Repay, Your Way (Repost from Saltmoney.org)

Note: This article originally linked each short explanation to longer pieces on the site. I have included it in my portfolio as an example of my ability to write very short explanations of complex issues.

Federal student loans allow you to change your repayment plan at least once a year. Doing this can decrease your monthly payments; however, it can also increase the amount you repay overall.

What You’ll Learn

  • Payment plans that can lower your monthly payment.
  • Benefits and disadvantages of different plans.
  • How to apply for these options.

 

If you have federal student loans that are not in default, you may be able to change their repayment plan. Some plans depend on your situation—like lowering payments based on your income and family size. However, the key is to look at the following options to figure out which best fits your financial needs.

Your First Option: Standard Repayment
When you start repayment, you automatically enter this plan, which has you make the same monthly payment for 10 years. This plan repays your loans faster than most other plans—and the faster you pay off a loan, the less interest builds up. So, with standard repayment, you may pay less overall than with other plans; however, to do this, your monthly payments may be higher.

Income-Driven Repayment Plans
If you’re having trouble covering a standard payment, you may qualify for an income-driven repayment plan. There are several types of income-driven plans, but you generally only qualify for one or two based on the loans you borrowed and when you borrowed them. Any of the following plans could lower your payments and keep you on track.

Revised Pay As You Earn (REPAYE)
Revised Pay As You Earn (REPAYE) is the latest income-driven repayment option for federal student loans, and most federal student loan borrowers can take advantage of it.

REPAYE reduces your monthly payments to no more than 10% of your discretionary income. After 20 years of eligible payments under REPAYE, your remaining balance would be forgiven (25 years if you have any loans from grad school), but that amount is taxable.

Income-Based Repayment (IBR)
Income-based repayment (IBR) can lower your payment based on your income and family size. While not everyone qualifies (you need to prove financial hardship), IBR generally decreases your monthly bill. There are two kinds of IBR. Depending on which you qualify for, you may be able to have your debt forgiven if you haven’t paid it all off after 20 years or 25 years. Just don’t forget that this amount is taxable.

Pay As You Earn (PAYE)
Pay As You Earn (PAYE) is very similar to New IBR. Both require you to prove a financial hardship, and both offer loan forgiveness after a set period of time (20 years for Pay As You Earn). However, the plans do have their differences. For starters, only specific new borrowers can qualify for PAYE.

Income-Contingent Repayment (ICR)
ICR works similarly to IBR and PAYE, except your monthly payments may be slightly higher. Under ICR:

  • Only Direct loans or Consolidation loans (Consolidation loans may include Parent PLUS loans) qualify.
  • Your monthly payment will be lowered.
  • After 25 years, your remaining Direct loan balance is forgiven.

Income-Sensitive Repayment (ISR)
ISR is very different from the other income-driven repayment plans. You can only use ISR for a maximum of 5 years—then you have to switch to a different plan. For ISR:

  • Only FFELP loans qualify.
  • Your monthly payment will be lowered for up to 5 years (based on your choice between 4%—25% of your discretionary income).
  • After your 5 years are up, you have up to 10 years to finish paying off your loan.

 

Other Repayment Options

Graduated Repayment
If you want lower payments right now, but don’t want to make payments for the next 15-25 years, graduated repayment might be the option for you. With graduated repayment, you don’t need to provide your income information.

Graduated repayment is available for all federal student loans.
Your monthly payment will be lowered during the first couple years of repayment—but after that it’ll go up significantly.
You finish paying off your loan in 10 years (120 payments).
Learn More

Extended Repayment
If you have a lot of federal student loan debt (more than $30,000), but you don’t qualify for low payments under an income-driven repayment plan, extended repayment may be your only option.

Extended repayment is available for FFELP, Direct, and Consolidation loans.

Your monthly payment will be reduced so you pay one low amount for a longer period of time. You can have up to 25 years to pay back your loan (300 payments) or 30 years and 360 payments for Consolidation loans over $60,000.

Answers To The Student Loan Details That Trip People Up

Many student loan borrowers’ grace periods will end this month, putting their loans in repayment. To help them start on the right foot, Aaron Weber sat down with Alexander, a counseling specialist with Salt™, to discuss three common sources of repayment confusion: income-based repayment, Public Service Loan Forgiveness, and Teacher Loan Forgiveness. Here’s what he has to say.

Income-Based Repayment
Sometimes, when I mention IBR or Pay As You Earn, people tell me they don’t have enough income to make payments based on it. They don’t realize that a payment can go as low as $0 for some people. Yeah, I know—$0 doesn’t seem like a payment. But zero is a number, and you can potentially qualify for a payment that low.

The whole idea behind these plans is to provide a payment that’s reasonable for the amount you make. So, for some people who are unemployed or on a fixed income, that amount is $0. Because of this, IBR can often be better than postponing payments with deferment. With deferment, you just delay. With IBR, you could have a payment customized to your situation. Plus, IBR forgives your loans after 25 years of eligible payments (10 years, if you work in public service), and $0 payments count toward that total.

Teacher Loan Forgiveness
This one is tricky—but it’s still a valuable option for some borrowers.

You don’t just become eligible for this program this by teaching. You have to be a “new borrower” on or after October 1, 1998, and you have to teach full time for 5 years in a row in a low-income school. People get tripped up by that. If you stop for a year, or if you change school districts, you can lose eligibility.

The amount you’re eligible for depends on what you teach, which can add another layer of confusion. However, with a little research, you can take advantage of this program.

Public Service Loan Forgiveness
There are several things that trip people up with PSLF. First, you have to work in a qualifying job—but the requirement is based on your employer, not the job itself. Similar jobs for different employers might not count. For example, a nurse at a for-profit hospital isn’t eligible, but a nurse at a nonprofit hospital is. They both took the same classes and both help sick people, but because of their employer’s tax status, the benefit is different.

Second, you have to make 10 years of qualifying payments. Of course, 10 years is how long it takes to pay your loans off entirely under the standard repayment plan. So, you pretty much need to switch to income-based repayment or Pay As You Earn repayment plan to fully benefit from this program. Even so, if you’re in public service but making pretty good money, you probably won’t get much money forgiven.

Then, there’s the question of which 10 years count. I recently spoke to someone who graduated in 2003 and wanted to know whether he could get PSLF since he’d been in repayment for 10 years. Unfortunately, no payments before 2007 count for PSLF. Also, if you consolidate at any point, it restarts the 10-year clock.

It turns out that this guy consolidated in 2007 specifically to become eligible for PSLF, so he didn’t lose much time for that. But he still won’t get anything forgiven until 2017. He’s on income-based repayment, and will probably get a couple thousand dollars of this benefit when all is said and done. It’s not like he got his college education for free—but a couple grand is nothing to sneeze at!

“Can I Refinance My Student Loans?”

I was at the bank the other day and saw a brochure on the counter: “NEW! EDUCATION REFINANCE LOAN! REFINANCE YOUR STUDENT LOANS AND SAVE!”

Refinance, you say? Save money, you say? Tell me more, you say!

“Can I Refinance My Student Loans?”

This is a question we get a lot—and understandably so. With other types of consumer debt, like mortgages, you often read about borrowers refinancing to take advantage of “historically low” interest rates. Who wouldn’t want to do that with their student loans? Unfortunately, it’s not that straightforward.

Federal law sets the interest rates for federal student loans, and these rates are fixed (you can see what they currently are in our handy borrower’s cheat sheet). You cannot refinance a federal loan into another federal loan at a lower rate. That option simply doesn’t exist. You can, however, consolidate federal loans.

How Is Consolidation Different From Refinancing?

Well, at a high level, it’s not really. Just like refinancing, consolidating your loans means replacing your old loans with a shiny new one with new terms. Unlike refinancing, consolidating won’t necessarily lower your interest rate—even if it appears that way.

Interest rates on Consolidation loans are the weighted average of the rates of the loans consolidated, rounded up to the nearest 1/8th of a percent. So, even if the rate is lower than it was for some of your loans, this all balances out. Consolidation can also increase your loan’s repayment period, meaning you could end up paying more overall. Altogether, this option has pros and cons to weigh before using it.

Ultimately, though, a federal Consolidation loan is still a federal loan, which means it still may have many of the benefits of a federal loan. That won’t be the case when refinancing with a private loan.

The Pros And Cons Of Refinancing

While you can’t refinance federal loans into a new federal loan, you may be able to refinance them into a private loan. (Ditto for refinancing a private loan into a new private loan.) This has been popular recently, with newcomers like SoFi competing with big banks like Citizens Bank for the best customers.

But is doing this good for you? Well, that depends. If you are a few years out of school, have high-interest private loans, and have a steady income and stellar credit, check out your options. If you can qualify for a low fixed rate on a new loan, you can save money—especially if you use those savings to pay your principal balance off faster.

On the other hand, if you have federal loans, refinancing them with a private loan can be risky. That’s because doing so will erase all the protections and benefits that come with federal loans. Loan forgiveness, income-driven repayment plans, payment postponements, and so on could now be out of reach.

So, Should You Refinance?

Everyone’s situation will be different. If you can get a new loan with better terms, it may be a good deal. You certainly could save some money, especially if your debt is mostly in Grad PLUS or Parent PLUS loans, which have slightly higher rates. Still, those federal loans deserve additional consideration.

Do you make enough money that an income-driven plan isn’t relevant? Are you not going to qualify for student loan forgiveness? Are you confident that your job isn’t at risk? And do you have at least a year’s worth of expenses saved in an emergency fund?

If you answered “yes” to all of those questions, refinancing your federal loans could still be a good deal, even if it does carry more risks than refinancing a private loan. Still, remember that once you refinance your federal loans by replacing them with a new private loan, you cannot move or consolidate the loan back into a federal loan—and you cannot reclaim the benefits of federal loans either.

Regardless of whether you refinance your federal loans or just your private loans, be sure you know what you’re getting into before you sign up.

Have you refinanced your federal student loans? How did it work out?

You Can Just Hear The Relief In Their Voices

Think you don’t have options when it comes to your student loans? That may not be the case. Aaron Weber spoke with Maloney, one of our senior counselors, about common student loan problems and how to solve (or even prevent!) them.

What’s the most common question you get when you talk to a student loan borrower?

Honestly, a lot of people don’t even know what to ask. They say, “I can’t pay. What do I do?”

My favorite calls are when someone calls in stressed out and we’re able to tell them about a repayment option they didn’t know about.

Most people have a lot more on their plate than just student loans, and [loans] seem scary and impossible to deal with, so they avoid it. When they find out that they can manage it, and that we can help them, you can just hear the relief in their voices.

What are some common misconceptions people have about student loans?

Well, a lot of people don’t know who’s who. They know servicers and sometimes collection agencies call them and ask for money, and that’s pretty much it. “Bills,” basically, is what they see.

They don’t know that SALT™ isn’t a collection agency or a servicer. We’re not sending bills, you know? We’re here to help. Once they figure that out, though, it’s really gratifying.

Sometimes, they’ve done a little research and think they don’t have any options. They’re working so they can’t use unemployment deferment, but they don’t make enough to cover their student loans, and they think that’s it. But they could use economic hardship deferment—or income-based repayment.

Income-based repayment really is something that not enough people know about. Or they have heard of it, but don’t know that it works even if you don’t have much income (a low income means a VERY low payment—potentially as low as zero dollars). And that it includes a forgiveness option, even if it does take a long time to qualify for it.

What do you know now that you wish you’d known when you were applying for college?

When I was applying to college, I didn’t know the difference between federal and private student loans. I just wanted to go to college, move out of my parents’ house, and be independent. I didn’t know that I could get a much better value going to college in state, so I just signed anything I could to get to school. I’ve been able to manage it, but it would have been a lot easier if I’d known what I was doing.

My nieces and nephews are juniors and seniors in high school right now, and I’m sending them links to the scholarship search on SALT, and talking to them about different in-state schools, helping them make choices with both eyes open. One of them wants to go to college in California, and it might be a good fit, too. If she goes, though, she’ll know how much it costs and have a good plan for paying it back.

My MBA Has Influenced My Career Far More Than My Education Degree

What do you want to be when you grow up? Where do you see yourself in 5 years? These are tough things to figure out—and, often, your first answer may not end up being the correct one.

Aaron Weber spoke with someone who dealt with her own shifting career goals. This person went from academic administration to marketing management, picking up two master’s degrees along the way. Check out what she had to say about her educational path and what it did for her career.

***

So, you’ve got a master’s degree?

Two, actually.

I have a degree in education management and also an MBA. The first one was practically free, because I was working at the university where I studied, and you could take a free class or so every semester. I learned a lot, but it didn’t bring me the career advancement I wanted. I thought about extending that into a Ph.D., but my university didn’t offer one, and a Ph.D. doesn’t include the business and finance skills that I wanted to build.

Instead, I pursued an MBA.

How’d you choose the school?

I wanted a smaller program, with a strong network of alumni in my city. I paid for about half with a scholarship and half with federal student loans. For the whole thing, it came out to about $20,000 for me and $20,000 in scholarships.

Did the MBA do more for your career?

My MBA has influenced my career far more than my education degree. While I had previously only worked in colleges, I interned at a financial services company during my time in school and moved on to marketing management in high tech after graduation. Post-graduation, my salary rose about 50%, which helped a lot in paying down my student loans, including the leftover ones from my undergraduate degree.

I also chose to pursue an MBA because it can apply to many roles across multiple industries. I learned project management, how to manage other people as well as function as a productive member of a team, financial forecasting and budgeting, operations management, all in addition to marketing, which is what I’m doing now. As a package, all of those things work together—and give me a holistic perspective of how my company functions.

What do you know now that you wish you’d known before you started?

If you’re thinking of pursuing a graduate degree, I’d recommend considering what you want to do in your career. You have to ask yourself, “Do I want to do something specific, or leave my options open?”

If you want to specialize, you should look for a program accordingly. Look for scholarships and paid internships, and make sure you know what you need to learn from the program to be successful in a job. That’s often different from what it takes to just get good grades.

If you don’t have a particular career path in mind, hold off on applying to grad schools. Take some time to work at the entry level and consider what you like or don’t like about the job. Ask higher-ups about career paths—most people love to talk about that kind of stuff.

For example, if you work in a doctor’s office and really enjoy that organizational vibe, then you might want to pursue a degree in hospital administration. But also consider other things you like about it that might be found in another industry. Maybe you like helping people and want to pursue social work instead. Maybe you’d do best in HR or recruiting, helping people find jobs and build careers. A lot of industries use the skills you have or will develop, in different ways.

What I mean is that you need to think about the difference between industry and function—and how that overlaps. If you like fashion and are good at math, would you be willing to be an accountant for a fashion label? You can work in video games without being a designer or programmer—every industry has HR, finance, marketing, and IT departments.

Regardless, you need transferrable skills. Right now, I work for a company that sells software to big businesses. But if I had to, I could sell banking, or medicine, or real estate, or almost anything else. It would be a stretch, and I like the job I have already. But if I had to, I could make another transition, and knowing that makes me feel a lot more secure.

What It’s Like To Go Back To School After 10 Years Off

College in the U.K. (or as they call it, “uni,” which is just adorable) is different from in the United States, but it’s still subject to a lot of the same pressures and interruptions.

Aaron Weber spoke with someone in Scotland who took almost a decade off after his second year. Find out what it was like.

***

So, what’s the background for your story?

I started university when I was 17 years old, intending to study computer science and history. My maths weren’t all that strong, but I was good with computers.

I got married when I was 19, and my wife wasn’t working, so I had to do something to bring in money. Of course, it was still 2000, and the dot-com bubble hadn’t burst yet, so I found a job at an e-commerce consultancy that was acquired a few months after I joined. I spent 2 years there drinking too much coffee and holding meetings in the smoking room before the purchaser shut it down and laid everybody off.

In spring of 2002, I signed on with a startup in the U.S., working remotely and flying over every few months for meetings. That one went pretty well, and we got bought out by a bigger company, and I didn’t get laid off again until 2007.

What made you decide to return to school?

At that point, I sort of pondered going back to university to do a computer science degree. On the other hand, I had 7 whole years of working, so I thought maybe I didn’t need it. I knew I didn’t want to attend full time, but a part-time bachelor’s degree takes 8 years in Scotland at traditional colleges.

I decided to pursue a degree from the Open University. You can take as many classes as you have time for, and I set out on a pace to be done in just 5 years with almost no breaks.

By the time my classes began, I’d found another job, this time developing software at an investment bank. I initially intended to study maths and economics to go with my banking job, but I still didn’t like the maths part that much, and switched to politics, philosophy, and economics, which I enjoyed more.

What were your classmates like?

The OU has a very different age profile from brick universities; I tended to be one of if not the youngest people, and most of my classmates were people in their mid-50s and upward. As the recession progressed, though, more and more people my age or younger began to join us.

How’d you pay for it?

I didn’t qualify for need-based financial aid, so I paid the full tuition price out of my own pocket.

Fees have gone up dramatically in the U.K., but the OU is still about half the cost of a traditional brick-and-mortar residential university. And of course, education here is still loads cheaper than in the U.S.

A year’s tuition costs about as much as a month’s rent in Glasgow: just over a thousand pounds, or about $1,500. Books were extra, of course, but it wasn’t a real strain on my budget at all.

How’s it feel to be done?

Right now I’m still waiting for the result of the my final exam, but I’m pretty sure I’m getting my official diploma this summer. The weird thing about being done with school is that I have free time. I felt bored the other day. I haven’t felt properly bored since 2008.

How has going back to school affected your career?

It’s definitely been useful at work, more even than I thought it would. A lot of the statistical analysis you study in economics is useful in machine learning. And I’m currently working for a recruitment firm, so my knowledge of labor markets has also come in handy. But the most useful thing, really, has been having another prism through which to view things.

Any final thoughts for people considering returning to school?

Even without the content of the courses, there are two huge things I learned that made just going to school worthwhile: I had to get much better at managing my time, and I learned that sometimes good enough really is good enough.

Can You Afford To Get Married?

You may not be able to afford the wedding of your dreams. You may not be able to afford the wedding of your mother’s dreams. You may feel like you can’t even afford to be a guest at someone else’s wedding.

You may not be able to afford the wedding of your dreams. You may not be able to afford the wedding of your mother’s dreams. You may feel like you can’t even afford to be a guest at someone else’s wedding.

But you can afford to get married—even if you have student loans.

A marriage license and a trip to City Hall or the chapel don’t actually cost that much. It’s the big party that goes over budget. But there are ways to do it on the cheap without feeling like you’re cheaping out.

***

I don’t just mean looking on Pinterest for DIY wedding decorations, although that will save you some cash too. I mean changing your attitude about what a wedding means.

The bridal industry loves to quote the price of an average wedding at about $25,000. But remember, giant celebrity weddings are included in that kind of figure. Most weddings cost a lot less. Mine was under half that, and we could probably have gotten it lower if we really tried much more. Here’s what worked for us:

1. Keep it small and plan quickly: Fewer people and less planning time means a small affair. We thought of it as a large dinner party rather than a small wedding. We managed to keep it under 60 guests.

2. Know your priorities: Everyone’s got one thing they think is most important. For us, it was food. We cut way back on the invitations, the dress, the ring, the entertainment, the transportation, the wedding party … everything but food and drink for the guests.

I know one couple who wanted lots of friends at the wedding, so they set up a big tent out in the country, did all their own decorations, and had the groom’s college roommate’s band play the reception. The band was awful and the food was forgettable, but everyone had a great time.

3. Pay for it yourselves: If it’s your money on the line, you’ll find it a lot easier to pay for what you want, and not pay for what you don’t want. If someone’s parents are paying the bill, they’re also calling the shots.

Bucking Expensive Traditions

We also saved money by skipping out on some traditions we didn’t feel especially attached to. You may find it hard to give up on some things, but try to remind yourself that no wedding can have the whole shebang.

Cake: Almost any other pastry costs less than a four-tier wedding cake. Some people do regular cakes, or cupcakes or cookies or selections of pastries. We opted for pie.

Ring: The pressure to buy a diamond, and to buy a big one, is immense. But the diamond engagement ring was largely invented by the diamond cartels and their ad agencies in the 1930s. Consider a beautiful ring that’s not a diamond—you can find great value in sapphires and rubies these days.

If you must have a diamond, consider practicality before you go for the biggest one you can afford: AskMen points out that a big solitaire is actually kind of hard to wear every day. In fact, I know one woman stopped wearing her ring when she accidentally scratched her daughter’s face with it. My wife still wears her ring, but it’s a low profile setting. Not coincidentally, we paid less than a thousand for the engagement ring and matching wedding band.

If you do want a diamond, shop wisely, and look to estate sales and vintage stores, where diamond rings sell for a fraction of their original price.

Clothing: Wedding dresses are absurdly expensive. A good party dress tends to be cheaper and looks just as nice. Dresses in with prints or in colors other than white are especially useful, because you can wear them again. Grooms look as good in a suit as in a tuxedo, and will find they can wear them on more occasions—like job interviews.

Managing Money for a New Couple

Of course, the cost of the wedding isn’t the only reason people say they’re afraid they can’t afford to get married. And if you’re reluctant to get married because you have cold feet and are just using the cost as an excuse, we can’t help you.

But if you worry that you and your sweetheart have different amounts of student loan debt, or fear that your debt will hold your partner back, check out these articles on couples and finance:

  • Planning An Awesome Wedding On A Small Budget
  • How Couples Can Stop Arguing About Money
  • Should You File A Joint Tax Return?
  • Is Your Spouse’s Health Insurance Better For You?
  • Kanye West Lied To Me About Getting A Pre-Nup
  • Note: All the articles in this “see also” list were to other posts on the Saltmoney.org blog, which is defunct as of June 14, 2018.