In 2017, the Department of Education filed a lawsuit against Navient, the largest servicer of student loans in the nation, for misallocating payments and neglecting to advise people of all of their options. In some cases, it’s alleged that they refused to allow people to sign up for a plan for which they were eligible. Navient may be the most famous example, but similar patterns have occurred with other student loan providers. In most cases, you can’t just go to another company. But that doesn’t mean that you’re out of options. Knowing your student loan repayment options can go a long way by providing relief when you need it.
Here are the three steps that you can take to ensure that you’re making the best decision for your financial situation, even if your student loan provider doesn’t love the idea. These only apply to federal student loan aid, not private student loans.
What are Your Student Loan Repayment Options?
Loan providers often offer only three options: the standard repayment plan, forbearance, and deference. When you call regarding repayment plans, it’s important to know that there are more than those three options. The following is a short list of the available student loan repayment options, and what you need to know about each:
Standard Student Loan Repayment Plan
The graduate pays off the loan over ten years by making a consistent payment each month. This plan involves higher monthly payments than other options, but lower interest over the course of the loan.
Income-Driven Student Loan Repayment Plans
There’s a collection of these plans, including the original IBR, the Pay As-You Earn (PAYE), and the Revised Pay-As-You-Earn. These plans typically calculate your monthly payment based on a percentage of your discretionary income. The remainder of your loan will be forgiven after a certain amount of time making qualifying payments. normally 20-25 years
Discretionary income is calculated by subtracting 150% of the poverty line from your income. As an example, let’s say that you live alone and your income for 2017 was $20,000. 150% of the federal poverty line for your household (which is just you) would be $17,655, which makes your discretionary income $2,345. Your payments would be 10% of the $2,345, which comes out to $234 a year or about $20 a month.
While these plans are an excellent option for those struggling to repay their loans, they do accrue more interest over the life of the loan than the standard plan.
Deference and Forbearance
Deference
Deference allows you to postpone your payments for up to a year. You can do this as long as you meet certain qualifications. With a deference, the government will pay the interest that accrues. If you want to defer a loan, you’ll need to submit a written request. There are a few different deferment options and you must meet one of these requirements to qualify for a deferment:
- You are currently unemployed
- You’re undergoing cancer treatment
- Experiencing economic hardship
- You’re enrolled in a graduate fellowship program
- You’re currently enrolled in a college or career school at least half the time
- If you’re currently active in the military
- You’re a parent who out a loan on behalf of your child and they’re enrolled in school at least half the time
- If you’re currently undergoing rehab training
Forbearance
A forbearance is similar to a deferment, except that you still accrue interest. These are not repayment plans, but they can help if you’re in a situation where you’re unable to make any payments. A forbearance is considered temporary student loan relief where your payments will be temporarily suspended. There are several different types of forbearance programs. These include general forbearance, mandatory forbearance, and teacher loan forgiveness.
General Forbearance
This type of forbearance approval is at the discretion of your current loan provider. In order to qualify for a general forbearance, you must be experiencing any of the following: trouble with medical expenses, employment changes, or financial difficulties. This type of forbearance is not granted for longer than 12 months. If you need more time beyond those 12 months, you’ll need to reapply.
Mandatory Forbearance
Unlike a general forbearance, a mandatory forbearance must be granted by your loan provider as long as one of the following situations apply to you:
- You’re currently serving in a position in the AmeriCorps*
- You are currently performing a service in connection with the Department of Defense
- Medical or Dental Residency or Internship**
- Active National Guard duty
- If your monthly payments exceed 20% of your current monthly income***
*You must have received a national service aware in order to qualify for this type of forbearance
**You will only qualify for this type of forbearance if you don’t already qualify for a deferment. Additionally, the application indicates additional requirements you must meet in order to qualify for a mandatory forbearance.
***gross income
What Steps Can You Take to Change Your Current Student Loan Repayment Plan?
1. Ask Your Provider to Enroll You in the Student Loan Repayment Plan You Want
Once you’ve decided which plan works for you, then call your servicer and ask for the plan. If they tell you that you don’t qualify, then ask them to clarify the reason. In many cases, they may not be able to do so. If the representative still denies you the right to choose a payment plan that works for you, then ask for a manager. If that doesn’t work, ask for deference or forbearance while you’re continuing with the next step.
2. File Complaints if They Don’t Enroll You in the Appropriate Student Loan Repayment Plan
If you are unable to get appropriate action through the normal avenues, then it’s time to raise the stakes. You’ll want to write three letters of complaint: one to your loan servicer, another to the Consumer Financial Protection Bureau, and a third to the Department of Education. In some cases, these letters may be enough to convince your servicer to allow you to sign up for an appropriate plan. And, even if it doesn’t, then it is still a good idea. These complaints serve as evidence that the servicer is not holding up their end of the deal, which encourages the CFPD and the Department of Education to take action against them.
Takeaway
Even if you can’t make the standard monthly payment on your student loans, there are many options available. If you understand these options, then you can avoid default and take steps to financial freedom without breaking the bank now.
References
*https://pathways2advancement.org/financial-planning/student-loan-repayment-options/
