Many people have heard of the “Obama Student Loan Forgiveness” act of 2010. However, this is simply a re-institution of an older policy called the William D. Ford Direct Loan program originally part of the Higher Education Act of 1965. The difference is that President Obama reformed part of the Direct Loan program in 2010 by signing the Health Care and Education Reconciliation Act.Many people have heard of the “Obama Student Loan Forgiveness” act of 2010. However, this is simply a re-institution of an older policy called the William D. Ford Direct Loan program originally part of the Higher Education Act of 1965. The difference is that President Obama reformed part of the Direct Loan program in 2010 by signing the Health Care and Education Reconciliation Act.
Since going into effect in 2010, you can consolidate a variety of student loans at no charge to the U.S. Department of Education or use the services of Student Advisor Center to help you take advantage of federal student loan resource saving repayment and forgiveness programs which can help you retain thousands of dollars each year if you qualify. Our trained staff members will openly and frankly discuss your options based on your unique situation, such as the type of loans you have, your current income, family size and debt amount. Everyone has a unique financial situation which can impact not only the payment amounts, but the type of programs you qualify for. Student Loan Forgiveness covers a wide variety of situations and social statuses.
How Student Loan Consolidation Benefits You
A student loan consolidation takes the borrowers loans and combines these into one new loan with one lender, and one static average interest rate. This removes the burden off of the borrower from having to keep track of his/her many different loans with different lenders, balances, and interest rates. Consolidation programs exist for both federal and private student loans, but we will be discussing federal student loan consolidation.
There are several good reasons to consider consolidating your federal student loans. Understanding all of the benefits will help you make a sound financial decision. Having only one federal loan under your name, with one lender, and one interest rate will greatly reduce your credit footprint and simplify your student loans. You will be able to track this student loan balance on one monthly bill. You will have one single lender and know the exact balance to your loans on one single simplified statement. Consolidation offers flexible repayment plans as well. For example, when entering into a payment plan that fits your needs, payment plans are not unamendable as with a normal loan. If you are currently able to make your payments without a problem, but in the future lose part of your income, you will be able to change your repayment plan with no other adjustments to your loans required. This offers the borrower the flexibility of a monthly payment, and the peace of mind not having to worry about default when unemployed, earning less than expected or being unable to afford life’s basic necessities.
Consolidation also has various loan forgiveness aspects which may not be available with your current loans. After paying towards your loans for 20-25 years, any remaining balance on your federal student loans is forgiven. This could be a very large portion of the loan in certain circumstances. Interest in the Student Loan Repayment Plan is forgiven on the subsidized portion of your loans for the first three years if your monthly payment is less that the interest that is required to accrue. Consolidated loans are also eligible for the Public Service Loan Forgiveness program. Consolidation also takes any defaulted loans you have out of default and puts them into good standing. This gives the borrower a second chance combined with flexible repayment plans. It makes falling back into default difficult unless the borrower is inactive with the loans, and takes a careless attitude toward them.Consolidation also takes any defaulted loans you have out of default and puts them into good standing. This gives the borrower a second chance combined with flexible repayment plans. It makes falling back into default difficult unless the borrower is inactive with the loans, and takes a careless attitude toward them.
What types of loans can be consolidated?
Most federal student loans, including the following, are eligible for consolidation:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Direct PLUS Loans
- PLUS loans from the Federal Family Education Loan (FFEL) Program
- Supplemental Loans for Students (SLS)
- Federal Perkins Loans• Federal Nursing Loans
- Health Education Assistance Loans
- Some existing consolidation loans
Private education loans are not eligible for consolidation. If you are in default, you must meet certain requirements before you can consolidate your loans.
A PLUS loan made to the parent of a dependent student cannot be transferred to the student through consolidation. Therefore, a student who is applying for loan consolidation cannot include the PLUS loan the parent took out for the dependent student’s education.
Consolidating your Federal Student Loans gives you a few different Student Loan Repayment options. This page is designed to explain how the calculations are made, and also to assist you on when it may be wise to choose one repayment plan over another. Each has their benefits, and we let our clients make the final decision as to which option they think will benefit them the most in the short and long term. The four repayment plans are the Standard Repayment, Graduated Repayment, Income Contingent Repayment and the Income Based Repayment:
In a standard repayment plan, the payment on your loan is calculated as any normal loan payment, based upon the size of the loan and also the term of the loan. Depending on your income and family size, the standard repayment plan can be a good option for you if:
- You want to pay off the loan as soon as possible and currently have less than 30 years left on the term
- You do not qualify for an income-based repayment plan due to your higher income bracket
- Your loan amount is small enough where you can be paying a minimal amount over a short period rather than extending it for an additional set amount of years
Graduated Repayment Plan
This program starts with lower payments that increase every two years. Payments are made for up to 10 years (between 10 and 30 years for consolidation loans). The graduate repayment plan is similar to the standard repayment plan in its calculation, but major differences occur in the first few years under the graduated plan where you are only paying interest on the loan. For this reason the graduated plan, in the beginning, is always less than the standard repayment plan. You start off only paying interest on the loan and every two years your payment increases. The term of the loan is the same as the standard and is based on your loan amount. You may want to choose the graduated plan if:
- Your income is high enough where the Income Based reprograms do not make sense for you or you may not even qualify for them
- You want to have a slightly lower payment right now knowing that your payments will slowly increase every two years until the loan is paid off
- You expect your current job to have normal and regular pay raises and expect to be able to pay the increase of the payment every couple of years
Income Based Repayment (IBR) Plan
The Income Based Repayment plan is by far the most unique in the Student Loan Forgiveness program, and often the most beneficial. When borrowers have met the requirements and repay their loan under the Income Based Repayment Plan, the balance remaining under the loan will be forgiven after 25 years of qualifying repayment. If the student is a full time employee for a public service organization, after 10 years of on-time, full monthly payments are made, the student may qualify for loan forgiveness on the remaining balance of their Direct Loan under the Public Service Loan Forgiveness Program.
There are many benefits to the program, one of which is forgiveness on the first three years of unpaid interest from when you enroll into the Income Based Repayment plan for the subsidized portion of your loan. This works out for many to be a form of instant forgiveness on their loans. You must qualify for a zero payment. If your payment is not zero, it is likely you are not completely paying off the monthly payment, and receiving forgiveness on the difference. The amount of your payment can never exceed 15% of your adjusted gross income over the poverty line for your family size. If you are married and file jointly, your spouse’s student loan indebtedness can be taken into account and can further lower your payment. You may want to take advantage of an Income-Based Repayment if:
- You are having a financial hardship and would like some breathing room
- You qualify for a payment of zero or payment of less than the monthly interest payment on the loan. This will allow for that interest to be forgiven on the first three years
- You do not see a large increase in you income in the future, and see yourself always qualifying for a zero payment at which case your student loan would be completely forgiven at the end of the term
Pay As You Earn (PAYE) Plan
When borrowers have met requirements and repay their loan under the PAYE Program, a balance remaining under the loan will be forgiven after 20 years of qualifying repayment. If the borrower is a full time employee for a public service organization, after 10 years of on-time, full monthly payments are made, the student may qualify for loan forgiveness on the remaining balance of their Direct Loan under the Public Service Loan Forgiveness Program.
Income Contingent Repayment (ICR) Plan
The Income Contingent Repayment plan uses a couple of income-based factors to surmise what your payment will be during the length of your Student Loan Repayment. The Income Contingent Repayment plan calculates your payment two different ways and then gives you the lower of the two payments. One calculation is your Adjusted Gross Income over the poverty line for your family size, multiplied by 20% for an annual payment. This calculation does not take the loan size into account at all. The second calculation, however does use your loan value, and income factor determined by the federal government, and a constant multiplier also determined by the federal government. These are then used to calculate your payment for the second method. Whichever of these formulas gives you the lower payment will determine your payment plan. You may benefit from an Income Contingent Repayment Plan if:
- You are suffering a financial hardship and need relief
- You do not see having a higher income in the future and would like to be eligible for student loan forgiveness. Under this repayment, it is not expected that at the end of the term will be paid off, so loan forgiveness seems likely
We recommend that you research all of the free government programs available to you and apply for the one that best fits your situation. Keep in mind that many government programs have monthly or yearly requirements that you must understand, meet and recognize in order to stay in them. We help people every day get enrolled in the right program, so if you are not confident or do not have the time to apply to the correct Student Loan program yourself, give us a call at (888) 700-3848.