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Understanding Your Student Loan and Repayment Options

by Lewis Roberts, Florida Bankruptcy Lawyer

I should get over the shock of how many student loan borrowers, now graduates, truly don’t understand their own loans.

I follow some student loan borrower groups on Facebook.  I will leave aside their repeated discussions of complete loan forgiveness by the government.  (Don’t count on it.)  And I will also ignore, until a later blog post, that student loans should be dischargeable in bankruptcy (they aren’t now, unless you prove undue hardship, which is a tough to do, but not impossible).

Focusing on federal student loans only, there are different payment options: Standard, extended, graduated, income-based repayment, income-contingent repayment, and pay as you earn (PAYE).

In the Facebook group, a person mentioned:  I just made a $100 payment on my loan and $26 went to interest.  That is 26% interest!

Clearly, this person doesn’t understand simple finance.  Also, this person is probably completely lost in how to manage paying back his or her federal loans.

The person’s loans totaled over $300,000.  That number alone is shocking.  How does tuition and costs of attending ever get to be that much for a 4 year degree, or even 7 years if you were to go on to law school, get a masters, etc? Regardless, that is where the person is now… a TON of debt.

Let’s address the person’s interest rate statement.  $26/month for 12 months equals $312.00.  If you pay $312 in interest on a loan totaling $300,000, the interest rate for the year is actually…

0.001%

Yes, I would LOVE to have that interest rate on my cars, mortgage, credit cards, anything.

How best to manage it now?  Get into an income driven plan and manage the payment for the next 25 years, or 10 (depending on your job).

Income driven plans are not about paying off the loan.  It presumes, especially with a balance as high as the example, that you will never be able to pay off the loan through employment alone.

Each year you submit income information and your payment is determined for the next year.  After 25 years of doing this, the balance is forgiven.  If you work in a public sector or non-profit job, then your loans may be forgiven after 10 years of continuous employment.  This must also be certified as well.

Can you do this on your own?  Absolutely.  Do most people? No.

For some reason, a lot of student loan debtors are not grasping the income driven plan idea. The government does a poor job of educating debtors and a poor job promoting it.

If you would like to know your options, please call us at (407) 749-0080 for a consultation.

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