Student Loan Repayment Assistance
Graduating from college may be initially celebrated, but after that six-month grace period runs out, many students are faced with the fear of wondering how they are going to pay off their student loans. A staggering 71 percent of college students who graduated last year had student loan debt, with an average debt of $29,400, according to the Project on Student Debt. While federal loans offer more options for repayment than private ones, generally speaking, there are many options out there to help pay down all student loan debt successfully. It is important to understand what type of loan you have in order to find the best repayment option available to you.
Federal Student Loan Repayment Program
If you have a federal student loan, most repayment plans offer a fixed rate for 10 years; however, there are extended plans available as well. If you graduate from college and end up owing more on federal student loans than you can pay based on your income, you may qualify for the Income-Based Repayment (IBR) plan. This plan places a cap on your monthly loan payment amounts based on your income and family’s size. Federal Direct Subsidized, Unsubsidized, Stafford, PLUS, and consolidation loans may be eligible for IBR plans. While the IBR lowers your monthly payments to a more manageable amount, it may extend the length of your loan repayment period, and you may end up paying more interest over time. To determine your qualification for the plan, you can use the U.S. Department of Education’s IBR calculator.
Public Service Loan Forgiveness Program
Many careers fall into a category that may make you eligible for a loan reduction or even forgiveness. Reduction reduces the amount you pay back while forgiveness absolves your debt. The Public Service Loan Forgiveness Program (PSLF) reduces monthly payments for students with loans obtained under the William D. Ford Direct Loan Program who work full-time in one of an array of public service jobs. Public service jobs include employers like federal, state, or local government institutions and not-for-profit organizations that are tax-exempt. Some qualified public service institutions that are not tax-exempt but offer specified public services may also be eligible such as:
- Military service
- Public safety
- Public health services
- Law enforcement
- Public education
- School-based services
- Early education
- Public interest law services
- Public services for the elderly or individuals with disabilities
The PSLF program offers the potential for loan forgiveness if you make 120 on-time qualifying payments while you are employed full-time, as defined by the employer, but work at least 30 hours per week on average in one of these specified fields. After your 120 payments have been made under your qualifying repayment plan, you can apply to have the remainder of your loan forgiven as long as you maintain your employment for a qualified public service organization.
While teachers often qualify for a PSLF plan, there are also two teacher-specific programs as well: the Teacher Loan Forgiveness (TLF) and Teacher Cancelation Program (TCP). Which one of these you may be eligible for is determined by the type of federal loan you have. The TLF program may cancel up to $17,500 of your Federal Direct Subsidized, Unsubsidized, or Stafford Loans after five years of teaching in a qualifying school, while the TCP cancels an increasing amount of your Federal Perkins Loan each year for each year that you teach until loans are potentially completely forgiven. Contact your federal loan servicer for more information on whether or not you qualify for a PSLF plan, TLF, or TCP and how to apply.
If you have more than one student loan you may seek to consolidate, or merge, all of your loans into one loan in order to simplify things. This way you are only making a single monthly payment to one loan servicer. The U.S. Department of Education offers loan consolidation for federal student loans into a Direct Consolidation Loan, which can lower your monthly payments and extend your repayment period for up to 30 years. Extending the life of your loan(s), however, will increase the amount of interest you end up paying, and you will make more payments overall. Consolidating your loans may open doors for more generous repayment plans as well, but you may also end up losing borrower benefits that may have been specific to your original loan or loans. Consolidating your loans is a viable option to lower monthly payments, but should not be taken lightly as once you enter into a consolidation plan, your original loans are considered paid off and closed, and you cannot go back.
Private loans or loans in default cannot be consolidated through the Direct Consolidation Loan, but many private financial institutions also offer consolidation options. Each of these has specific eligibility requirements and, unlike the federal program, there may be an application fee. Check with your financial aid office to better understand if consolidation is the right route for you.
College or University Repayment Assistance
Loan Repayment Assistance Programs (LRAPs) were traditionally offered to law students; however, many colleges and universities are now offering them for other students as well. LRAPs are programs that offer graduates funds to pay their monthly student loan payments. LRAPs, unlike other relief programs, may be used on private as well as federal loans and may also be able to be combined with federal relief programs. They are often offered as a way to entice students to enter into certain professions after graduation. Many times, you are required to pass an exam, receive a specific type of certification, or be employed by a particular kind of employer doing certain types of work for a predetermined length of time. Income is also taken into consideration, and after your income exceeds a specified cap, you may no longer be eligible for the program.
LRAPs may be disbursed monthly or annually and also may have a cap on the total amount you can receive or the length of time you can obtain benefits. Grant-based LRAPs may be taxed while those structured as forgivable loans may be written in such a way as to avoid having to claim the funds as taxable income. LRAP funds are not generally expected to be repaid.
Employer, State, or City-Based Loan Reductions
Many employers also offer incentives or LRAPs to graduates and potential graduates, offering loan reductions or assistance programs as incentives to attract and maintain employers, especially in fields of public interest that may traditionally have a lower income potential. Along the same lines, state and even city-based governments may offer LRAPs as incentives to grow their local economies and draw people to their communities. Some volunteer organizations such as AmeriCorps, Peace Corps, and Volunteers in Service to America (VISTA) offer loan forgiveness options as well. For these programs, you usually need to volunteer for a certain amount of hours or length of time in order to receive a stipend, deferment, or partial cancellation of your loan amount. Military service may also offer you up to $10,000 toward your loan if you are a veteran or in the Army National Guard.
Private companies, like the LRAP Association, also offer LRAP options to institutions, charging them a per-student fee, but potentially making LRAPs more accessible to more students as long as they meet certain criteria. Typically, applicants are expected to be graduates employed at least three-quarters of the time who make annual incomes under a certain amount. Some LRAPs expect incoming students to apply before enrollment to college, while others may not be offered until after graduation or as a condition of your employment. LRAPs are highly competitive programs, and you should check with your school, potential employer, or even your state or local government to see if they offer them, if you qualify, and when you should apply.