After the 4 year degree

Paying for College
1

<p>Good morning all:</p>

<p>I'm not sure if this is where I would post this, but here goes.</p>

<p>My D has graduated from PSU this past May with a Bachelors in Psychology and a minor in Sociology. I'm very proud of her accomplishment as she graduated on time ( 4yrs). I'm a single mom, considered middle class; however, the financial assistance provided for OOS wasn't the greatest as we lived in NJ.</p>

<p>Loan repayments are knocking on our door and with the current job situation, she has begun to work in her field as a Junior counselor for a Women's shelter in PA. The income is not the greatest, but she's gathering the experience and i read that for her career choice, she will need a masters degree.</p>

<p>Now, I need to educate myself on this repayments of both Government and private loans so that we don't fall behind. I want to know the advantages of consolidation/ income base repayments if it applies for both kind of loans?</p>

<p>Any advice? Where do I search for information that I could understand, because in reality it all sounds Chinese to me.</p>

<p>Government loans both Subsidized & Unsubsidized (4yrs)
Private Loans from Banks ( Not Parents loans) (4yrs) I cosigned the loans with her. Interest rates for 4 yrs vary 2.75% - 7.5% on the last loans.</p>

<p>Thank you in advance for any suggestions.</p>

<p>Judy</p>

2

<p>I don’t know anything about those private loans - the terms will vary by individual bank - but federal loan consolidation only works for other federal loans - Stafford/Direct, Perkins, and other federal government student loans. You can check out this website:</p>

<p>[Direct</a> Consolidation Loans - Welcome!!!](<a href=“http://www.loanconsolidation.ed.gov/]Direct”>http://www.loanconsolidation.ed.gov/)</p>

<p>A lot of times when students have several federal loans by different servicers, they have multiple monthly payments to be made to different people. Consolidation produces one monthly payment that they would make to the same person every month. Interest rates on Direct Consolidation loans are also fixed; they are calculated as a weighted average of the interest rates of all the loans being consolidated. So if your daughter had borrowed $5,000 at 4% and $5,000 at 8%, their new consolidation loan would be for $10,000 at 6%. The rate cannot be higher than 8.25%.</p>

<p>The Federal Consolidation loans are also eligible for the income-based repayment plans and the new Pay As You Earn plan. So basically, if your daughter has not paid off much on her loan yet, the federal consolidation loan probably won’t make a huge difference for her. It’ll just be sending one monthly payment out instead of multiple, and effective interest rate will be the same since it’s a weighted average.</p>

<p>Here’s some information on the Pay as You Earn plan:</p>

<p>[Pay</a> As You Earn Plan | Federal Student Aid](<a href=“http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn]Pay”>http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn)</p>

<p>Under Pay as You Earn, if your repayment under the Standard Repayment Plan is more than what it would be under PAYE, then you are eligible. Your monthly payments are 10 percent of your discretionary income, and the government pays your unpaid interest for 3 years if the monthly payments under PAYE aren’t large enough to cover your interest. There are some other great provisions, including loan forgivenness after 10-20 years depending on the kind of job your daughter works. But your daughter has to have borrowed her first federal loan after October 2007 in order to qualify.</p>

<p>If her loans are older, then she’s probably eligible for Income-Based Repayment instead. IBR works much the same as PAYE, except that the percentage of her income that she will pay is 15% of your discretionary income instead of 10%. The forgiveness is also only after 25 years instead of 20 years, unless you are a public servant, in which case it is 10 years.</p>

<p>Then there’s Income-Contingent Payment, which is a bit more complicated but in practice is a lot like IBR and PAYE. The percentage of income is a bit higher (20% or the amount you would pay if you repaid your loan in 12 years multplied by a factor based on your income, whichever is lesser) and the Income-Sensitive Plan (which allows you change your monthly payments based on your annual income, but comes with the caveat that your loans still have to be paid off in 10 years. The other programs all give you 20-25 years to pay your loans, after which any remaining balance is forgiven.)</p>

<p>This website has an IBR calculator:</p>

<p>[IBRinfo</a> :: Help is here!](<a href=“http://www.ibrinfo.org/]IBRinfo”>http://www.ibrinfo.org/)</p>

<p>There are also calculators on the page from the feds.</p>

<p>Let’s say that your daughter has the max debt under the direct loan program ($31,000 at 6.8%) and she makes $30,000 a year. Here’s what she’d pay per month under the different plans:</p>

<p>Standard Repayment: $356
Extended Repayment (30 years instead of 10): $215
Pay As You Earn: $110
Income-Based Repayment: $166
Income-Contingent Repayment $243</p>

<p>However, each of the income related plans will accrue more interest - with Pay As You Earn accruing the most, ICR the least - which will make her loan grow instead of shrink over time. And If after 25 years she doesn’t pay it off and the money is forgiven, she will have to pay taxes on the amount that is forgiven.</p>

3

<p>The federal student loans with be with a specific provider. You (or your daughter) should have gotten e-mails or snail mail with the information on who the servicer will be. My oldest son’s loans are with one company and my second son’s loans are with another company. You don’t have to consolidate them, but you can. If she took the full amount each year in federal direct and does not negotiate a different payment plan those loans will be the $350+ per month mentioned above by julliet.</p>

<p>If you had any Perkin’s loans they will also be with a servicer and you should receive some sort of notification in the months before payment is scheduled to begin. </p>

<p>The bank loans are both your liability and your D’s since you were a co-signer. You might be able to negotiate the payback or at least understand what the monthly amount might be on your own. If it needs to be your D who speaks with the company that you got the loan with then she should also do that to see if there are any options.</p>

4

<p>Juillet,
Thank you for the descriptions. A couple of questions…is ANY teacher in any school district considered a “public servant”? And second, with the three reduced/forgiveness options, what are the income limits to benefit? If someone is earning $50,000 a year, are these beneficial options?</p>