Feeling stressed about money isn’t uncommon, but for many people with student loans, the burden takes a toll physically and psychologically.
According to a Student Loan Hero survey of more than 1,000 student loan borrowers, respondents reported experiencing anxiety, insomnia, headaches, social isolation, and more as a result of their student loan debt.
How Student Loan Debt Stress Can Affect You
Starting your career with tens of thousands of dollars in student loan debt can make the goal of financial security seem unattainable. Among those who responded to the survey, 61% feared their worries over student debt were spiraling out of control.
Respondents also reported the following physical and psychological symptoms due to stress:
Social isolation (74%)
Sleepless nights (65%)
Muscle tension (56%)
Apprehension or dread (55%)
These debilitating effects can leave you feeling helpless about your student debt. What’s more, they can permeate your life and leave you less productive at work, more isolated from your family and friends, and less happy in general.
If you’ve felt any of these effects of student loan debt, here are three tips on how to get back on track.
1. Get On a Better Repayment Plan
If your student loan payments are pushing you to your limits, you might be able to find relief through an income-driven repayment plan or by refinancing your loans.
If you have federal student loans, the Department of Education offers four income-driven repayment plans that can help lower your monthly payments to 10% to 20% of your discretionary income.
These plans extend your repayment term to up to 25 years, so you might end up paying more in interest in the long run, but you’ll get the relief you need now.
Keep in mind that private student loans don’t qualify for these repayment plans. If you have private loans, contact your lender to see if it offers relief for financial hardship.
Whether you have federal or private student loans, you might be able to refinance them to get a lower interest rate, a lower monthly payment, or both.
Several student loan refinancing companies offer low variable- and fixed-interest rates. But even if you don’t qualify for those rates, lenders also offer various repayment terms that can help you get more flexibility in determining your monthly payment.
For example, if you had $30,000 in student debt with a 6.00% APR and 10-year repayment term, your monthly payment would be $333. If you refinanced your loans with a 4.00% APR and the same repayment term, your payment would drop to $304. If you didn’t manage to get a lower interest rate but extended your repayment term to 15 years, your payment would still drop to $253.
Again, extending your repayment term could mean you’ll pay more interest over the life of the loan. But if your goal is to get relief now, it’s a viable short-term solution. And you can always refinance again in the future.
2. Get the Rest of Your Finances in Order
Massive student loan debt can be daunting enough. But if the problem is compounded by other financial woes, focusing on your student loans alone might not be enough.
For example, if you have bad credit, review your credit report to see if there are any areas you can start working on immediately. Delinquent accounts can damage your credit score the longer you’re late on payments. If you have any delinquent accounts, get them paid up to avoid worse consequences.
If things are really bad, consider working with a credit repair company to get the help you need and get back on track.
If you’re having trouble with student loan payments, create a budget to see if there are areas where you could cut back so you can manage your payments more easily.
To get started, calculate your income and monthly expenses. Then set goals for your monthly spending to make sure you can set aside extra cash for your student loans. Consider using a budgeting app to make the process go more smoothly.
Lastly, take stock of your other debt. If you have high-interest credit card debt, consider consolidating the debt with a low-interest personal loan or 0% balance transfer card. With less of your monthly payment going to interest, you’ll pay down your debt more quickly.
3. Seek Help if You Need It
If you’re suffering from the negative psychological effects of student loan debt, don’t rule out professional help. A financial therapist can help you put your student debt troubles into perspective and provide you with healthy ways to cope with your student debt and other financial issues.
The most important thing is that you have a plan. Using these tips can help you get started, but it’s up to you to set goals and follow through.
As you take steps to address your student debt and the psychological issues that come with it, you can develop the confidence to gain more control over your money—and your life.
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:
“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..
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.
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.
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 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.
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.
Public Service Loan Forgiveness (PSLF) is a program designed to attract workers to jobs in the public sector by wiping clean remaining federal student loan debt after 120 qualifying payments.
Those payments represent 10 years’ worth of work with a qualifying public service employer, so because PSLF began in October 2007, the first applicants are just beginning to submit their forgiveness forms.
Qualifying for PSLF means meeting specific requirements for the employer, the loan type and the repayment plan — and the details can be overwhelming.
With that in mind, here’s a step-by-step guide to applying for PSLF.
Step 1: Figure out if you qualify.
First, it helps to understand why PSLF exists.
“It’s meant to be a light at the end of the tunnel for public service jobs, when people know they could make much more money going private,” says Betsy Mayotte, director of consumer outreach and compliance at the nonprofit American Student Assistance. “A lot of the careers — social workers, teachers, public defenders — require advanced degrees. The problem there is that people would accrue all this debt, then find they couldn’t stay in these public sector careers because they didn’t pay well.”
But the definition of public service is strictly defined, and “it’s not your job that matters, but your employer,” Mayotte adds. “It matters who signs your paycheck. You can be a groundskeeper at a state school and qualify. Conversely, you can feel as if your job is public service, but if your employer doesn’t meet the specific definitions, you don’t meet PSLF requirements.”
Employers that qualify for PSLF, per the U.S. Department of Education
A government organization (including a federal, state, local, or tribal organization, agency or entity; a public child or family service agency; or a tribal college or university)
A nonprofit, tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code
A private, nonprofit organization (though not a labor union or a partisan political organization) that provides one or more of the following public services:
Public interest law services
Early childhood education (including licensed or regulated health care, Head Start and state-funded pre-kindergarten)
Public service for individuals with disabilities and the elderly
Public health (including nurses, nurse practitioners, nurses in a clinical setting and full-time professionals engaged in health care practitioner and support occupations)
Public library services
School library or other school-based services
Employers that DO NOT qualify for PSLF
For-profit organizations (this includes for-profit government contractors)
Nonprofits that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code or that do not provide a qualifying public service as their primary function
Partisan political organizations
You must work full time (whatever your employer characterizes that to be — though it must be an average of at least 30 hours per week by the PSLF definition) for one of these qualifying employers, or part time for two or more as long as it adds up to 30 hours per week, while you make your 120 on-time payments. You’ll also need to be in qualifying employment when you apply for your loan forgiveness.
Because you won’t be able to apply for PSLF until you have completed qualifying payments, it helps to build up a paper trail over the years. You should fill out and send an employment certification form (ECF) to FedLoan Servicing, which handles PSLF, each year and whenever you change employers. You’ll fill out personal information and have your employer sign the form before sending it in. The form isn’t required, but you’ll receive a response detailing your progress toward your 120 payments and confirming your eligibility — great for peace of mind as well as record-keeping.
“While you’re not required to submit the ECF at any point, it’s always a great idea to keep records,” says Adam Minsky, a Boston attorney who specializes in student loan and consumer issues. “An employer could go out of business, or lose the records of your employment. Mistakes can be made with paperwork. So if you find yourself having to make a case for yourself later, it helps to have all of this on record.”
FedLoan Servicing says my employer isn’t eligible. Can I appeal?
If the response to your ECF comes back and someone says your employer does not qualify you for PSLF, that’s generally the final decision, says Mayotte. “You can theoretically appeal, but these employer types are all pretty straightforward,” she adds. “The overarching rule is that there’s no wiggle room: You work for the government, a 501(c)(3) nonprofit or another qualifying nonprofit. The exception might be if you work for one of these other qualifying nonprofits, but you’ll need to make a case.”
To appeal, you can resend your ECF to FedLoan Servicing and ask for another review, or contact the Department of Education’s ombudsman unit. In both cases you should include evidence to show why you think your employer should qualify, Mayotte says.
But barring a clerical mistake by FedLoan Servicing, a change in decision is exceedingly rare.
Ensure your loan type and repayment plan qualify
PSLF provides forgiveness only for federal Direct Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct Consolidation Loans. Private loans, including bank loans that are “federally guaranteed,” do not qualify.
Loans made under other federal student loan programs, like Perkins Loans, aren’t eligible for PSLF on their own. They may become eligible, if they’re consolidated into a Direct Consolidation Loan — but it’s important to know that only payments toward that consolidated loan will count toward the 120-payment requirement.
Speaking of consolidation, here’s another thing you should know: If you consolidate qualifying loans, the clock resets to zero payments. A consolidation is considered a new loan, and again, only payments toward the consolidated loan will be counted toward your 120.
Don’t know which types of federal student loans you have? Check the Education Department site My Federal Student Aid. A pro tip from the Education Department: “Generally, if you see a loan type with ‘Direct’ in the name on My Federal Student Aid, then it is a Direct Loan; otherwise, it is a loan made under another federal student loan program.”
Additionally, you must be enrolled in the right type of repayment plan. Qualifying repayment plans include all four of the income-driven repayment plans, which base your monthly payment on your income and family size: Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE), income-based repayment (IBR); and income-contingent repayment (ICR).
Payments under the 10-year standard repayment plan qualify, but you’ll want to switch to an income-driven plan as soon as possible. If you stick with that 10-year repayment you’ll have paid off the loan, with nothing left to be forgiven under PSLF when you become eligible for it.
Make 120 qualifying payments
You’ll need to make all of those 120 payments during qualifying employment to apply for PSLF, but you don’t need to provide proof of those payments. Again, Minsky advises that it’s wise to keep your own records just in case there’s a clerical issue later — but generally, FedLoan Servicing will confirm the payments itself.
Note that the 120 payments do not have to be consecutive (nor, then, must be your employment with a qualifying public service employer). If you had periods of deferment or forbearance and stopped paying your loans, the count will pick up where you left off once you begin paying anew. Even defaulting on your loan payments doesn’t disqualify you, but you’ll need to rehabilitate the defaulted loan with your servicer before the payments can count toward your 120 again.
The payments do need to be on time, defined as “those received by your federal loan servicer no later than 15 days after the scheduled payment due date.” If your payment isn’t on time, or you pay less than what you’re required to that month, it won’t count toward your 120. You may make multiple smaller payments, but they must add up to at least the minimum payment amount for that month.
Step 2: Apply for loan forgiveness
After you’ve completed your 120 payments — phew, you did it! — go to the PSLF application here. The form is six pages long, but the actual application is only two. And you, the employee, must fill out only the first page: basic personal information like your date of birth, Social Security number and contact details. You’ll also need to certify under penalty of law that the information you’re submitting is truthful.
The second page is for detailing the employer’s information, and either you or your employer can fill out the top part. Here’s what it requires:
Federal Employer Identification Number (FEIN, which can be found on your W-2 — or ask your HR department)
Your dates of employment
Whether you were a full- or part-time worker
Which category of public service your employer falls under
At the bottom of the page, there’s a section for your employer to sign, certifying that the information above is accurate.
You’ll need to repeat that process for every qualifying employer. (That’s why it’s smart to keep track of it all by submitting ECF forms annually and whenever you change employers.)
The remaining four pages of the application form reiterate the details of what it takes to qualify for PSLF. They also explain where to send the completed application form:
You can mail to
U.S. Department of Education, FedLoan Servicing
P.O. Box 69184
Harrisburg, PA 17106-9184
In rare cases, you may not be able to obtain employers’ certification. There’s a checkbox on page 1: “Check this box if you cannot obtain certification from your employer because the organization is closed or because the organization has refused to certify your employment. The Department will follow up to assist you in getting documentation of your employment.”
“That’s another reason it’s prudent to send the ECF forms every year, because you’ll already have a signature on record,” Mayotte says. “I’ve heard of a few cases where employers were not comfortable filling out the form for privacy reasons, but usually if you show them the form and explain a bit, you can change their mind.”
Mayotte added that FedLoan Servicing will likely accept a tax return as proof of employment, but that solution is more of a “last-ditch effort” to satisfy the conditions.
It’s not yet clear, as the first qualifying borrowers are just now applying for PSLF. Mayotte says American Student Assistance is in touch with an early applicant, to see how the process goes, but no timetables for forgiveness have been confirmed. The Department of Education did not immediately respond to MagnifyMoney’s questions on the topic.
Yes. If you’ve made your 120 payments and are looking to switch to an employer who isn’t eligible, be sure to file your PSLF application first. You must also be employed full time at a qualifying employer or employers at the time the forgiveness is granted, according to the Department of Education.
While studentaid.ed.gov has all of the official information, it’s spread across different pages and can be unwieldy. American Student Assistance offers an excellent guide that breaks down the basics and also links to official webpages and forms.
Perkins Loan Cancellation and Discharge: This applies to people who perform certain types of public service or are employed in certain occupations. According to the Department of Education, for each complete year of service a percentage of the loan may be forgiven. That percentage varies by job/employer type, and the following workers qualify:
Volunteer in the Peace Corps or ACTION program (including VISTA)
Member of the Armed Forces (serving in area of hostilities)
Nurse or medical technician
Law enforcement or corrections officer
Head Start worker
Child or family services worker
Professional provider of early intervention services
Teacher Loan Forgiveness: Teachers who work full time for five complete and consecutive academic years (in certain elementary and secondary schools and educational service agencies that serve low-income families, and meet other qualifications) may be eligible for forgiveness of up to a combined total of $17,500 on Direct Subsidized and Unsubsidized Loans and Subsidized and Unsubsidized Federal Stafford Loans. (Those who have only PLUS loans are not eligible.) Read more about loan forgiveness programs available to teachers, including TEACH Grants and state forgiveness programs.
Programs for doctors and health professions: Several programs are available, including multiple military doctor loan forgiveness options through the Army, Navy and Air Force. Other options include state-specific forgiveness and the National Health Service Corps (NHSC), which can provide up to a $50,000 to repay a health profession student loan in exchange for a two-year commitment to a NHSC site in a high-need area.
Income-based repayment plans
This isn’t a traditional cancellation program like what’s above. These four federal income-driven repayment plans base your monthly payment on your income: Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE), income-based repayment (IBR) and income-contingent repayment (ICR).The payment terms vary, and your outstanding balance is forgiven after your repayment term of 20 to 25 years is complete. Because the monthly amount you owe will fluctuate based on your income, you could end up repaying your loans before your term is up, or you could have a balance that will be forgiven. However, if you receive student loan forgiveness this way, the canceled debt is taxable. (Only borrowers whose loan forgiveness stems from their employment are exempt from paying taxes on canceled student loan debt.)
Loan discharges for special circumstances
There are a few other times you may be able to get your student loans forgiven, but they’re relatively rare, and they’re generally because of bad circumstances. You can find out more about these discharges on the Department of Education’s website:
Just a few weeks into their college education, many students receive funds totaling hundreds or possibly thousands of dollars — the “extra” money from the student’s financial aid package. Usually, the money comes with little to no information on how students should spend it, or how to return any funds they may not immediately need.What many students may not realize immediately is, the majority of the time, taking any extra money not truly needed to pay for educational expenses results in them owing even more student loan money and making payments over a longer period of time after graduation.
Simply learning about the money and creating a budget could prevent many students from adding to the average $34,144 student loan balance they are already expected to pay back.
Your refund is the amount of money left over after all of your scholarships, grants, and federal and private student loans are applied toward tuition, fees and other direct educational expenses for the semester. The refund could come as a lump-sum direct deposit to your bank account, as cash or as a check.
The school legally has to disburse any leftover Federal Student Aid money you are awarded. “[Schools] cannot hold onto that credit balance unless the student gives written consent,” says Karen McCarthy, Director of Policy Analysis at National Association of Student Financial Aid Administrators (NASFAA). In the case of a PLUS loan, the parent must give consent for the school to hold the credit balance.
Most refunds most likely come from leftover federal student loans, but recipients of some grants may receive a refund for unused funds as well.
In fall 2009, Brooklyn, N.Y., resident Crystal Chery, was just beginning an associate’s degree program at Kingsborough Community College. She qualified for the Pell Grant, which covered $5,350 of her tuition and expenses for the school year. After tuition and fees totaling $1,550 were paid, Chery received a credit for about $1,125 to her bank account each semester.
While there is no official record of exactly how many college students end up with a positive balance on their account after all of their financial aid package is applied, each semester possibly thousands of U.S. college students in the United States find themselves in a similar position as Chery did her freshman year.
The total amount of financial aid that a student is able to receive is up to the institution’s calculated cost of attendance, which is a big part of the math that goes into calculating a student’s financial aid award. Sometimes colleges pad their total cost of attendance estimates to include things that aren’t directly paid to the school, like books, housing, transportation or child care. The idea is that the student will use any leftover funds for other things they need in order to go to school.
“Kids going to a $4,000 community college can walk away with about $5,000 of refunded money,” says college aid expert Joe Orsolini, especially if they find ways to save on expenses like housing. In Chery’s case, she lived at home, which meant she didn’t need any funds for housing.
If you received a refund from a mix of loans, scholarships and grants, carefully examine your refund to understand where it came from and if you’ll have to pay back that money.
Grant and Scholarship refunds
Grants and scholarships — truly “free money” — are usually applied to your institutional bills first. There may be restrictions on how you can use money from these sources, as rules vary widely by state, institution and scholarship program regarding how students are allowed to spend the funds they receive.
Usually the amount of “free money” a student gets is smaller compared to loans they receive and is depleted by direct institutional bills, so most students don’t get that money refunded to them. However, it’s possible for some students who received a large amount of scholarships to be refunded “free” money.
Chery isn’t required to repay the leftover Pell grant money she received for her education, as she doesn’t fall under any special circumstances like students who may have withdrawn early from their program, or dropped to part-time enrollment during the payment period. In addition, the school was legally required to issue her a refund credit for the excess federal funds.
If you receive a refund from unused federal student loan money, you’re free to keep it, but remember you’re still borrowing that money. You will need to pay any federal loan money refunded to you, with interest, starting six to nine months after you graduate.
Generally speaking, you should return any unused loan money that you don’t need right away to avoid taking out more in loans than you really need. But if you need to keep it, make sure you spend the money wisely.
Whatever you do, “don’t go buy a car or go on spring break with [your student loan refund],” says Orsolini. If you’re spending federal loan money, a $10 pizza today at 6.5% APR will cost close to $20 to pay off in 20 years.
Do that math for thousands of dollars in student loans. Make your best effort to limit any flexible, frivolous or impulsive spending to money you don’t have to pay back with interest.
How you handle your student loan refund may also depend on what kind of loan it is — unsubsidized or subsidized.
Subsidized student loans
Interest won’t begin to accrue on subsidized student loan money until six months after you have graduated. So, if you keep your refund, you don’t have to worry about racking up interest charges on the debt you owe while you’re in school.
For that reason Orsolini argues students shouldn’t give back any “extra” subsidized loan money until they are in their last semester of college.
“Until you know for sure that you’ve made it to the finish line, hang on to that money because you never know what is going to happen,” says Orsolini. He recommends placing excess financial aid funds into a 529 college savings account, where it can grow, and you can use the money if you plan to attend graduate school.
If students don’t want to open a 529 account, Orsolini recommends they stash unused subsidized loan money in an emergency savings fund, to help maintain as much flexibility as possible in paying for college.
Orsolini says this method provides a financial safety net for students, as you never know what can happen to your income. If you choose to do this, you should pay back any unused subsidized loan money the month before your graduation to avoid paying interest.
Warning: Orsolini’s method takes a lot of self-restraint.
Unsubsidized student loans
Students shouldn’t pocket any unsubsidized student loan money, as interest will begin to accrue immediately, and keeping the money won’t be worth it.
“Even if you put it in a savings account for a few months, it’s going to accrue more interest as a loan than it would in the savings account,” says Ashley Norwood, Consumer and Regulatory Adviser at American Student Assistance (ASA), a nonprofit student loan advocacy group that helps students finance and repay their student loans.
Avoid keeping unneeded unsubsidized loan money at all costs if you can.
If you find yourself keeping the loan because you need to live off of it, Betsy Mayotte, Director of Consumer Outreach and Compliance at ASA, suggests you do your best to reduce your cost of attendance.
You could make up some or all of the maximum $2,000 a student can receive in unsubsidized loans by getting a part-time job or a work-study job, for example. If cost of living is too high at the school you’re attending, look at a cheaper school or consider moving home if the school is close enough
Should You Spend Your Refund — or Return It?
Unless you have restrictions on how you can use it, what you decide to do with your refund money as a college student is really up to you.
“The assumption is that the student is using that credit balance to pay for those [indirectly billed] expenses,” says McCarthy.
But students don’t always do that.
“When I was in college, I remember all of my friends getting True Religions and all of this stuff [with their refund money] … I did not,” says Chery. “I was focused on other things.”
Chery used her fall semester “refund” to buy equipment to launch a DJ career, starting with a $1,350 MacBook, which she used to create her own mixes and to use at gigs she booked while in school. With the following semester’s refund, Chery purchased a Canon 60D DSLR camera for another $1,200 because she wanted to “dabble in photography and promote [her business].”
Chery says the investment paid off. After booking larger, professional gigs and gaining some experience, she was able to present work that helped her land an internship with Hollywood, Calif.-based media company, REVOLT TV, where she got to work with big-name music artists like Sean “Diddy” Combs and Damon Dash.
“When I started making these investments, I didn’t know that they were going to alter my career like that,” says Chery, who now hosts and books events with hundreds or thousands in attendance throughout the northeast United States.
After you’ve allocated funds to different areas of your budget, you need to figure out what to do with any extra funds. If the money is “free,” meaning you don’t have to pay it back later, you can keep it, but you may need to look into what you are allowed to spend it on, says McCarthy, as there may be restrictions on how you can use scholarship or grant money.
If you think you have enough money for your needs, the experts at ASA and NASFAA agree students should immediately send back any money they don’t think they need, since students can always ask for that disbursement again later on.
Giving money back or canceling a federal student loan won’t affect how much financial aid you are offered the following semester and if you need the money later on in the current semester, Mayotte tells Magnify Money.
“Let’s say you refused all of the loans. You can go back to the financial aid office and ask for part or all of that loan money up to 180 days after the last day of classes,” adds Mayotte.
As long as you were eligible to receive the student loan funds during that pay period, you can receive a federal loan for a prior or the current payment period without penalty if you ask for it within the 180-day period.
For example, you can technically still receive loan money you denied during the fall semester if you request a late disbursement for that money during your spring semester as long as it’s within 180 days after the end of the payment period.
Ask Yourself These 3 Questions Before Spending (Or Returning) Your Refund
Have you paid for all of your non-negotiable expenses for the semester?
Certain non-negotiable expenses (read: tuition and fees) are usually billed at the beginning of the semester, but the school won’t send you a bill for everything you can’t succeed without, like technology for classes, a working laptop, or sheets for your dorm bed. Here are a few possible spending categories you may or may not include in your budget:
Living expenses not billed by the institution
Books and other educational supplies you’re going to need over the course of the whole term
Transportation (gas, on- and off-campus parking)
Child care, if you need this so that you can attend school
Miscellaneous personal expenses
Do you need the money to cover other college-related expenses?
There are a host of hidden college costs college-bound families fail to consider for one reason or another, and they can dry an unsuspecting student’s checking account. They are all the little things families don’t think about during move-in, like organization membership fees and paying for food outside of a prepaid student meal plan. If you can’t cover those things with part-time income during the school year, tally up an estimate and keep what loan money you need.
Do you have an emergency fund?
You should have every reason to have savings, especially if you’re paying for school on your own. You won’t get many opportunities to stash away $1,000 in cash working for minimum wage as a barista in school. Pocketing some of the money now will help you steer clear of rainy days and expensive borrowing options in the future when those hidden costs creep up on you. Set one up ASAP.
How to return your refund to the Department of Education
The rule is simple: Return the loan within 120 days of disbursement, and it will be like you never took it out in the first place.
The rule is found in the text of the Master Promissory Note, which all FSA borrowers are required to sign promising to pay the loans back before they can receive any federal aid funds. The following information is found under “Canceling Your Loan”:
You may return all or part of your loan to us. Within 120 days of the date your school disbursed your loan money (by crediting the loan money to your account at the school, by paying it directly to you, or both), you may cancel all or part of your loan by returning all or part of the loan money to us. Contact your servicer for guidance on how and where to return your loan money.
You do not have to pay interest or the loan fee on the part of your loan that is cancelled or returned within the timeframes described above. We will adjust your loan amount to eliminate any interest and loan fee that applies to the amount of the loan that is cancelled or returned.
If you make the 120-day deadline, you’re in the clear. You won’t be required to pay loan fees or any interest already accrued on unsubsidized loans in that time. Sometimes, your university can send it back on your behalf, so your first point of contact should be the financial aid office at your institution. Check with them to see if they can send the unused federal student loan funds back on your behalf, or if you will need to send the money back to your loan servicer on your own.
After the deadline, you’ll need to simply make a loan payment back to your loan servicer. You can begin to pay your loans back while still in college. If you do, you won’t pay any interest on subsidized student loan money (it doesn’t begin to accrue until six months after you graduate), but you will pay any loan fees charged to your account.
When will I get my financial aid refund?
If you’re expecting a refund, you aren’t likely to see that money until after the add/drop period for classes — the grace period during which you can change your choices without penalty — ends. That can be about three to four weeks into the semester, although some schools may disburse funds earlier. According to the Department of Education, schools must pay a credit balance directly to a student or parent no more than 14 days after the first day of class or when the balance occurred if it occurred after the first day of class.
Until then, you’ll have to cover your costs out of pocket.
“Students who are expecting refunds are very anxious for them,” says Norwood.
Norwood adds the anxiety may be because many students who see a refund check are lower income — they may see the money because they qualified for more aid. They may depend on the funds from the refund to pay for important costs related to their education such as rent for off-campus housing or educational supplies for classes.
If you missed something on your financial checklist — like signing the Master Promissory Note or completing Loan Entrance Counseling — over the summer, you may see funds even later than four weeks. Overall, if you’re hoping to use refund money to cover your rent or other school expenses, you may need to come up with the cash by other means.
“If [students] don’t budget well for the whole year, it’ll be the same thing in January,” says Mayotte.
There is a silver lining for you if you received Federal Student Aid (FSA). As of July 1, 2016, Title IV schools are required to provide a way for FSA recipients to purchase books and supplies required for the semester by the seventh day of the semester if:
The school was able to disburse FSA funds 10 days before the semester began, or
The student would have a credit balance after all FSA funds are applied.
The school doesn’t have to write you a check outright for books. Institutions can award the funds in school credit or bookstore credit, too, but must grant you the amount you are expected to spend on educational supplies according to the institution’s calculated cost of attendance by the end of the first week of classes.
In the US, the amount of student debt has reached over $1.4 trillion. The bad news for students currently planning on attending college is that tuition isn’t getting any cheaper. Insofar as there’s good news, students are being more financially cautious when planning for college, researching their student loan options, opting to stay in state, or even taking time to earn residency for out-of-state public schools. But college costs aren’t just about paying the university itself. Here are some expected and some less obvious costs students need to budget for when heading to college.
1. Factor in Student Loan Interest
You already know to think about tuition (and perhaps how it compares to the amount of financial aid your top choices offer), but one thing many students don’t really think about until the first bill comes in is how much student loan interest can add to the overall cost.
For the average loan rate of $30,000 at 4% interest, the interest adds over $7,000 for the life of the loan. And that’s if you make all your payments on time—many students end up with loan amounts far higher than that. Some students learn the hard way that they’ll be paying about as much in interest as the amount they took out—or more. You don’t want to be taken by surprise when you get your first bill, so make sure you factor interest in early on.
2. Look into All of a School’s Required Expenses and Fees
Though tuition is the biggest expense, colleges routinely require a large number of other expenses. Textbooks and supplies can cost hundreds or thousands of dollars. Further, many schools expect students to live on campus and purchase a meal plan their first year, and these annual on-campus housing and meal plans can cost about $9,000.
According to the New York Times, mandatory fees are on the rise, and they cost students at four-year public colleges nearly $1,700 during the 2015–2016 school year. These fees range from understandable to seemingly arbitrary—schools charge for everything from dropping a class to “student success fees.” In fact, mandatory fees have risen 30% more than tuition since 1999, so make sure you look into what fees will tack on to your overall college expenses.
3. Consider Transportation
Wherever you go to college, you’ll need to get around. Some schools are located in areas with thriving public transportation or have compact enough campuses that you can bike or walk most of the time. In these cases, you should simply check how much public transportation costs (it could be free or heavily discounted for students), and consider bike maintenance expenses in your budgeting if relevant.
If your school is located somewhere where a car is necessary (or if you want the option of driving home on the weekends), then you have a number of additional expenses to consider—in addition to the car itself, of course:
Parking—Many colleges charge hefty parking fees (often to discourage crowding the campus with cars). However, some housing will include parking spaces or garages.
Insurance—If you’re staying in state for school, you can stay on a parent’s insurance policy (as long as your primary residence is still your home address). Make sure you consider coverage beyond the state-required liability coverage, and always make sure to compare quotes to find the best coverage at the best rate.
Gas—Pro tip: If your friends are bumming rides to the grocery store or elsewhere around campus, ask them to chip in for gas.
Maintenance—Take preventative care of your car, get regular check-ups, and keep supplies like jumper cables and an ice scraper in your trunk.
Don’t forget the wonders of modern transportation options. Consider ridesharing or check out car2go or Zipcar for on-demand driving alternatives.
Also, if you’re heading a longer distance from home to go to school, you’ll need to factor flights into your yearly expenses.
4. Don’t Forget the Fun Stuff
Yes, you’re there to learn, but college is full of new experiences, so don’t neglect budgeting for those as well.
Big sports fan? Season student tickets to football, basketball, hockey, etc. can cost a chunk of change. Into theater or music? College campuses draw great talent on small and big stages alike, and ticket prices can run a wide range.
Cold or hot beverage? Pitch in for a tailgate beer or two, and anticipate needing LOTS of caffeine. And ice cream can help get you through exams, so put a little change aside for these treats, too.
Spring break can also be expensive. Whether it’s a trip to the beach or the ski slopes, if a springtime trip is in your future, set some travel funds aside.
Bonus Build Good Financial Habits Now (and Thank Yourself Later)
In addition to budgeting, you can start building other good financial habits for long-term benefit.
Start earning. Think about work options—but don’t be overly ambitious. Working during your college years can help offset your expenses, but if you try to work too much, you risk letting your studies slip and not getting your money’s worth for tuition. Don’t assume you can pull off a full-time job and still finish in four years when you’re working out your budget. Consider a more realistic goal of 15–20 hours a week, and if you decide to do work-study, apply fast before the jobs get snatched up.
Start building credit.
College is the perfect time to seriously start building your credit so you can more easily navigate post-college life.
Consider getting a student credit card and responsibly using it so you build your credit during your four years. Start with a small credit line and choose a card that rewards you for making your payments on time. When you build your credit during college, you’ll be set up to smoothly maneuver the post-grad life experiences that require good credit, including finding housing, purchasing a car, saving on insurance, or starting your own business. Your credit score is partly affected by your track record of making credit payments over time, so you’ll be glad you started building your credit early.
College is expensive, and even if you do everything right, there’s still a good chance you’ll have loans hanging over your head for a while after graduation. It’s worth making cautious decisions based on financial considerations when choosing your college and budgeting for the next four years, but know that if you keep up with your studies, it will likely all pay off.
Whether you’re just starting college or are entering your senior year, chances are you’ve taken out student loans somewhere along the way. With many student loans, you aren’t required to make payments at all until about six months after you’re no longer enrolled in school full-time.
That’s a good thing, right? Well, maybe not.
In fact, making absolutely no payments on your student loans while you’re in school can mean that you graduate with a lot more debt than you expected. That’s because interest accrues on some of these loans while you’re still a student.
Did I lose you? Don’t worry. Here’s a quick primer on what all that means for you.
Understanding How Interest Works on Federal Student Loans
First, know that we’re mainly talking about federal student loans here. If you have private loans, they may work differently. Check your loan paperwork to find out.
When it comes to federal student loans, though, they fall into two main categories: subsidized and unsubsidized.
You have to meet certain income qualifications to get subsidized student loans. If you qualify, the government will pay the interest on these loans while you’re still enrolled in school. We’ll see in a moment why that’s advantageous.
On the flip side, the government does not pay interest on unsubsidized student loans while you’re in school, but you’re still not required to make payments.
On unsubsidized loans, interest is charged from the day the loan is issued. You can figure out this date from your loan paperwork. So if you have a loan with a 5% interest rate, that annual interest is charged starting on the issue date.
Most loan interest is compounded daily, meaning that the total interest rate is divided by the number of days in the year. Each day, the lender charges that amount of interest on the loan’s outstanding balance.
So if you don’t make any loan or interest payments while you’re in the grace period, your interest continues to accrue. The longer you go without making payments, the more interest will accumulate.
This, in and of itself, isn’t the end of the world. You can always catch up on interest payments once your grace period is over. However, capitalization can turn accrued interest into a huge problem.
At certain points in the life of your loan—like when your grace period ends or after you exit a period of deferment—any unpaid interest on the loan capitalizes. This means that the unpaid interest is added to the loan’s principal balance. Then your interest is calculated based on that new, higher balance. So not only do you have a higher balance to pay off, but your interest payments are higher each month, too.
Doing the Math
This is all kind of confusing, so let’s look at how the math breaks down.
Let’s say you take out a $10,000 unsubsidized federal student loan at 5% annual interest. You’ll pay 0.013699% interest daily. Doesn’t sound like much, but it comes out to about $1.37 each day. So over the course of a month, you’ll accrue roughly $42 in interest.
Again, that doesn’t sound like a lot of money, so what’s the big deal?
Well, play this out over the course of your college career. You take out this loan as a freshman, and you let interest accrue for your entire school career, including the six-month grace period after you graduate. Let’s say that totals 54 months.
In 54 months, your total interest accrued on the loan is around $2,268. If that interest capitalizes when your grace period ends, your principal balance is now $12,268. That means your daily interest is about $1.68, making your monthly interest about $51.
Again, it doesn’t seem like a huge amount of money. But multiplied by several years’ worth of student loans, it can really add up.
This is just a general example, though. You can use this calculator to determine just how accrued interest could affect your particular student loans.
Making Interest-Only Payments
Even if you can’t make full interest-only payments, paying what you can to reduce your loans’ capitalized interest is a smart idea. To figure out how to do this, just get in touch with your student loan servicer. Usually you can send in your payments online.
Since you’re not technically on the hook for paying off your loans, you don’t have to make payments every month. But if you come into some extra cash or get a paid internship, consider devoting some of your budget to paying off your student loan interest.
Student loans can be overwhelming, but paying off interest as you go is one way to pay less in the long run. If you have more questions on the best way to tackle your loans, check out these additional student loan resources for expert answers and guidance.
Paying off debt is often a top priority. Not only can too much debt hurt your credit score, it can impact your ability to achieve other important milestones in life, such as buying a home.
But when it comes to student loan debt, obsessing over repayment and devoting every spare penny to paying down balances can actually have negative consequences, particularly when you become so focused on repayment that you ignore all other elements of a sound personal financial plan.
“I’ve seen a number of individuals who have devoted unhealthy amounts of time and money towards paying down their student debt, people who are pinching every penny,” says Michael Lux, founder of The Student Loan Sherpa, a website focused on student loan education, strategy, and borrower advocacy. “You can’t just look at your student loan debt in isolation. You need to consider all of the things that paint the complete financial picture.”
As Lux indicated, there’s a variety of reasons why devoting too much of your hard-earned income to repaying student loans can be an unwise approach. Here are the top five.
1. It’s Not Sustainable in the Long Run
Denying yourself all of the day-to-day extras that you enjoy in order to pay off your student loan is not likely to work forever, says Lux.
“The key to success is making it sustainable for years,” he explains. “First, you have to know yourself. When you make a budget, you have to make a realistic budget. If you’re someone who loves the movies, you have to budget money to go to the movies.”
Another tactic that helps create a more balanced and manageable approach is to create milestone repayment goals for yourself and then reward yourself in small ways when attaining those goals, says Lux. For example, when a loan is half paid off, treat yourself to a fancy dinner. Or, when one loan is completely paid off, find another affordable and meaningful way to indulge in some positive reinforcement.
2. Retirement Savings Should Also Be a Top Priority
Paying off student loan debt should not come at the expense of getting started on a retirement plan. But unfortunately for some, that’s exactly what’s happening.
“Many people put paying off student loans ahead of retirement saving,” says Ryan Farnung of New York–based GPS Financial. “So while they are saving some interest on student loans, and ultimately freeing up some monthly cash flow, they may also be . . . missing out on the potential to tap into the power of compounding interest.”
Carrying some student debt is all right, says Farnung, if it means using your money elsewhere in ways that will provide a greater long-term benefit.
3. Establishing an Emergency Fund Is Also an Important Part of a Healthy Financial Plan
A sound personal financial plan also includes establishing emergency savings accounts, ideally two separate accounts—one with six months of living expenses and a separate liquid emergency fund.
“Student loan rates are so low right now, under 4 or 4.5%,” says Oliver Lee, owner of Michigan-based The Strategic Planning Group. “So I always recommend my clients pay the very bare minimum. Then, create a six-month or one-year living expense shelter so if something goes wrong when you get out of school or you can’t find a job, you have the money you need. And once you have that, you also need a liquid emergency fund—in case the tires go bad on the car or the transmission goes. This account should have $1,000 to $3,000.”
Those who don’t have such emergency funds are likely to rack up costly credit card debt in order to pay for life’s unexpected expenses. And the interest on a credit card is almost always far more than the interest on a student loan.
“You could have your student loans completely paid off and yet have $10,000 to $15,000 in credit card debt because you had no emergency funds,” says Lee. Making savings a priority can help prevent unnecessary credit card debt.
4. Real Estate Is a Better Investment
Devoting too much money to student loan repayment often leads people to put off other investments that come with valuable rewards of their own. Home purchases are a prime example.
Real estate has historically given returns far above the interest rate of student loans, says Lyn Alden, founder of Lyn Alden Investment Strategy. So it’s beneficial to prioritize building these sorts of investment assets, even if it means keeping low-interest student loan debt around for a while.
5. Missed Life Experiences
There are many variables to consider when deciding how much money to devote to student loan repayment, but according to Farnung, they revolve around one primary question: what are you giving up today in order to improve cash flow tomorrow?
It’s easy to measure how much it costs to carry student loans by determining how much interest you pay annually and what that looks like after taxes. But what’s far more difficult to measure is the experiences you may miss out on or the opportunities for real financial growth you may be overlooking when focusing solely on student loan repayment.
“If you’re postponing funding and maintaining an emergency fund, contributing to your retirement savings, getting married, buying a home, or any number of other life goals and aspirations, you need to take a step back and really think about what the interest on your student loans is costing you,” says Farnung.
Graduate school funding is a bit trickier than undergrad funding. Your options for loans and grants become more limited, and while work-study opportunities may be attainable and provide great experience, they often eat up a lot of time but offer low compensation.You do have options, though — whether you’re a grad student or a parent. This guide will take you through them all in detail.
As a grad student, you have three federal student loan options: Direct Unsubsidized Loans, Direct PLUS Loans, and Perkins Loans. Each financing option looks different, and you may need a combination of these loans to fully fund your education.
Federal loan options and programs
In order to qualify for any federal student aid, you must meet certain requirements. You must:
Have a high school diploma, home-school high school education, GED, or other certification of equivalency.
Be a U.S. citizen, national, or permanent resident.
Have a Social Security number. This requirement is waived if you are from the Marshall Islands, Palau, or Micronesia.
Register with the Selective Service if you’re a male age 18-25. If you do not do so during this time frame, it can impact your ability to access federal financial aid later in life.
Be enrolled or accepted into a school with the aim of obtaining a degree, certificate, or other recognized educational credential.
Maintain good grades. Standards for this requirement vary from school to school.
Certify that you aren’t currently in default on any federal student loans, that you owe money back on a grant, and that you will only use the money for educational endeavors. This certification happens on the FAFSA application.
If you meet all of these requirements, you now have to look at specific qualifications for each type of student loan.
Direct Unsubsidized Loans
In order to qualify for a Direct Unsubsidized Loan, you must be attending a participating educational institution at least half-time. You must also be enrolled at least half-time in a program that will lead to a degree or certificate. There is no need to demonstrate financial need in order to qualify for a Direct Unsubsidized Loan.
Direct PLUS Loans
Direct PLUS Loans have very specific credit standards. In order to qualify, you must meet the following requirements:
Must be pursuing a degree or certificate at the graduate or professional level and going to school at least half-time — or be the parent of a student who is doing so.
Cannot have a debt that is currently 90 days delinquent with a balance of over $2,085.
Cannot have an item worth over $2,085 sent to collections or written off in the two years prior to your application.
Cannot have any of the following appear on your credit report in the past five years: default determination, bankruptcy, foreclosure, tax lien, repossession, wage garnishment, or a write-off of other student loan debt.
These standards apply to both student and parent borrowers. If you cannot meet them, you can still borrow money by finding a co-signer who does meet these standards.
You may also be able to qualify if you can prove the blip on your credit report was caused by extenuating circumstances. In order to qualify in this way, you’ll need to complete credit counseling to the satisfaction of the PLUS program.
Perkins Loans are reserved for those with exceptional financial need. You prove this need by filling out the FAFSA as you normally would.
If you are eligible based on need, you need to get in touch with your financial aid office because your school is the actual lender. Not all schools participate, and not every school has sufficient funding for this program to offer the full $8,000 grad students may be eligible for. It’s important to fill out the FAFSA early and to approach your school about these loans as soon as you get your results.
Pros & cons of federal student loans
There are times when taking out federal loans will be advantageous to you as a grad student and times when other options may make more sense. Let’s drill down into the pros and cons.
Aside from Perkins Loans, federal student loans give you access to a number of repayment options, including options that allow you to adjust monthly payments based on your current income.
Depending on the private lender, credit requirements are typically more lax than they will be in the private sector.
Interest rates on Perkins Loans are competitive — if your school participates and if your financial situation is considered dire enough to qualify.
The fact that there are origination fees on Direct Unsubsidized Loans and Direct PLUS Loans is a major negative as it will cost you money to borrow the money in the first place.
Interest rates on Direct PLUS Loans are not competitive if you have a good credit history. You may be able to save money by moving to the private sector in specific circumstances.
Direct Unsubsidized Loans and Direct PLUS Loans require at least half-time enrollment. If you are pursuing a graduate-level degree while working a day job, this may present a problem depending on how many credits you are able to take on at once.
Federal grant and programs for grad school
While loans are money you will have to pay back, grants and work-study programs are sources of funding that you won’t have to repay. It’s essentially free money. At the graduate level, you have a few federal options.
The Teacher Education Assistance for College and Higher Education (TEACH) Grant is a program that pays for part of your education as long as you promise to use your degree in a high-need, low-income area for four of the eight years following the completion of your education. You can also teach at a Bureau of Indian Education school during this time period to qualify.
If your grant was disbursed today, the maximum grant amount you could qualify for would be $3,724. If it isn’t disbursed until after October 1, 2017, the maximum amount awarded jumps to a potential $3,736.
Your school will have to participate in the TEACH program, and your school will have specified which programs qualify for the grant. Get in touch with your financial aid office to find out if your program is eligible.
While you’re there, make sure you are eligible by checking your school’s academic requirements for qualification.
If you do not teach in a high-need field in a low-income or Bureau of Indian Education school for four of the first eight years after your graduation, your grant will turn into a Direct Unsubsidized Loan, which will have to be repaid.
It is extremely rare for a grad student to qualify for a Pell Grant. In fact, for eligibility purposes, you’re not allowed to be pursuing a graduate degree.
The only time Pell Grants are available after undergrad work is when you are pursuing a postbaccalaureate teaching certificate. Even then, your certificate program must meet the following requirements:
It does not lead to a degree.
It is a prerequisite in your state in order to work as a primary or secondary school teacher.
It comes from a school that does not offer a bachelor’s degree in education.
It must be a postbaccalaureate program.
For your part as a student, you must meet the following requirement as well, if you’re going to qualify:
Enrolled at least half-time.
Pursuing your initial teacher certification/licensure within your state.
If a financial need is demonstrated when you fill out the FAFSA, you may be offered a work-study position. If your school participates, you’ll be given an hourly or salaried job where you are paid at least monthly. Your financial need will determine the number of hours you receive.
The kind of job you are assigned will depend largely on your school. You may find yourself in one of these fields:
Positions at your school
Fields relevant to your course of study
If you end up with a position on campus, you’ll likely be working for the school. If you are working off-campus, you’re more likely to be assigned to a position serving the public good or working in a position relevant to your future career.
You’ll make at least minimum wage, though as a grad student you may have some desirable skills that could land you a position with a pay boost.
Your school is obligated to issue you a paycheck at least once per month. The money will come directly to you unless you set up ACH payments, or you are applying your earnings toward tuition, fees, or room and board.
Grants are a form of financial aid that you don’t have to pay back under most circumstances. However, if you don’t hold up your end of the educational bargain, you may have to return money that was paid to your school, or money you received as a refund check from your school.
You could end up owing money back for your federal grant if:
You don’t meet TEACH program guidelines as outlined above.
You drop out of school partway through the semester.
You reduce the amount of credits you are taking after the grant has been issued.
If you are disappointed by your FAFSA options, you should know that there are other ways to find funding for your graduate-level education. Be sure to review theses resources prior to taking out loans.
Federal grants at the graduate level are admittedly thin. If you’re looking for other ways to pay for school that don’t involve student loans, here are some additional federal agencies outside the Department of Education. They may be able to help.
In exchange for all of this money, you will be obligated to serve either on active duty or in the reserves after you have completed your education. Because you have a college education, you will enter the military as an officer.
Post-9/11 GI Bill
If you served in the military for at least 36 consecutive months after September 10, 2001, or were honorably discharged due to disability after serving 30 consecutive days after the same date, the Post-9/11 GI Bill may cover your tuition and fees.
If a smaller portion of your service happened after September 10, 2001, you may be eligible for prorated benefits.
All in-state tuition and fees will be paid at public schools, and up to $22,805.34 will be paid at private schools. This number changes annually.
If you still have a gap between how much the school charges and how much the Department of Veterans Affairs (VA) will pay under the latest version of the GI Bill, check to see if your school has opted in to the Yellow Ribbon Program. Schools that do so reduce the tuition of veterans to meet the maximum VA payout, leaving you with a bill of zero dollars.
Yellow Ribbon schools may also provide funding equivalent to a Basic Allowance for Housing in addition to a stipend for books.
AmeriCorps is a volunteer opportunity with some perks for college students. When you volunteer, you earn money for school through the Segal AmeriCorps Education Award. The amount of money you earn depends on how time-intensive your service is.
For example, currently if you volunteer in an approved position for more than 1,700 hours over a 12-month period, you would qualify for an education credit worth $5,920 for the 2017-18 school year. You can only earn up to two full-time education credits. You can find further examples of how much you can earn on the Segal Award Eligibility page.
As a member of AmeriCorps, you may find yourself in one of the following positions or one like them:
Relief efforts after a natural disaster
Tutoring K-12 students
Building affordable housing
Working with local nonprofits and community groups
If you have served as an AmeriCorps member after October 1, 2009, at the age of 55+, you may have accrued educational benefits that you can pass on to your child, stepchild, or grandchildren. You can learn more program specifics here.
Other sources of federal grants for grad school
Higher education agencies in your state
Another great place to look for funding is the agency that handles higher education in your state. These state-level organizations typically offer grants. You’ll likely be prompted to visit your state’s website at the end of your FAFSA application, but if you want to learn more about available programs now, you can find yours here.
Your school’s financial aid office
Your school likely has endowments and partner employers — both of whom are likely to offer scholarship and/or grant opportunities. To find out what may be available at your school, schedule an appointment with the financial aid office.
Industry and professional organizations
Many industry and professional organizations offer some type of scholarship program for those studying in the field. Applying for these scholarships won’t just help you pay for school if you’re awarded — if you win one, it will look phenomenal on your future resume.
Some of these organizations will require membership prior to application. While membership fees can be expensive in some organizations, many provide student-level memberships at a steep discount.
Private loan options for grad school: A last resort?
Private student loans are issued directly by lending institutions without the backing of the U.S. Department of Education. You can look to banks, credit unions, or online marketplace lenders to access these loans.
Pros & cons
If you have a good credit history, you may be able to obtain a loan with lower rates than those currently offered via federal programs.
You may be able to access more capital than you would with federal loans, depending on your credit history and the type of federal loan.
You can shop around for different options. Some lenders don’t charge origination fees, and some are even willing to work with you in cases of hardship.
You will not have access to advantaged repayment programs like PAYE, REPAYE, IBR, ICR, and PSLF, which are all covered in sections below.
If you do not have a good credit score, interest rates may be higher than federal loans, or you may not be able to get a private loan at all, depending on the severity of content in your credit report.
You have to shop around for different options. Some lenders will not work with you in cases of hardship, and factors like variable versus fixed interest rates may throw you for a loop if you’re not careful.
Questions to ask before you borrow private loans for grad school
Before you take out any student loans, you’ll want to get answers to these questions.
Variable interest rates start out lower. They may even stay lower for a set amount of time. But after that, they adjust to the market. You may get lucky and have rates go down, but rates are already so low at the moment that you’re almost sure to see them go up instead.
Fixed rates start out higher than variable rates but stay stable throughout the course of your loan term.
Shorter loan terms sometimes mean higher monthly payments, but you’ll usually end up paying less in the long term because of the way interest accrues over time.
If you can’t afford the monthly payments, though, you could end up paying late fees or damaging your credit. Longer loan terms may mean paying more interest by the time you’re through, but they also have the potential to lower your monthly payments.
Some lenders provide payment plans that allow you to defer payments until after graduation. Other payment plans start your payments immediately. Still others require interest-only payments while you’re in school, with principal payments being added after graduation.
Does the lender offer any type of deferment in times of economic hardship? Some lenders will even work with you to help you find a new job or temporarily reduce monthly payments while you are in specific employment conundrums.
There are a slew of different repayment options depending on which type of loan you take out. Whether you start repayment during your studies or after, there are some things you can do to prepare.
Federal grad school debt
Students are not required to make payments until six months after their graduation — or nine months if you have a Perkins Loan. Just because you don’t have to make payments during this time period doesn’t mean you shouldn’t.
When to start repaying your federal grad school loan debt
The types of federal loans available to you as a graduate student accrue interest while you’re in school and during your grace period/deferment. You are not required to pay that interest immediately, but the unpaid interest will be added to your principal balance.
By making interest-only payments while you’re in school, you prevent these interest rates from multiplying upon themselves, saving you money.
You can pay toward the principal while you are in school as well, if you so choose, as there is no prepayment penalty on federal student loans.
Parents who have PLUS loans are typically required to start repaying immediately after the loan is disbursed. You can, however, request a deferment for the period during which your child is in school. It would be wise to make interest-only payments during this period if you choose to go this route.
Federal loan forgiveness and repayment assistance programs
Federal loans give you access to many advantaged repayment and forgiveness programs. Keep in mind that while advantaged repayment plans are designed to make your monthly payment lower, they have the potential to cost you more over the course of your loan — especially if they don’t end in forgiveness — as interest will be charged over a longer period of time.
Income-Based Repayment (IBR)
If you took out your first student loan prior to July 1, 2014, and your student loan payments are more than 15 percent of your discretionary income, this program allows you to pay a maximum of 15 percent of your discretionary income for 25 years. After that point, your remaining debt is forgiven.
If you took out your first student loan after July 1, 2017, the capped percentage is 10 percent, and you will only have to pay it for 20 years.
Take your income and subtract 150 percent of the poverty level in your state. If your monthly student loan debt payments are more than 10 percent of the difference, you may qualify for PAYE. Use this calculator to see if you qualify.
Your monthly payments will be limited to 10 percent of your income and will never exceed what you would pay on a 10-year Standard Plan. After 20 years, the remainder of your debt will be forgiven.
You only qualify for this plan if your first student loan was disbursed after October 1, 2007, and you have received at least one disbursement since October 1, 2011.
REPAYE does not have the same timing restrictions of PAYE. In fact, the date you took out your loans is irrelevant. There are also no income restrictions.
However, while you will only have to pay 10 percent of your discretionary income, there is no protection stating that your payments will not exceed those of a 10-year Standard Plan. You could end up paying more with this program — especially with a higher income.
Remaining balances on graduate school loans will be forgiven after 25 years.
Under PSLF, you make payments for 10 years while you’re working 30+ hours per week and considered a full-time employee by your employer. This job must be in a position of service, and the remainder of your loan balance will be forgiven. Your 10 years of payments should be made under IBR, ICR, PAYE, or REPAYE.
States have regional needs in a number of different fields, including medicine, education, social work, veterinary sciences, law, and more. Across the country there are programs offering to pay off portions of your debt if you agree to live and work in high-need communities.
Different lenders will require different repayment terms from their borrowers. Be sure to understand what is expected of you before signing on the dotted line. Ask questions like:
Will I be required to make payments while I am in school?
If so, are they interest-only payments?
Will there be a grace period after graduation?
Do you have any deferment options in case of economic hardship?
What is the maximum time allowed for deferment?
When you should start repaying private grad school debt
The sooner you can pay off debt, the better. If your loan requires you to make principal and interest payments, make them without delinquency.
Before you make any payments prior to their due date, make sure there is no prepayment penalty. Otherwise a good portion of the money you think you’re throwing at your debt could end up going toward fees instead.
Learn more: Refinancing grad school debt
If you can get a lower interest rate on your student loans by refinancing, you may be able to save money as long as you pay off your debt in the same amount of time.
In order to avoid ruining your credit score, you may also want to refinance if you cannot afford your monthly payments.
More than half a million Americans are working toward Public Service Loan Forgiveness (PSLF), a program that eliminates federal student loan debt for people with jobs in the public sector. But the proposed 2018 White House budget reportedly calls for ending PSLF for future borrowers — and even current participants’ status could be in doubt, with a lawsuit claiming the government has reversed previous assurances given to certain borrowers that their employment qualifies.
Final decisions have not yet been made in either scenario. But even with this uncertainty, there are steps both current borrowers and interested potential future PSLF participants can take to make themselves as secure as possible.
First, a quick primer on PSLF: The program began in October 2007 under George W. Bush, and it wipes clean the remaining federal student debt for qualifying borrowers who have made 120 payments, or 10 years’ worth (more information is available at StudentAid.gov/publicservice). So the earliest any public service worker could receive loan forgiveness under PSLF is October 2017.
“The idea is to avoid making debt a disincentive to choosing public service,” explains Mark Kantrowitz, a student loan expert and publisher at college scholarship site Cappex.com. “Think about a public defender. They might make $40,000 a year, but they’ll incur $120,000 in debt for law school. That debt-to-income ratio is impossible, so PSLF makes that career path possible — and attracts people who might have otherwise taken high-paying private-sector jobs.”
Public Service Loan Forgiveness — on the chopping block?
At this time, the biggest threat to the future of PSLF is President Donald Trump’s 2018 White House education budget proposal. The budget proposal would eliminate PSLF — citing costs — and replace all current income-based repayment/forgiveness plans with a single income-driven system. While existing borrowers would be grandfathered into PSLF, any new students who take out their first federal loans on or after July 1, 2018, would not qualify. Still, all of this can happen only if Congress passes the budget — and it remains to be seen whether this section will pass as currently written in the proposal.
If you’re one of the more than 550,000 borrowers who is already working toward forgiveness — that is, you have already taken out at least one federal loan and/or you’ve completed school and are working in public service — the proposed cancellation of PSLF won’t affect you. Again, if the program is cut, it will impact only students who take out their first federal loans on or after July 1, 2018.
But even existing borrowers working toward PSLF can’t fully relax. As first reported by The New York Times, the Department of Education added a serious wrinkle by sending letters to people saying their employment was no longer eligible for PSLF, after the borrowers had confirmed with their loan servicer that they qualified. Four borrowers and the American Bar Association have filed a lawsuit against the department, and the case is currently in progress.
That may leave many workers questioning whether or not they will ultimately be eligible for loan forgiveness after all — even if they work in the nonprofit or public sector. MagnifyMoney has spoken to experts and reviewed the rules of the program to help.
How Can I Be Sure I Qualify for Public Service Loan Forgiveness?
Qualifying for PSLF depends on meeting several specific requirements, so the first step in determining your eligibility is to make sure your loans and employment check all the boxes.
1. Your student loan must qualify for forgiveness.
Direct PLUS Loans—for parents and graduate or professional students
Direct Consolidation Loans
Note that loans made under other federal student loan programs may become eligible for PSLF if they’re consolidated into a Direct Consolidation Loan, but only payments toward that consolidated loan will count toward the 120-payment requirement. And, according to ED, parents who borrowed a Direct PLUS Loan “may qualify for forgiveness of the PLUS loan, if the parent borrower—not the student on whose behalf the loan was obtained—is employed by a public service organization.”
2. You must be enrolled in the right type of repayment plan.
You must be enrolled in one of the Direct Loan repayment plans, some of which are income-based. The umbrella term for these plans is income-driven repayment plans, which include the Pay As You Earn and Income-Based Repayment plans. While payments under other types of Direct Loan plans, like the 10-year Standard Repayment Plan, do qualify and count toward your 120 payments, you’ll want to switch to an income-driven plan as soon as possible — because if you stick with a standard 10-year repayment, you’ll have paid off your loan in full after 10 years with nothing left to be forgiven under PSLF. Check the official PSLF site for more details. And note that private loans, including bank loans that are “federally guaranteed,” do not qualify.
3. You must make 120 on-time payments while employed full time by an eligible employer.
If you drop to part-time work, those payments won’t qualify. You must also be employed full time in public service at the time you apply for loan forgiveness and at the time the remaining balance on your eligible loans is forgiven. After you make your 120th payment you’ll need to submit the forgiveness application, which the Department of Education says will be available in September 2017.
4. Your employer must count as a public service organization.
This is the big one, and the most complicated step of the process for some borrowers to figure out. While the Education Department does address types of employers that fit under the PSLF program, there are some gray areas. Broadly, the types of employers that qualify include governmental groups, not-for-profit tax-exempt organizations known as 501(c)(3)s, and private not-for-profits. That last category includes military; public safety, health, education, and library services; and more.
Pro tip: Certify that your employer is included in the program every year.
Each year and whenever you change employers, you should fill out and send an Employment Certification form to FedLoan Servicing. The form isn’t required to be submitted on an annual basis, but it’s highly recommended to fill it out annually so there are no unhappy surprises down the road. It also helps you keep track of progress toward your 120 payments and gives you a chance to find out whether there is any change to your eligibility status.
What if you fear your job’s eligibility is unclear?
The validity of that FedLoan Servicing certification form is at the center of the lawsuit against the Department of Education. Although it’s important to have your employer’s eligibility certified by the department, the Education Department has said the form isn’t necessarily binding and the eligibility of employers can possibly change. As The New York Times put it, the department’s position implies “that borrowers could not rely on the program’s administrator to say accurately whether they qualify for debt forgiveness. The thousands of approval letters that have been sent … are not binding and can be rescinded at any time, the [DOE] said.”
That puts existing borrowers in a tough spot, says Joseph Orsolini, CFP and president of College Aid Planners: “[PSLF] is sort of an all-or-nothing in that you can’t apply for the forgiveness until you’ve already done your 120 payments. So to have someone choose this career path and work for years only to be told, ‘never mind, you no longer qualify even though we said you did,’ it would be hard for them not to see that as reneging on a deal.”
That possibility is “terrifying” for Frances Harrell, 35, a preservation specialist who works for a nonprofit that supports small and medium-size libraries in caring for their collections. She completed a library graduate school program in 2013 and emerged with a total of about $125,000 in debt, including her undergraduate loans.
“Everyone I know is in public service, and we all saw the Times article [about the PSLF lawsuit] and flipped out,” says Harrell, who currently lives in Gainesville, Fla. “I felt like I had been dropped in a bucket of ice. We’re making life decisions based on this understanding, and it feels so precarious not to have any true confirmation that we’ll get the forgiveness in the end.”
Harrell has also dealt with confusion from loan servicers and other experts — and based on incorrect advice, she nearly consolidated her loans in a way that would have reset the clock on her years of payments.
Christopher Razo, 22, who this month will begin classes at Chicago’s John Marshall Law School, is relieved that he is enrolling before the 2018 uncertainty begins. Razo is one of Orsolini’s clients, and he plans to take advantage of PSLF while working toward his dream of becoming a state attorney.
“[PSLF] is complex as it is, so my initial thought was, ‘Wow, great timing for me that I’m starting in 2017,’” Razo says. “But I understand the program affects way more than just me. [PSLF] gives you comfort to pursue public-service goals without having to make your employment about the money. I’m optimistic that [lawmakers] will see the good in the program so it can continue.”
When in doubt: Follow the ‘3 phone call rule’
While borrowers may think their loan servicer has all of the answers, Harrell’s situation isn’t uncommon, says Orsolini. He recommends “the three phone call rule”: Call three times and ask the same question, documenting whom you spoke to and when.
“These programs are complicated — which is one of the issues that critics [of PSLF] bring up — and you don’t always get the right information,” Orsolini says. “Before you plan your whole life around the [first] answer you get, you have to double- and triple-check that it’s right.”
If you’re taking out your first qualifying loan on or after July 1, 2018, Orsolini says “there’s not much to do besides hurry up and wait” to see what happens with the White House budget as it relates to PSLF.
“The important thing to remember is that a proposal is just a proposal, and these don’t always see the light of day,” Orsolini adds. “It doesn’t do any good to be overly worried, but you’ll want to keep a close eye on the news.”
Other types of loan forgiveness, cancellation, or discharge:
PSLF isn’t the only option. But not all types of federal student loans offer the same forgiveness, cancellation, or discharge options. See the chart below and check out StudentEd.gov pages here and here for more details.
Still, borrowers should know Trump’s desire to streamline federal programs into a single option means some of these loan types and forgiveness plans could be changed or canceled as well.
Student loan debt is a huge burden for millions of Americans, representing the second largest form of consumer debt in the country. A large monthly student loan payment can make it difficult to afford your other living expenses. Luckily, there are many ways to make that monthly payment more affordable.
Here are 11 ways to lower your monthly student loan payment.
1. Income-driven Repayment Plans
Federal borrowers with insufficient income should consider an income-driven repayment plan, which lowers your monthly payment based on your income and family size. There are several income-driven repayment plans, including the Revised Pay As our Earn Repayment Plan (REPAYE), Pay As You Earn Repayment Plan (PAYE), Income-Based Repayment Plan (IBR) and Income-Contingent Repayment Plan (ICR).
Each plan is different, but they all reduce your payments to a set percentage of your discretionary income. You can work directly with your loan servicer to determine which plan is right for you.
2. Loan Consolidation
If you have multiple federal loans, a direct consolidation loan will combine them and allow you to make a single monthly payment. Consolidation can also extend your repayment period up to 30 years, reducing your monthly obligation. Keep in mind that this would increase the amount of money you pay in the long run.
3. Pay Ahead of Time
If you’re still enrolled in school or you just graduated, it could be beneficial to start paying on your loan now. Many federal student loans do not accrue interest until the grace period after graduation expires. If you start making small payments now, you’ll reduce the principal of your loan and the overall interest you’ll pay.
4. Employer Student Loan Repayment Assistance
Many government employers have offered loan repayment assistance for some time, but even private companies are getting in on the game to attract millennial workers. Before you jump at a job offer from an employer with a student loan assistance program, you’ll want to check the details to see if the program actually reduces your monthly payment.
“About 4% of employers are now offering employer-paid student loan repayment assistance,” said Mark Kantrowitz, Publisher and VP of Strategy at Cappex.com. “However, the employer payments are almost always in addition to the borrower’s payments and the borrower may be required to make at least the standard monthly payment. So, the main impact is on shortening the repayment term, not in reducing the monthly payment amount. “
5. Graduated Repayment Plans
Graduated repayment plans will temporarily reduce your monthly payments, increasing them every two years. This is a good choice if you currently can’t afford your payments but have confidence that your income will steadily increase over the next ten years.
Graduated repayment “starts off with very low payments, just above interest-only, and increases the monthly payment every two years. No payment will be more than three times any other payment,” said Kantrowitz.
6. Extended Repayment Plans
Extended repayment plans increase the lifetime of your loan up to 25 years. This will drastically lower your monthly payment if you’re currently on a ten-year payment plan. You will end up paying much more over the life of the loan.
Refinancing your federal loans with a private lender can help you get a better interest rate, which could lower your monthly payment and save a lot over the life of your loan. For this option, you’ll need good credit. To see where your credit stands, you can check two of your scores for free on Credit.com.
You’ll also want financial stability. That’s because private lenders don’t offer income-driven repayment plans, deferment or forbearance and many other options available to federal borrowers. If you fall on hard times with a private loan, you’ll have fewer tools at your disposal.
8. Roll Your Loan into Your Mortgage
If you have a home with some available equity, you could roll your student loan into your home equity line of credit (HELOC). This can reduce your interest rate, but will likely require good credit.
9. Automatic Payments
Many lenders offer payment or interest reduction as an incentive to sign up for automatic payments. Check with your loan servicer to find out if they offer this option.
If you’re desperate to reduce your payment, deferment or forbearance can pause or significantly reduce your monthly payments for a limited amount of time. Deferment also pauses interest, while loans in forbearance will continue to accrue interest.
You must work directly with your loan servicer to apply for deferment or forbearance. Qualifying circumstances may include financial hardship, unemployment or military deployment.