Laurel Road: 3 Things Student Loan Borrowers Should Know

Millions of student loan borrowers are likely confused about their loans right now. With the student loan pause ending, transfers in loan servicers, and changes to loan relief programs, borrowers are experiencing an information overload.

Furthermore, rising prices for ordinary goods and services attributed to climbing inflation put financial pressure on many households, leaving little wiggle room for student loan repayment.

Since most federal student loan borrowers have not had to deal with their student loan payment or the associated interest due to the federal payment pause, they should know a few things when the time comes to make payments.

1. Don’t borrow more than necessary

Saying no to a big loan can often be wise. Remember, due to fees and interest, borrowers will always pay more than the actual loan amount. So, repayment can be more manageable if borrowers are intentional when they accept their loan.

If borrowers have not already, now is a great time to familiarize themselves with repayment options. Student loan borrowers can run calculation simulations using the Department of Education’s Repayment tool.

2. Student loan refinancing

Not every borrower qualifies for student loan refinancing. To qualify, someone looking to refinance their student loan should have good credit, a comfortable income, and a completed college degree. If a borrower meets these requirements, here are some reasons to go for it:

Reduce monthly payment amount – Most federal student loans come with a 10-year repayment term under the Standard Repayment Plan, while private student loan refinancing options can range from 5 to 20 years. Monthly payments can drop if a borrower has a current loan with a 10-year repayment term and can refinance to a 20-year term with a lower rate. Student loan refinancing could be a preferable option for borrowers with private student loans, but please note that if you refinance qualifying federal student loans, you may no longer be eligible for certain benefits or programs and waive your right to future benefits or programs offered on those loans. Please carefully consider your options when refinancing federal student loans and consult StudentAid.gov for the most current information.

Switch lenders – If a borrower is unhappy with their loan servicer, student loan refinancing offers the opportunity to make a switch.

High variable rates – It can be difficult for borrowers to determine how their repayment plan will go with a variable rate loan. Variable rates can be more expensive to repay over time, especially if rates are rising. So, it could be wise to lock in a fixed rate to avoid that uncertainty.

Loan consolidation – Student loan borrowers often have more than one loan. One of the top reasons borrowers refinance is to simplify repayment. Student loan refinancing allows borrowers to combine loans into one, making repaying easier to organize.

Remember, a borrower can opt for a student loan refinancing multiple times, but it is important to determine when that is the right decision.

3. Check loan forgiveness qualifications

Borrowers with federal student loans may qualify for loan forgiveness. Student loan forgiveness means the borrower may be able to have a portion of their loan forgiven if they meet certain criteria. Below are a few ways borrowers may achieve forgiveness:

1. President Biden’s Student Loan Relief Plan – President Biden announced a new student loan relief plan on Wednesday, August 24, 2022, to address the ongoing student loan debt crisis. The plan includes debt forgiveness for certain borrowers and extends the pandemic-related payment and interest pause on federal student loans. For more information about eligibility, visit http://studentaid.gov.
2. Public Service Loan Forgiveness (PSLF) – A borrower that works for a not-for-profit or government organization may be able to receive loan forgiveness under the PSLF program. PSLF eliminates the remaining loan balance once the borrower has made 120 qualifying monthly payments while working for a qualifying employer full-time.
3. Income-Driven Repayment (IDR) Plan Request – IDR plans can provide a lower monthly repayment plan. However, the borrower must recertify their income each year to remain enrolled.
4. Teacher Loan Forgiveness – Full-time teachers who have worked in a low-income school or educational agency for five consecutive years may be eligible for forgiveness of up to $17,500.

These changes may be overwhelming for some borrowers, but as long as borrowers understand who their loan servicer is and the repayment options they have, they can put themselves in the best possible position to manage student loan repayment.