal loan compliance but eventually expanded to encompass detailed data from federal student loan and grant programs in which students are enrolled.

Where does the NSLDS get its information?

The NSLDS gets information from several government and loan processing services. Here are the sources for NSLDS data:

  • Guaranty agencies, which are state agencies or private, nonprofit organizations that provide information on the Federal Family Education Loan (FFEL) Program
  • Department of Education loan servicers
  • Department of Education debt collection services (information about defaults on loans held by the Department of Education)
  • Direct loan servicing (information on federal direct student loans)
  • Common origination disbursement (information on federal grant programs)
  • Conditional disability discharge tracking system (information on disability loans)
  • Central processing system (information on aid applicants)
  • Individual schools (information on federal Perkins loan program, student enrollment and aid overpayments)

When data from these sources are combined, you can get a comprehensive overview of your outstanding loans, repaid loans and repayment schedules.

The NSLDS is updated according to each organization’s loan reporting schedule. Some report monthly, and many report data more frequently.

What you’ll find on the NSLDS

After signing up for an FSA ID (Federal Student Aid ID), you can log into the NSLDS to see the updated status of your federal student loans and grants, as well as your college enrollment status and the effective date of your status.

Loans are listed from newest to oldest, and you can find more information about each, including the loan servicer’s name and contact information, by clicking on the loan number. You also will have access to an array of details about each of your federal loans and grants:

  • Name
  • Disbursed amount
  • Date of disbursement
  • Last-known balance
  • Outstanding interest
  • Status (e.g. repayment, in grace, paid in full)
  • Status effective date
  • Interest rate
  • Progress toward the 120 qualifying payments needed for Public Service Loan Forgiveness
  • Income-driven repayment plan anniversary date

“It gives a centralized, integrated view of the loans and grants under the student’s complete life cycle,” Opperman says. “Everything is there.”

You may see a lot of terms and abbreviations you don’t recognize, but there’s a glossary to help you understand them.

What you won’t find

The NSLDS only provides information about federal loan programs, so you will not see details about private loans. To get that information, you’ll need to contact your private loan’s servicer or your school’s financial aid department. You also can review your credit report (you are entitled to one free credit report annually) to find the information.

You also won’t find:

  • Real-time balance accounts. You should see the outstanding principal balance for each loan, but this number may not include the most recent data. Contact your loan servicer for the most up-to-date numbers.
  • Information about nursing and medical loans. While these are federal loan programs, they are not included in the NSLDS. Contact your school’s financial aid department for information about nursing or medical loans.
  • Loans you are not responsible for paying. Any federal loans your parents took out on your behalf, including federal PLUS loans, will not be listed on your NSLDS account. For information about federal student loans that they are responsible for paying, your parents will need to create their own FSA ID and password to access the NSLDS data.

Even with these gaps in information, the NSLDS is a great place to start when you’re not sure whom to contact with student loan questions or when you’re trying to get on top of your loan payments. It’s also helpful if you’re trying to figure out what type of loans you have, which is necessary when you’re applying for certain loan forgiveness programs.

How to sign up for the NSLDS

As mentioned previously, to use the NSLDS you must have an FSA ID username and password, which serve as your login information and allow you to access data about your federal loans and grants online. The ID and password also provide access to many other Department of Education websites.

To create an FSA username and password, visit this link. Opperman says the certified student loan counselors who work with Credit.org recommend you never give out your FSA number or password, even to credit counselors. This information carries the legal weight of a signature, and it can be used to commit identity theft. Credit counselors can get student loan information from you rather than by directly accessing your NSLDS account.

The FSA ID and password application requires your email address, mailing address, date of birth and Social Security number. A cellphone number can be provided if you’d like to bypass answering security questions to retrieve an FSA ID or password.

To look at your federal loan and grant information, click on “Financial Aid Review” after entering your FSA ID and password into the NSLDS website. You do not have to enter loan information, as agencies that issued your federal grants and loans will be responsible for reporting information to the NSLDS.

Is this site accurate?

While the information on the NSLDS generally is accurate because it is provided by loan servicers, it is usually not up to date. Organizations that provide loan information for the NSLDS report on different schedules..

What if the info is wrong?

The NSLDS is not infallible; it’s important to check your page regularly for errors and inaccuracies. Here are some common issues with the NSLDS and how to remedy them:

An error

Check the NSLDS record for this loan, and contact the data provider listed. You will need to give the data provider information that will help the organization look into the error and remedy it. If the data provider is uncooperative and will not fix the error, contact the NSLDS Customer Service Center at (800) 999-8219.

Missing data

If updated loan information is not available within 45 days of disbursement, contact a guaranty agency, the loan’s servicing center or your school’s financial aid office. Otherwise, allow for typical time lapses in reporting.

Frequently asked questions about NSLDS

Usually, no. Typically, only data providers can update information related to your loan when they make their reports to the NSLDS.

The site has an SSL certificate, which means all data passing between your web browser and the site server is encrypted (provided you’re using an SSL-compatible browser, like the latest versions of Chrome, Firefox, Safari or Internet Explorer).

The Department of Education does not charge a fee to use the site.

The site is designed to work best with Microsoft Internet Explorer. You can use other browsers, but keep in mind that the NSLDS pages may not function or display properly on other browsers. The NSLDS system requirements page provides help with browsers and a link to contact information for further assistance.

You are strongly advised not to share your FSA password — ever — as your FSA ID and password are for your use only. Anyone else who uses your FSA information is committing a security violation, and your user ID can be terminated. Organizations can lose access to the NSDLS if they share FSA IDs and passwords.

No. FSA ID passwords expire every 90 days. Fifteen days before the password expires, you will see a warning that it must be changed soon. Users can reset their passwords anytime during that 15-day window by clicking on the “change password” link on the FSA login page.

In this situation, call the NSLDS support number: (800) 999-8219.

You can call the Federal Student Aid Information Center at (800) 4FED-AID — 1-800-433-3243 — between 8 a.m. and 11 p.m. Eastern Time, Monday through Friday, and 11 a.m. to 5 p.m. on Saturday and Sunday. This helpline is not available on federal holidays. You can also contact the office by email or live chat through the website.

The post What Is the NSLDS? A Tool to Keep Track of Student Loans appeared first on MagnifyMoney.

How Increasing Your Monthly Payments Can Slash Your Student Loan Balance

If you don’t want to wait a decade or longer to be debt-free, learn how paying a little extra on your student loans each month can slash years off your loan payments.

Student loans are designed to help college students afford an education and build their future. But they may also cause problems down the road.

The sooner you pay down your student loan debt, the better. Not only does it save you on interest if you make extra payments, it can also shorten your repayment term considerably.

The Standard Repayment Plan for federal loans is 10 years while private student loan terms can range from five to 25 years. Income-driven repayment plans also push your payoff date by 20 to 25 years.

If you don’t want to wait a decade or longer to be debt-free, learn how paying a little extra on your student loans each month can slash years off your loan payments.

Doing the Math

Using a student loan prepayment calculator, it’s easy to quickly find out how much time and money making extra payments can save you.

For example, say you just graduated with $20,000 in student loans and have a 10-year loan term. With an average 6% APR, your monthly payment would be $219.

If you were to add an extra $100 a month to your student loans, you’d finish paying them off more than three and a half years early. You’d also save $2,725 in interest along the way. You could do a lot with that extra cash.

If you can’t afford an extra $100 a month, even a small amount can make a big difference. For example, add only $25 extra each month — a couple of lunches or a cheap dinner with your significant other — to your payment. You’d still make a difference, reaching a zero balance 16 months early, and you would save $982 in interest.

No matter how much more you put toward your student loans every month, you’re doing yourself a favor. Unfortunately, not everyone has the means to do so. That doesn’t mean you can’t find other ways to save time and money as you try to dig yourself out of debt.

1. Make Interest Payments During the Grace Period

After you graduate college, you’ll typically have six months before you need to start making payments on your federal student loans. This grace period offers a much-needed reprieve to graduates who are still trying to figure out life after school (private loans usually do not offer a grace period).

However, if you have unsubsidized federal student loans, interest begins accruing as soon as you’re done with school.

Paying the interest as it accrues during the grace period keeps it from being added to the principal. This is known as capitalization — and it’ll result in a bigger balance to pay off once the grace period is over. If you start out with $20,000 and an average 6% APR, for example, you’ll be looking at a higher balance by the time your grace period is over.

That bigger balance will increase your monthly payment by nearly $10 per month, and you’ll pay more over the life of the loan. It’s almost as much as you’d save paying an extra $25 per month.

2. Consider Refinancing

There are several banks that offer student loan refinancing, each with different features that may suit your needs. For example, you can refinance at a lower interest rate and even a shorter repayment term.

Keep in mind that refinancing also gives you the option to extend your term and, most likely, lower your monthly payment. This can be a great way to ease the burden of your monthly student loan bill. However, doing so will mean staying in debt longer and paying more in interest.

If you can’t afford your federal student loan payments, a better option is to look into income-driven repayment plans. Note: These plans are not available to you if you refinance with a private lender.

3. Use Autopay

Setting up automatic payments is a great way to ensure you’re on time every month. Even better, many student loan servicers give you a 0.25% discount on your interest rate if you enroll in autopay.

Taking our previous example, if you decrease your 6% APR down to 5.75%, you’ll save in interest.

4. Avoid Deferment & Forbearance

Federal student loans are eligible for deferment and forbearance if you’re struggling financially. But while student loan payments off your plate for even a few months may sound refreshing, find other solutions if you can — deferment and forbearance should only be used as a last resort.

Deferring subsidized loans freezes interest accruement, but unsubsidized loans don’t offer this benefit. If you choose forbearance, interest will continue to accrue during the pause in payments regardless of the type of loan you have.

5. Claim Your Tax Deduction

Each year, you’ll receive a 1098-E form showing how much interest you paid the previous year on your student loans. You can deduct up to $2,500 of student loan interest on your tax return each year, which will lower your adjusted gross income. This can also boost your tax refund a bit, or, if you owe money, lower your payment.

Remember to Be Proactive & Save

There are quite a few ways to save time and money as you’re paying down your student loans. The best way to do it is to proactively add more to your payments each month. If you’re not able to make that work, though, there are plenty of other ways you can make your student loans less of a burden. (You can see how your student loans are affecting your credit scores by viewing your free credit report card on Credit.com.)

Image: vgajic

The post How Increasing Your Monthly Payments Can Slash Your Student Loan Balance appeared first on Credit.com.

Higher Student Loan Rates Take Effect in July. Here’s What That Means for Borrowers

For the first time since 2014, the interest rates on federal student loans are going up.

For the first time since 2014, the interest rates on federal student loans are going up. Loans disbursed between July 1, 2017 and June 30, 2018 will carry the new rates, which are 0.69 percentage points higher than those of federal loans that have gone out since July 1, 2016. Here are the new rates:

  • Direct subsidized loans for undergraduate borrowers: 4.45%
  • Direct unsubsidized loans for undergraduate borrowers: 4.45%
  • Direct unsubsidized loans for graduate or professional student borrowers: 6%
  • Direct PLUS loans for graduate and professional student borrowers: 7%

Why Did the Interest Rates Change?

Legislation that went into effect in 2013 tied federal student loan interest rates to the 10-year Treasury note. Every year, the undergraduate loan rates are calculated by adding 2.05 percentage points to the high yield of the 10-year note at the last auction prior to June 1. Add 3.6 percentage points to the high yield to determine unsubsidized graduate loan rates, and for PLUS loans, add 4.6 percentage points.

How the Rate Change Affects You

If you’re getting a federal student loan in the next year, these are the rates you’ll pay for the life of the loan. Borrowers with existing federal student loans won’t experience a rate change, unless they have a variable interest rate, which is rare.

While the rates have gone up, they could be much worse: The 2013 legislation caps federal student loan interest rates at 8.25% for undergraduates, 9.5% for unsubsidized graduate loans and 10.5% for PLUS loans. Since the 2008 financial crisis, the benchmark rate has remained historically low, but if it rises, future student loan borrowers will pay. So if you’re going to college in the next few years, or will borrow on behalf of someone who is, keep tabs on the 10-year Treasury yield.

How to Change Your Student Loan Interest Rates

Whether you’re a new borrower or have been repaying student loans for a few years, you should know there are a few options for changing the interest rates on your student loans.

You could apply for a federal Direct consolidation loan, which combines multiple eligible loans into a single loan. The interest rate on that loan is the average weighted interest rate of the loans you consolidated, rounded up to the nearest 1/8th of 1%. Whether this strategy will save you money on interest depends on the balances and interest rates of the loans you’re consolidating.

Let’s say you have three loans with the following balances and interest rates: $3,500 at 4.66%, $6,500 at 4.29% and $7,500 at 3.76%. The weighted average interest rate of those loans is 4.14%. But if you switch the interest rates on the largest and smallest loan balances, the weighted average would be 4.36%. The math matters when considering consolidation.

You could also refinance your student loans at a lower rate with a private lender (there’s no federal refinancing option beyond consolidation), but you will lose many of the benefits federal student loans offer, like income-driven repayment plans and student loan forgiveness.

There’s also a simpler way to cut your student loan rates: Set up automatic payments. The savings may not be as significant as they can be with consolidation or refinancing, but most student loan servicers offer a rate discount to borrowers who enroll in auto-debit. If you’re looking for other ways to make your loan payments more affordable, here’s a list of your options.

It’s crucial you stay on top of your student loans, as missing payments can trash your credit and result in significant financial obstacles. You can see how your student loans and other accounts affect your credit by reviewing your free credit report summary on Credit.com.

Image: diego_cervo

The post Higher Student Loan Rates Take Effect in July. Here’s What That Means for Borrowers appeared first on Credit.com.

13 Confusing Student Loan Terms You Need to Know

It's important you understand your student loans, and that starts with learning the meaning of the terms you're likely to encounter in the student-loan worl

There’s no need to sugarcoat it: Student loans are complicated, and everyone from new borrowers to those who’ve been paying them for more than a decade find them confusing. As much as you might want to not think about them, it’s important you understand your student loans, and that starts with knowing the meaning of the terms you’re likely to encounter in the student-loan world. Here are 13 confusing loan terms you need to know.

1. Servicer

Your student loan servicer is the company to whom you send your student loan payments. It may or may not be the place you got your student loans in the first place, and your servicer could change as you repay your loans. Federal loan borrowers can find out their student loan servicer by logging into the National Student Loan Data System. If you have private student loans, your student loan servicer is the institution from which you borrowed the money.

2. Repayment Options

Federal student loan borrowers can pay back their student loans in several ways, and they can change their plan at any time for free (though it can take some time). The options include plans that allow you to lower your payments based on your income and plans that allow you to spread out your payments over a longer term. You can read more about your student loan repayment options here.

3. Forbearance

Forbearance is a temporary suspension or reduction of your student loan payments when you are unable to make payments as a result of financial problems, medical expenses, unemployment or “other reasons acceptable to your loan servicer,” according to the Education Department. Your loan will continue to accrue interest during this time and will be added to the principal balance when you exit forbearance. You must apply for forbearance. There are several circumstances under which your servicer is required to grant forbearance (mandatory forbearance), including a medical or dental internship or residency, National Guard duty and many others. You can only receive forbearance for 12 months at a time. If you have a private student loan, check with your lender to see if they offer forbearance.

4. Deferment

Deferment is a temporary suspension or reduction of your student loan payments during certain situations like unemployment, economic hardship, enrollment in school or active military duty, among others. You are not responsible for paying the interest that accrues on some student loans during deferment, but you are for most. You must request deferment, and you can stay in deferment as long as you meet the requirements. If you have a private student loan, check with your lender to see if they offer deferment.

5. Student Loan Forgiveness

There are several programs that allow you to get rid of some or all of your federal student loans, and you can read about them here. Keep in mind you may have to pay taxes on the forgiven balance, as the IRS may see it as income.

6. Delinquency

You are delinquent on a student loan when you haven’t made a payment on your student loans for 30 or more days since your last payment’s due date. Your student loan servicer will most likely report the late payment to the major credit reporting agencies, which will hurt your credit. (You can see how your student loans affect your credit standing by viewing your free credit report summary on Credit.com.) Delinquency also tends to come with late fees.

7. Auto Debit

Many student loan servicers call automatic payments “auto debit,” meaning your payment is automatically taken from your bank account on the due date every month. You can often get an interest rate reduction by enrolling in auto debit. It’s usually at least 0.25 percentage points.

8. Default

Default means you have not made student loan payments in a long time, and as a result, your entire student loan balance is now due. Your loan will have likely been sent to a debt collector at this point. For federal student loans, you enter default after you’ve failed to make a payment for more than 270 days. That time period is generally shorter for private student loans. You can learn more about the (very) negative consequences of student loan default here, as well as how to recover from it.

9. Refinancing

Refinancing your student loans means taking out a new loan to pay off your existing loans, ideally to make your loans more affordable. For example, you can take out a student loan that has a lower interest rate than the average interest rate of all your existing student loans, which can save you money over the life of the loan. Student loan refinancing requires taking out a private student loan, as the federal government offers no refinancing option. You could also refinance a student loan by paying it off with a home equity line of credit.

10. Consolidation

A federal consolidation loan combines all your eligible federal student loans into a single loan with one payment. The interest rate on that loan is the weighted average of all the included loans’ interest rates, rounded up to the nearest one-eighth of one percent.

11. Subsidized

With a subsidized loan, the government pays the interest on your student loan while you are in school or in deferment.

12. Unsubsidized

With an unsubsidized loan, you are responsible for all the interest that accrues on your loan during school, deferment and forbearance. If you do not pay the interest during that time, it is added to your principal loan balance.

13. Capitalized Interest

Any interest you accrue while not in repayment can be added to your principal balance, meaning you will pay interest on top of that interest. That’s capitalized interest.

Image: shironosov

The post 13 Confusing Student Loan Terms You Need to Know appeared first on Credit.com.

9 Questions to Ask About Student Loans Before You Graduate

Graduation's around the corner, so don't put off asking the hard questions about how to handle your student loan debt.

It may not be your first priority, but preparing to repay your student loans should be on your pre-graduation to-do list. How you manage your student loan payments will shape your finances for decades to come, so know what you’re dealing with before you get swept up in the day-to-day demands of post-graduate life.

Before you leave school, also make sure you know the answers to the following questions. Good news: We’re giving you them (or at least telling how to find them on your own).

1. What Kind of Loans Do I Have?

You either have private student loans or federal loans. You can look up your federal loans using the National Student Loan Data System (NLDS). You should have the paperwork from your lender or student loan servicer (private and federal) from when you took out the loan. Private loans generally come from traditional banking institutions, while federal loans are issued by the government. Common federal loans include Direct subsidized loans, Direct unsubsidized loans and Perkins loans.

2. Whom Do I Owe?

You can find this information in the resources referenced above. Your financial aid office should have information on file as well, since they receive the money. If you haven’t gone through student loan exit counseling at school, you need to before you graduate. They’ll explain whom to pay, and it’s the perfect time to ask any questions. Once you know who’s managing your loans, set up an online account to access all your information.

3. What Are My Repayment Options?

This depends on the type of loans you have. Private student loan repayment tends to follow a typical installment loan repayment structure, in which you make monthly payments for a fixed loan term. Federal student loans offer more options. The default play is called standard repayment: fixed monthly payments for 10 years. If you want a lower monthly payment when you start out, you can change your repayment plan at any time for free, though the change may not take effect immediately. If you want to enroll in an income-driven repayment plan, graduated repayment or extended repayment, be sure to request a new plan through your student loan servicer as soon as you can. You can learn more about student loan repayment options here.

4. How Much Are My Monthly Payments?

For loans with a set repayment term, the payment will be the same every month if you have a fixed-interest rate (as all federal loans do), or your monthly payment amount will change if you have a variable-interest rate (as some private loans do). Monthly payments through income-driven plans will depend on how much money you make. You should be able to get this information from your lender or servicer.

5. When’s My First Payment Due?

Federal student loans generally have a grace period of six months, meaning your first payment comes due six months after you graduate, leave school or drop below half-time enrollment. Some grace periods are nine months. If you have a private lender, you may not have a grace period — find out as soon as possible.

6. How Do I Pay?

You’ll start hearing from your lender or servicer soon if you haven’t already. Like most bills, you can go the old-school route of sending a check, or you can pay online. Keep in mind you don’t have to wait till your grace period ends to make a payment, and you can also enroll in automatic payments to make sure you don’t miss any. On that note: You don’t want to miss any student loan payments, because it will damage your credit, and your credit score plays a role in how much you pay for other credit products, as well as renting a home or buying a cellphone. You can keep tabs on how your student loans are affecting your credit by getting two free credit scores every month on Credit.com. If you’re thinking about getting a credit card after college, here are a few good options for new grads.

7. What’s My Interest Rate?

This should be in your loan paperwork and in your online account. Make sure you know if it’s a fixed- or variable-interest rate.

8. How Can I Make Repaying My Loans Easier?

If you have multiple federal student loans, which most borrowers do, you can consider consolidating them. With a federal Direct consolidation loan, you can qualify for certain loan forgiveness and loan repayment options (though you may not have to consolidate to qualify), and you’ll only have to make one monthly payment, rather than several to multiple servicers.

You could also consider refinancing multiple loans with a private lender, but know that you’ll be giving up many of the benefits that come with federal loans if you do this. There is no federal refinancing option. You can also enroll in automatic payments to make your life a little easier — just be sure to check that it goes through every month and that your bank account has enough money to cover the bill.

9. How Can I Make My Loans More Affordable?

Among the benefits previously noted, enrolling in automatic payments usually gets you a 0.25% discount on your interest rate. Private loan refinancing could also help you save money if you have good credit and can qualify for a lower interest rate. Additionally, changing your repayment plan to a longer term or an income-driven plan can lower your monthly payments.

There’s another way to look at loan affordability: long-term savings. For example, all the interest your loan accrued while you were in school will be added to the principal once your grace period expires, meaning you’ll have to pay interest on interest. You can avoid this by paying off the interest before your first loan payment comes due. You can also pay more than your minimum payment each month, which can help you pay off your loans early.

Student loans can be complicated, so reach out to your student loan servicer if you have questions. Conversely, if you’re having issues with your student loan servicer, you can file a complaint with the Consumer Financial Protection Bureau.

Credit.com can offer help with your student loans, too. If you have questions about them or other money stuff, leave your questions in the comments. 

Image: Peopleimages

The post 9 Questions to Ask About Student Loans Before You Graduate appeared first on Credit.com.

7 Effective Ways to Lower Your Student Loan Payments

Here are seven ways you can pay less on your student loans each month.

Nobody takes out student loans expecting to have trouble repaying them. But once the realities of post-college life set in, many borrowers do find that keeping up on payments is a struggle.

In fact, more Americans are burdened by student loan debt than ever, with a delinquency rate of 11.2%. And that doesn’t include many more who are barely keeping up.

Student loan payments can become unmanageable for a number of reasons: a job loss, pay cut, unexpected expense or simply too much student loan debt to begin with. If you’re struggling to make your payments, know that missing them can lead to disastrous consequences for your finances. (You can see how your student loans are affecting your credit by viewing two of your free credit scores on Credit.com.)

Fortunately, there are several ways to get your payments lowered to a more manageable amount. Here are seven ways you can pay less on your student loans each month.

1. Income-Driven Repayment Plans

For federal student loans, income-driven repayment (IDR) plans can be a smart way to manage student loans. There are currently four IDR plans available for federal student loans:

  • Income-Based Repayment (IBR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)
  • Income-Contingent Repayment (ICR)

Borrowers who enroll in income-driven repayment have their student loan payments lowered to a percentage of their income — 10 to 20%, depending on the plan. Payments can even be as low as $0 under IDR.

Some income-driven repayment plans also take local living costs into consideration when calculating the lower payment. This gives extra relief to payers in pricey cities.

Income-driven plans also offer student loan forgiveness on any remaining balance after 20 to 25 years of loan payments.

To enroll in an income-driven repayment plan, contact your federal student loan servicer. They can discuss your options with you and give you the correct forms to apply for IDR.

2. Student Loan Refinancing

If you have private student loans, one of the only ways to lower payments is to refinance.

By refinancing, you replace your old student loan(s) with a new one through a private student loan refinancing lender. This allows you to lower your monthly payments by getting a lower interest rate, extending the repayment period, or both.

For borrowers who have older federal loans with high interest rates (such as Grad or Parent PLUS loans), it can be worth it to refinance to lower interest rates. Keep in mind you will lose federal benefits, like access to IDR, if you refinance with a private lender. Extending the repayment period can also result in lower monthly payments, but might end up costing more in interest over time.

If you’re not sure if student loan refinancing could benefit you, shop around and get some rate estimates from private student loan companies. Most will perform a soft credit check to pre-qualify you, which won’t affect your credit. (You can learn more about soft credit checks here.)

3. Student Loan Repayment Assistance Programs

Another option to manage student loan payments is to get help through a student loan repayment assistance program (LRAP). This is free help with your student loans. Many states, government agencies, nonprofits and other organizations offer student loan assistance, usually as a way to attract qualified employees.

This student loan repayment assistance tool can help you filter LRAPs by your occupation, state and type of assistance. It’s worth checking to see if you can get free help with your student loans.

4. Deferment or Forbearance

If you need a break from your student loan payments altogether, deferment and forbearance can help by pausing payments.

Deferment can be a good option for federal student loans. It can be granted for disability, unemployment, financial hardship, a return to college or military service. Subsidized student loans won’t accrue interest while in deferment.

Forbearance can also be granted to pause student loan payments. However, all student loans will continue to accrue interest while in forbearance.

With either option, make sure you understand how your loans will accrue interest. If necessary, consider making interest-only payments so your balance doesn’t grow to be bigger than when you started.

5. Graduated Repayment Plan

A graduated repayment plan can help set payments low to start with, then increase every two years (hopefully as your income also rises) over 10 years.

This can be a good fit if you can’t afford full student loan payments now — but you expect to be able to afford to pay more later. If you want to stick to paying student loans off in 10 years, a graduated repayment plan can help you do it.

6. Extended Repayment Plan

The standard student loan repayment schedule is 10 years. But if you stretch your student loan repayment out over more time, this will lower the amount you pay each month.

The extended repayment plan can help you do this by extending repayment to up to 25 years, with either fixed or graduated payments. You’ll need to have more than $30,000 in student loans to get on the extended repayment plan.

This can be a good option if you want to extend your repayment schedule to between 10 to 20 years. However, if you expect to be repaying student loans for 20 or more years, the forgiveness that comes with IDR plans could make those a better option. Again, extending the repayment period can also cost you more in interest over time, so consider this option carefully.

7. Consolidate Federal Student Loans

Federal student loan consolidation combines federal student loans into a single Direct Consolidation Loan. The new interest rate is a weighted average of the previous rates on your consolidated loans.

Consolidating also gives you the option to choose a repayment period of at least 10 years and up to 30 years, which can greatly lower your monthly payments. Some other repayment plans might also require you to consolidate federal student loans to make them eligible for participation.

Keep in mind that unlike refinancing, federal consolidation does not result in a lower interest rate or savings of any kind. It can, however, simplify the repayment process and help open up monthly cash flow with lower payments.

Getting Student Loans Under Control

There are several ways to manage both private and federal student loans. With these options to lower student loan payments, there’s no reason to keep struggling every month.

Remember, you owe it to yourself and your financial health to investigate your student debt repayment choices and move forward with the right one.

Image: Jacob Ammentorp Lund

The post 7 Effective Ways to Lower Your Student Loan Payments appeared first on Credit.com.

How the Incoming Trump Administration Can Help Student Loan Borrowers

trump_student_loans

The 2016 presidential election is settled and a new administration will take office in two months’ time. Considering all that was said during this particularly contentious campaign, it’s no surprise that student loan borrowers are concerned about what that will mean to them beginning in 2017.

Two of the many items on my list of concerns have to do with the future of the Consumer Financial Protection Bureau, within the context of a potential repeal or overhaul of the Dodd-Frank legislation that created the consumer watchdog agency in the first place, and the Federal Direct Student Loan program, which the Obama administration established in 2010 as a successor to the simultaneously discontinued Federal Family Education Loan program.

The Possible Negatives

In the case of the CFPB, should Congress move to curtail the agency’s regulatory authority and/or impose more stringent oversight on its activities, I worry that less will be done to address loan-servicing-related problems, which include the misapplication of remittances on the part of private-sector administrators and their failure to promptly conduit financially distressed debtors into a government-sponsored payment relief program, or to prevent collection companies from pursuing past-due payments in a manner that violates the Fair Debt Collection Practices Act. (You can see how your student loan repayments are impacting your credit by checking your two free credit scores, updated every 14 days, on Credit.com.)

As for the Federal Direct Loan program, a financial services industry that benefited from virtually risk-free income courtesy of the government-guaranteed FFEL program is probably getting pretty excited about the potential for its reincarnation, now that smaller-government-minded lawmakers are in control of all three branches of our system. And not just for the new loans that will be taken out in the future.

A Fresh Approach

At present, roughly one trillion dollars’ worth of Federal Direct Loans are currently on the books, plus another $200 billion to $300 billion in legacy FFELs.

But if one were to tally together all the federally-backed loans that are at present delinquent and in default, plus all those that have been granted temporary forbearance and longer-term relief to date, and compare that total to the aggregate value of all the loans that are currently in repayment, that number would approach 50%.

Any loan portfolio that looks anything like that is one whose loan agreements were improperly structured at the outset. If we want these debts to be repaid anytime soon — without continuing to spend outrageous sums of money to accomplish that objective — the new administration would be wise to bite the bullet and restructure all these contracts over an extended term at a rate that properly reflects the federal government’s costs.

That’s the first step.

The second is to lock in that cost by financing the Federal Direct loans that currently reside on the education department’s balance sheet as any prudent private-sector lending institution would, instead of continuing the government’s potentially ruinous tact of borrowing short to lend long in a rising-interest-rate environment. The new financing can take the form of direct borrowing on the part of the federal government as it does now, or the education department can oversee the sale of these loans into the private sector while retaining administrative oversight of their servicing.

This stands in contrast to the old FFEL program, where private-sector lenders originated student loans backed by the federal government, and had the option to later sell these contracts into the secondary market for added profit. Not only did that program create significant remunerative opportunities at the expense of taxpayers (who would be called upon to make good on the government’s guarantees), but it also distanced the feds from directly overseeing the administration of the loans it backed.

In a nutshell, that’s the key reason why there’s been so much foot-dragging on the part of the companies that service the FFEL loans that are in repayment: the interests of the private-sector note holders and investors are at odds with those of the taxpayers.

Finally, the new administration would also be wise to address the matter of student loan dischargeability in bankruptcy. Not so that borrowers would have an easier time getting out from under the legitimate debts they incurred, but so the potential for abject loss at the point of default would inspire all lenders to negotiate in good faith with financially distressed debtors who, for the most part, truly desire to honor their obligations.

All of this boils down to having the courage to take an evenhanded approach to solving a trillion-dollar problem. Hopefully, this new administration has enough of that to go around.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

Image: Bastiaan Slabbers

The post How the Incoming Trump Administration Can Help Student Loan Borrowers appeared first on Credit.com.

If Average Student Loan Payment Amounts Are ‘Affordable,’ Why Are So Many Past Due?

student-loan-debt

Math is infinite.

Conjure up the largest number you can you can imagine and multiply that value by itself over and over again. You still wouldn’t reach an endpoint because there is none.

I thought about all that as I read Dr. Joel Elvery’s intriguing article on student loan debt in a recent issue of Forefront, a publication of the Federal Reserve Bank of Cleveland.

According to Dr. Elvery’s calculations, the average monthly installment for student loan borrowers between 20 and 30 years old amounts to a very manageable $351 per month. I use the words very manageable because that payment represents less than 9% of the average pre-tax starting salary for recent college graduates, as reported by the National Association of Colleges and Employers ($48,127 for 2014 grads, or $4,010.58 per month).

As such, it would be perfectly reasonable to ask, “Then why the big deal about student loan debt?”

I reached out to Dr. Elvery for a bit more detail behind the numbers. He wrote that the data for his analysis was drawn from the Federal Reserve Bank of New York’s Consumer Credit Panel.

This is the same FRBNY that recently reported how education-related debts that are 90 or more days past due totaled 11% of the nearly $1.3 trillion in loans that are currently outstanding.

It is also the same FRBNY that acknowledges in a footnote that this percentage rate is understated by roughly 50% (because only about half of these debts are actually in repayment), which makes the true percentage of student debts that are over 90 days late closer to 22%. And that doesn’t even take into account loans that are between 30 and 90 days past due (which, frankly, is the proper way to measure delinquency). Nor does it take into effect loans that are in temporary forbearance because the borrowers are unable to make the payments.

All told, the percentage of troubled student loans that are currently in repayment is actually closer to 40%.

No matter how you do the math, though, the fact remains that student loan payment delinquencies are significantly higher than for any other forms of consumer debt — the raw 11% statistic is nearly three times that of credit card obligations that are similarly uncollateralized.

So a better question to ask might be: Why are so many borrowers having so much trouble when the average installment payment amount appears to be so reasonable?

As Dr. Elvery explained in our email exchanges, his calculations involved a certain amount of data “cleaning” to address what he describes as “high outliers and other noise.” He offers as an example the process of estimating what borrowers would normally pay on loans that are 90 or more days past due; loans he terms as “in default.” His rationale for these downward adjustments is that the contractual payments on loans that are declared to be in default typically increase as a result.

Generally speaking, that’s true, but not in this case.

Unlike all other forms of consumer finance, student loan defaults are actually measured at 270 or more days past due. Consequently, the monthly payments are likely to remain unchanged until that time, which means that Dr. Elvery may have adjusted payments that didn’t need to be adjusted in the first place.

On the other hand, Dr. Elvery elected to include loans with zero payments due, even though these could represent debts that are in deferment (because the borrowers are still in school) and in forbearance (because the borrowers are unable to meet their contractual obligations).

Simply put, by excluding some high-value outliers and including certain zero-value payments, Dr. Elvery may have inadvertently excluded data that could have contributed to a fuller explanation.

Given the infinite nature of math, the most enlightening analysis is sometimes accomplished with the least amount of tinkering.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More Money-Saving Reads:

Image: vm

The post If Average Student Loan Payment Amounts Are ‘Affordable,’ Why Are So Many Past Due? appeared first on Credit.com.

9 Things Everyone Should Know About Student Loans Before They Graduate

college-graduation-ceremony

Image: Pamela Moore

The post 9 Things Everyone Should Know About Student Loans Before They Graduate appeared first on Credit.com.

The Ugly Truth About the Federal Direct Student Loan Program

federal Direct student loan

The Department of Education recently published a series of performance summaries for its Federal Direct, Federal Family Education and Perkins student loan programs. A little more than $1.2 trillion is due from roughly 42 million students, who owe an average $29,000 each.

The most comprehensive of these reports pertains to $855 billion in Federal Direct loans, of which $440 billion is in routine repayment. That’s “routine” in that it excludes loans in deferment, forbearance or default, yet 15%, or $66 billion, of the remainder are 31 or more days past due. That’s a horrendous statistic, particularly for a “scrubbed” portfolio like the one just described, and considering the delinquency rate for credit card balances — i.e., debts that are comparably unsecured, or uncollateralized — stands at 2%, plus a little decimal dust.

It also significantly understates the extent of the problem.

Of the $88 billion in deferment, $12 billion represents loans to borrowers who are currently unemployed or suffering other economic hardships; another $97 billion of loans are in forbearance, $56 billion are in default and $6 billion are characterized as “other.” That’s another $171 billion in past-due debt, which, when added to the aforementioned $66 billion of past-due accounts in the “routine” portfolio segment, amounts to $237 billion out of an adjusted total of $611 billion ($440 billion plus $171 billion).

In other words, nearly 40% of all Federal Direct loans qualify as troubled debts of varying degrees.

That doesn’t even take into account the increasing number of loans being granted relief under the government’s various income-based repayment plans, such as IBR and Pay As You Earn (PAYE). If not for that support, the delinquency rate could very well soar by an additional 10% to 20%.

Clearly, it’s a public and private sector engendered fiasco. The only logical course of action is to break apart the problem: address the loans that have already been made, and revamp the program going forward.

A portfolio in which nearly half the loans are past due, in default, deferred, in forbearance or require significant restructuring is one that was improperly conceived. Although it makes a certain degree of sense to link installment payments to household income (as the government is now doing), the process is awful: The onus is on individual borrowers to ask for and ensure they receive the help they need, year after year.

What I’ve just described is the definition of a portfolio that’s “managed by exception” as opposed to one this is “actively managed.” It’s the difference between waiting for the phone to ring instead of making the call in the first place.

Given the magnitude of the problem, the government has no choice but to restructure all existing contracts by extending repayment durations and adjusting interest rates to the current rate for new Federal Direct loans.

Doubling Loan Terms: A First Step

Specifically, the standard 10-year (120 months) loan term should be doubled to 20 years (240 months) for loans in repayment, less twice the number of monthly payments that have been made to date (since we’re talking about doubling the original duration). Borrowers should also have the right to accelerate their loan at any time without incurring a penalty.

For example, suppose a student accumulated $30,000 in debt with a 6.8% interest rate. The monthly installment comes to $345.24. Also suppose the student commenced his repayment two years ago. At this point, his balance would be $25,508.

Now let’s take that balance and spread it out over an additional 192 months (240 months less 48 months, which represents twice the 24 months that have been repaid) and finance it at the current 4.29% rate for Federal Direct loans. The monthly installment would be nearly halved to $183.36.

And should this borrower have the ability to continue making payments at the original amount of $345.24 per month, the reduced interest rate would cause his repayment term to contract to 74 months instead of the originally remaining 96 months.

No more pandering for relief, no more follow-up calls to confirm it was done correctly, no more marking the calendar for annual requalification. Not only would rates of delinquency, default, deferment and forbearance decline because the payments would become more affordable, the government would save money with subcontractors paid large bonuses for remediating problems caused by misguided loan structuring at the start.

Now, to address the program going forward, a 20-year repayment term is just the first step.

How to Make Better Loans Moving Forward

Loan approvals should be based on projected post-graduation financial capacity. Routinely reported average starting-salary levels for recent graduates could be used for this purpose. Also, the ability to discharge education-related debts in bankruptcy should be restored, if only to disabuse public-sector policymakers and private-sector lenders of the notion that student loan borrowers have no choice but to repay however much debt they saddle them with.

Finally, at whatever point the government decides (or is compelled by Congress) to begin divesting the immense amount of Federal Direct loans on its balance sheet, it should do so as principal rather than through private-sector intermediaries. By that I mean as long as the government continues backstopping these loans, it is entitled to dictate standards for transactions moving into the private sector. In particular, the must ensure financially distressed borrowers are identified early and dealt with forthrightly, wherever these divested contracts end up. Anything less will put taxpayers at risk.

At that point, our attention should turn to the reason we have this problem in the first place: the price of tuition.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More on Student Loans:

Image: Wavebreak Media

The post The Ugly Truth About the Federal Direct Student Loan Program appeared first on Credit.com.