Borrower’s Before Enrolling
Standard Loan Repayment Plan
Standard loan repayment plan is termed as a ‘standard’ repayment plan because if you don’t opt for a particular plan, the lender will automatically put your loan on standard repayment. This plan allows you to repay the loan in the shortest term. Also, the interest rate is lowest for standard loan repayment plan, which means that you will pay the least amount of interest with this type of loan repayment plan.
Graduated Repayment Plan
Graduated repayment plan offers you the flexibility to start paying back the principal amount in small monthly payments over two years. After two years of timely monthly payments, the amount is increased depending on the terms of repayment plan. In graduated repayment plan, the repayment term may extend over 10 to 30 years depending on the total amount borrowed and the type of student loan.
Extended Loan Repayment Plan
As the name implies, under extended loan repayment plan the borrower pays back the principal amount and the interest charged over an extended time period, usually extending up to 25 years. The repayment term depends on the type of loan, the principal amount borrowed, and borrower’s personal preferences.
Extended loan repayment plans are very similar to standard plans, except that the repayment term is stretched over a longer period. Under this plan, the amount of monthly repayment is decreased, which increases a borrower’s ability to make timely monthly payments. However, the amount of interest paid by the borrower is higher when compared to standard loan repayment plan.
Borrower’s After Enrolling
Income Driven Repayment Program
- Revised Pay as You Earn Repayment Plan
- Pay As You Earn Repayment Plan
- Income-Based Repayment Plan
- Income-Contingent Repayment Plan
Income-based repayment plan is one of the types of income-driven repayment plans. This repayment plan takes the borrower’s monthly income and family size into account and caps the monthly payments to an amount that’s affordable to the borrower. In addition to this, the outstanding balance after 240 – 300 months of qualifying payments can also be forgiven under this repayment plan.
What Types of Loans are Eligible for Income-Based Repayment Plan?
The following loans can be paid back using the income-based repayment plan:
- All direct loans, subsidized and unsubsidized
- All FFEL loans, subsidized and unsubsidized
- Direct and FFEL PLUS loans taken out by students
- Direct and FFEL consolidation loans taken out by parents (must not include any PLUS loans)
- Consolidated Federal Perkins loans
In addition to this, the income-based repayment plan is offered only to those borrowers who are facing a partial financial hardship. The definition of partial financial hardship is satisfied if the outstanding balance on loan is greater than 10% – 15% of the difference of borrower’s adjusted gross income and 150% of the poverty line. Poverty line is determined on the basis of borrower’s state of residency and their family size.
Income-Contingent Repayment Plan (ICR)
Income-contingent repayment plan (ICR) is quite similar to the income-based repayment plan. The only difference is that in order to be eligible for income-contingent loan repayment, the borrower is not required to be facing a partial financial hardship.
In income-contingent repayment plan, the principal amount borrowed by an individual is repaid over a period of 300 monthly installments. The monthly repayment amount is determined based on the principal amount borrowed and income and family size of the individual.
What Types of Loans are Eligible for Income-Contingent Repayment Plan?
The following types of student loans can be paid back using the income-contingent repayment plan.
- Direct PLUS loans taken out by students
- Direct loans, both subsidized and unsubsidized
- Direct consolidation loan
In addition to this, the following types of loans are considered eligible only if they have been consolidated.
- Direct PLUS loans taken out by parents
- FFEL loans, both subsidized and unsubsidized
- FFEL PLUS loans taken out by students and parents
- FFEL Consolidation loans
- Federal Perkins loans
How Does It Work?
If approved, the government will step in and enroll the client into their income driven repayment program. The client is not responsible or required to pay the old plan anymore.
The income driven repayment program will provide:
- Brand New Very Low Affordable Monthly Payment; 3 main considerations: Income (AGI), Family Size, Student Loans Debt Size
- New Term; 240, 300, or 120 Months (PSLF)
- Lower monthly payment
- Lower outstanding balance
- Helps avoid default
- Easier to pay back your loans
- Government forgives the remaining balance of your current loan debt (principle + interest) at the end of the new term.
ADDITIONAL LOAN FORGIVENESS OPTIONS
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) is a student loan discharge program that is designed to encourage fresh graduates and young professionals join and continue serving public service institutions. Under this program, individuals who are a part of public service and who have made 120 income-based loan repayments can get a waiver on outstanding student loan debt.
Teacher Loan Forgiveness
Teaching is a profession that demands a great deal of responsibility and skills, but a career in this field is filled with numerous personal and professional growth opportunities. In addition to this, the US Government offers special rewards to individuals who serve as a teacher at a low-income school in the form of Teacher Loan Forgiveness Program (TLFP).
Teacher Loan Forgiveness Program is designed to encourage young graduates to pursue a career in this rewarding field. The program offers partial loan discharge to individuals who are employed at a low-income school for five consecutive years. Teacher Loan Forgiveness Program (TFLP) offers partial discharge on loan debts of those individuals who have served at a low-income educational service agency or a secondary or elementary school for five consecutive years.
Under TFLP, a partial waiver of $17,500 is offered on all subsidized and unsubsidized Direct and Federal Stafford loans after completion of five years service, and a full waiver is offered after completion of a ten year term.
Total and Permanent Disability Discharge
Total and Permanent Disability (TPD) Discharge is a loan forgiveness program offered by the US Department of Education to individuals with disabilities. Under this program, eligible individuals can get 100 percent loan forgiveness after providing a document proof of their disability to the organizing body. In order to be eligible for loan forgiveness, the applicant must get a certificate of disability from a registered physician to prove that they are completely disabled and cannot work and earn money to repay their student loan debt. In addition to loan forgiveness, qualifying for Total and Permanent Disability (TPD) Discharge also ends the candidate’s obligation to participate in the Teacher Education Assistance for College and Higher Education Grant Service.
If the loan continues to be delinquent, the loan may go into default. The point when a loan is considered to be in default varies depending on the type of loan the client received.
For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program (FFELP), the client is considered to be in default if they don’t make their scheduled student loan payments for a period of at least 270 days (about nine months).
Consequences of Default:
The consequences, which can be severe, include the following:
- The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called “acceleration”).
- The client can no longer receive deferment or forbearance, and they lose eligibility for other benefits, such as the ability to choose a repayment plan.
- The client will lose eligibility for additional federal student aid.
- The default will be reported to credit bureaus, damaging their credit rating and affecting their ability to buy a car or house or to get a credit card.
- Tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”).
- Their wages will be garnished. This means their employer may be required to withhold a portion of your pay and send it to your loan holderto repay your defaulted loan.
- Their loan holder can take you to court.
- They may not be able to purchase or sell assets such as real estate. (Lien)
- They may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
- It may take years to reestablish a good credit record.
- Their school may withhold their academic transcript until the defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school’s decision—not the U.S. Department of Education’s or your loan holder’s—whether to release the transcript.
Solutions for Default:
Rehabilitation Program: This is a 10 month program. After the 9th month on the program, the default notation on the loans will be lifted and the loans are then transferred back to a loan servicer through the Department of Education.
Loan Consolidation: Another option for getting out of default is to consolidate all defaulted federal student loans into a Direct Consolidation Loan. Loan consolidation allows the client to pay off one or more federal student loans with a new consolidation loan. They will have to also agree to pay off the loans under an income driven repayment program, which could offer loan forgiveness.