5/29/2012 3:55 PM ET|
Best-kept secret in student loans
Student debt has ballooned in recent years. But a federal program can cut loan repayments to as low as zero without triggering default.
Are you scraping by, just barely able to make your student loan payments? Or maybe you're making the payments, but you're worried you'll stay in debt forever?
Don't overlook one of the best repayment options out there. Lauren Asher, an expert on student loans and the president of the Institute for College Access & Success, an independent nonprofit organization that works to make higher education more affordable for people of all backgrounds, calls it the "best kept secret" in the student loan world.
Maybe it's not a total secret, but many eligible borrowers aren't taking advantage of the Income-Based Repayment Plan, so it deserves all the attention it can get.
I recently interviewed Asher on my radio show, "Talk Credit Radio." Here is an edited excerpt from that interview:
Detweiler: Can we start off by discussing the trends in student loan debt?
Asher: Student loan debt is touching more and more people's lives every year. A generation ago, less than half of people who graduated from four-year colleges had student loans. Now it's at least two-thirds. And for the class of 2010, which is the most recent data we have, the average debt for those borrowers was more than $25,000.
Detweiler: What about default and repayment rates? Are people having trouble paying back their student loans?
Asher: Default rates have gone up recently, although they've come down from a high a couple of decades ago. They do sometimes reflect changes in the economy. Certainly it's harder to pay off your student loans when it's harder to find good-paying jobs. But what's important to know is not just how much you owe, but what kinds of loans you have that can really affect your options for repayment.
If you have federal student loans, there are actually a lot of good ways to keep those payments under control even in tough times. But you need to know what those options are and how they work before you get into real trouble. One of those options is the Income-Based Repayment program.
Detweiler: Tell us about the IBR program and the benefits.
Asher: Income-Based Repayment is the best kept secret in this whole student loan debate. It has been around since July 2009. It's available to students with federal loans. So that includes Stafford Loans and Grad Plus as well as Federal Direct Consolidation Loans.
If you have direct loans or what used to be called "guaranteed" or "federal family education program" loans, whether you have had them for many years or just finished school, you can qualify for IBR if you're earning relatively little compared with what you owe.
A good rule of thumb is, if you owe as much as you earn in a year, you probably qualify. But, there's a calculator on our site -- IBRinfo -- and also a link to the (education) department site and their calculator to help them figure it out. So the nice thing is that, once you qualify, your payment each year is adjusted based on your earnings and family size.
If you earn less than 150% of the poverty line for your family size, your required payment is zero. You remain in good standing, you're not delinquent, you're not in default. And those payments -- even if they're as low as zero -- count toward either 25 years of forgiveness, meaning after you've made affordable payments for 25 years in IBR, if you still owe anything it's forgiven. Or if you work for a public or nonprofit employer and you had a direct loan, you could get forgiveness in as soon as 10 years in IBR.
IBR provides two things. One, it provides you the assurance that your payment will be fair and manageable based on what you actually earn. The other thing it does is give you a light at the end of the tunnel. Repayments will not go on forever.
Even if you hit a patch where you can't even cover your interest and your IBR payments are very low, eventually if you haven't been able to pay it all off, it will go away and you can move on with saving for retirement, paying for your kid's education and the other things you need to do.
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I'm now wondering will I get a thumbs up or a thumbs down for this rant... hmmm, many of you probably will not agree with this, but thats ok... I entered my college experience way back in 1971... Student loans, money, all that stuff was an issue... scholarship, academic, athletic, a job, anything to help pay for school was a necessity... I paid for everything, not a dime from my family or parents... If I did not succeed, I wouldn't have to hear the ole, " I told you so" stuff from them...
Folks, there are alternative methods to attaining ones education... 1. the more affordable route is to first enroll for a year or two in a community college and attain your AA or AS... this is ideal because it "IS" affordable. . the community college does provide a more affordable method of at least attaining your CORE coarses, and if their is a need for tutorial assistance, you will at least find out here and not at some high dollar institution... most incoming Freshman have this habit of "let's party" when they leave home... Mom and Dad, if you are throwing money at a partier, at least take the cheaper route, and not throw your money at some $200 an hour institution... but lets remember, not all kids are partiers and do take full responsibility for their actions...
This suggestion many folks will not care for, but this is how I paid for my Books, tuition, and recieved a monetary stipend once a month... 2. An academic scholarship from Army, Air Force, Navy ROTC programs... what did it cost me, 4 years in the service as a commissioned officer... Upon immediate graduation, I was employed, a JOB... and people will say, that's 4 years, believe it or not, those 4 years fly past rather quickly... and during those 4 years, there is some sense of job security... travel, opportunities, and experiences that one never attains anywhere else...
3. If you are heading into the medical field as an administrator, or whatever, you also have HHS or IHS (Indian Health Service) there are programs that also pay for ones education in exchange of having service to one of those organizations also... 4. Some states as in the States of Kansas and Oklahoma had programs that paid for one's education in exchange for 4 or 5 years of service in rural areas that are in need of staffing... I know, who wants to go to the sticks... but it is a place where you can learn and attain experience in your field of study...
So, if you are taking out huge $100K student loans, living large and lavishly while in school, it's your own stupid fault... you still have to pay the piper at sometime or another... that's the price you pay to play...
I'm a tax payer, forgiving student loans is not an alternative... I paid for my own education, If you committed to those student loans, pay them back... Nothing is free in this world, that is for those of us who work for whatever we have...
I graduated college in the late 1990s. I am still paying on my loans that have an interest rate of 8%. My montly payment is maybe $125. To say I have no sympathy for grads today is a gross understatement.
The bottom line is you signed for the loan. Now you have to pay it back. Welcome to the adult world.
Went to school in 4 yrs at Bemidji State. Finished with $40,000 in debt. 4 yrs later im down to $10,000, paying the last $10,000 this fall in one chunck. Student athlete, No scholarships, no grants, lived on campus 3 out of 4 yrs, no help from parents, diagnosed with crohn's 1 yr ago, and just bought a house this weekend!
I am part of the hardest working, I am part of the middle class, and we are the short stick.
Sorry, let me be more clear. Are there any parent/student loan relief programs, similar to those described above, available beyond the forbearance program?
I'm paying my student loan down. I graduated with 38k of debt and 10 years later with a masters degree i'm down to 18k. I will pay it of in a few years and was lucky to lock in a 3.25% rate.
But, had I been advised better as a student coming out of high school I would have down to years at a community college then go to finish my bachelor's at a University then do my masters. That would have saved me 8k. I would have also waited a year before going back to school. There was pressure to jump into college right out of high school even if you had no idea what you wanted to do with your life. And as a 17 year old it's important to get some advise that college cost real dollars that must be paid back. That kind of advise would help elevate much of the student loan problems today. I just hope that high schools are telling their students that there are other options and routes for acquiring additional education.
1. Do not have help from parents/scholarships
2. Have completed 4 years of college.
I am willing to bet that 25k average debt triples. I worked during school and all summer long. Ended up with 70k in student loans.
The larger problem is the interest rate of my 800+ credit score.
Total payback is $280k.
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