4 Options for your Federal Student Loans

You have options with your federal student loan debt. These options are constantly changing and have weird names. You can go to the National Student Loan Data System here  to get the details on your loans. You specifically need to see how much you have in Direct Loans (from the government) vs. FFELP loans (administered by a bank). This distinction dictates your options.

Most people should simply make their payments and pay their student loans over time. If you can’t make the payments, you have a few options:

• Consolidation: Consolidation puts all your loans into one payment. It makes life easier. The interest rate is the weighted average of your existing loans. It’s lower than your highest rates and higher than your lowest rate. You don’t necessarily save money but making one payment to one place is easier to manage.
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• Forbearance/Deferment: If you can’t pay, you can request forbearance or deferment. Deferment defers your payments and stops interest from building on your subsidized loans. Forbearance simply stops payments but interest builds. Deferment is better than forbearance but it’s not your choice. You apply for both. The government will tell you what you qualify for.
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• Change Payment Schedule: There are four types of payment options – standard, graduated, extended and income based.
  
  -Standard: Everyone starts on the standard schedule. It’s a 10 year repayment plan with the same payment each month.
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  -Graduated: The graduated schedule also takes 10 years but has smaller payments in the beginning and larger payments towards the end.
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  -Extended: The extended schedule only applies if you have over $30,000 in either FFELP or Direct loans. It extends the number of years you pay so your payment drops.
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  -Income Based: The Income based repayment (IBR) program sets your payment as a percentage of your discretionary spending. You need to apply with all your financials. Then, they give you a payment.

Find the right payment schedule based on your situation. Always remember that interest accrues. If you lower your payment, you will pay more in interest. There is no free lunch. It’s math.

• Loan Forgiveness: Wait, there is free lunch. It’s called Loan Forgiveness. But, as with the entire student loan world, it’s confusing. There are multiple different types of forgiveness programs.
  
  -Public Service Loan Forgiveness (PSLF). If you take a qualified public service job, you only pay your student loans for 10 years. Select the extended or income based repayment program to get the most benefit. After 10 years, all remaining federal student loans are forgiven. Don’t worry, there is no impact to your credit.
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  -Professional Based Forgiveness. Most professions have loan forgiveness incentives for working in public service. Law, Medical, Military, Americorps, Peace Corp, Business, etc. Some of these are through the PSLF while others have their own program. If you’re considering public service or nonprofit jobs, check on your options for student loan forgiveness.
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  -Income based repayment(IBR). If you’re on an income based repayment plan, your loans are forgiven after 25 years of payments. The government is merciful. Except, with IBR, they tax you on anything they forgive. That hurts but it’s better than paying the full amount.

The government simply wants you to pay them back. They try to make it as painless as possible. If you’re facing financial difficulty, reach out to your loan servicer (the people that send you the statements) to figure out which option is right for you.

Have you used any of the options above? What was your experience? What other options are available for federal student loans?