Know What You Owe: Financing Student Loans
May 8, 2016 | By Steven DiGregorio
Financing Student Loans
If you are here to research ways to pay off your student loans, congratulations, you are already one step ahead of everyone else! Paying for college can be difficult for those who don’t have any guidance or financial knowledge. Fortunately for you, this article will make that easier for you by providing information on how to pay for your student loans so that you don’t end up regretting this important decision!
Know what you owe
Make sure you research your accumulated debt so that you know what you owe, whether it be federal, private or both. Figuring out your repayment plan options will be much easier when you can lay out each loan you owe in front of you. It is also important to know who is servicing these loans since your loans are probably not being serviced by the same organization. If you owe a federal loan you may be able to view your loan information by visiting the National Student Loan Data System here. If the loan is through a bank or a private organization, you will need to follow up with those lenders as well. If you have someone that manages your finances speak to them to help ease this process.
Most Federal Student Aid have deferment options that let you wait six months after graduation before you need to start paying back your loans. Private loans are laid out when you take them out and repayment flexibility can vary greatly. Know when you need to start paying for your loans before it’s too late.
Repayment Options
When researching repayment options there are many things to consider, however most important is the interest rate. An interest rate is the percentage of the total loan that is added every month to your loan, so don’t let it accumulate. Keeping that in mind, a low monthly payment means interest is being added more often over a longer amount of time, so even though it may seem like you are paying less you will be paying more in the long run. There are different types of repayment options that can vary based on graduation dates, income, and time.
- Standard Repayment Plan – Your standard repayment plan will have you pay off your loans in up to 10 years. Payments are a fixed amount and all borrowers are eligible.
- Graduated Repayment Plan – Payments are lower at first and then increase, usually every two years, with the plan lasting up to 10 years.
- Extended Repayment Plan – For borrowers with a very large loans, this plan will last up to 25 years. Your monthly payments may be significantly lower but you will be paying much more in the long run due to interest.
- Revised Pay As You Earn Repayment Plan – Your monthly payments will be 10% of your discretionary income with payments recalculated each year based on updated income and family size. With that said, if you’re married your spouse’s income or loan debt will be considered. Any outstanding balance on your loan will be forgiven if you haven’t paid your loan in full after 20 or 25 years. You may have to pay income tax on any amount that is forgiven.
- Pay As Your Earn Repayment Plan – You must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You also must have a high debt relative to your income. Your maximum monthly payments will be 10% of your discretionary income with payments recalculated each year based on your updated income and family size. If you’re married, your spouse’s income will only be considered if you file a joint tax return and any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 20 years. You may have to pay income tax on any amount that is forgiven.
- Income-Based Repayment Plan – You must have a high debt relative to your income. Your monthly payments will be 10 or 15% of discretionary income with payments recalculated each year based only on your updated income and family size. Your monthly payment will never be more than the 10-year Standard Plan amount. If you’re married, your spouse’s income will only be considered if you file a joint tax return and any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 20 or 25 years. You may have to pay income tax on any amount that is forgiven.
- Income-Contingent Repayment Plan – your monthly payment will be the lesser of either a) 20 % of discretionary income, or b) the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income. Payments are recalculated each year based on updated income, family size and the total amount of your Direct Loans. If you’re married, your spouse’s income will only be considered if you file a joint tax return, or if you choose to repay your Direct Loans jointly with your spouse. Any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 25 years and you may have to pay income tax on that amount.
- Income Sensitive Repayment Plan – Your monthly payment is based on annual income and this plan lasts up to 15 years.
More information on these options can be found here. Repayment options can vary greatly, especially for private loans. If you need guidance when it comes to managing your finances and paying off your loans on time, see an asset manager that can find ways to make your payments easier to handle. Budgeting and managing debt is a task that can be especially troublesome for most. Don’t let the numbers scare you and stay informed so that you can eliminate your debt the best way possible.
Please note that the content of this blog does not constitute tax advice and is only intended for the educational purpose of the reader. Please consult your tax advisor for specifics regarding your circumstances.
For more information contact us at 845.563.0537 or Contact@CompassAMG.com
Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.
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About Compass Asset Management Group
Our boutique-style firm has an investment philosophy is both prudent and value driven. We combine research from the largest firms on Wall Street with three decades of market experience to provide strategic, tactical and dynamic investment management. Compass Asset Management Group, LLC delivers personalized financial planning, estate planning and investment management advice in a private setting with a high degree of sensitivity to your concerns and objectives. Our goal is to exceed yours expectations by listening closely, understanding deeply and communicating well through frequent, personal consultations entirely focused on your financial goals.
Make the right choice with your financial future. Consult Compass Asset Management Group for advice & guidance that will change your life. Plan better to live better…Call Compass Asset Management Group.
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100 STONY BROOK COURT SUITE C
NEWBURGH, NY. 12550
845.563.0537
Sources:
https://studentaid.ed.gov/sa/repay-loans/understand/plans
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Tags: 529 plan, education, education planning, Graduated Repayment Plan, Income Sensitive Repayment Plan, Income-Based Repayment Plan, Income-Contingent Repayment Plan, Pay As Your Earn Repayment Plan, repayment, student loans
