Student loans can be challenging to navigate, and even minor policy changes can significantly impact a borrower’s financial situation. Almost every new presidential administration layers new rules and regulations onto an already-complex system. Major events, such as the pandemic or the 2008 financial crash, can bring more change. So it is no surprise many debt holders feel scared, confused and overwhelmed.
As millions of borrowers are faced with resuming payments this month and new initiatives being rolled out, Student Loan Tutor company officials say they have noticed a major increase in servicer error of 61%. Borrowers are having a difficult time reviewing their options with their loan servicer, changing their plans or even getting their questions answered, they note. There have been growing reports of additional issues such as confusing or misleading communications from loan servicers, involuntary forbearances and failure to timely process documents.
“My intention with this article is that you walk away feeling more liberated in your knowledge around the current student loan plans available for you so you can choose the smartest way to repay,” said Zack Geist, Student Loan Tutor’s founder and CEO.
Student loan forgiveness vs. student loan repayment
Student loan forgiveness is something almost every federal student loan borrower can qualify for; it is written into U.S. law. Where things get complicated is there are many forgiveness and repayment options that are difficult to understand, leading people to believe that because they didn’t qualify for one loan forgiveness option that student loan forgiveness at large does not exist. There are several kinds of forgiveness available through different programs.
While student loan forgiveness will dramatically reduce the cost of your loans, navigating that process on your own without making mistakes that disqualify you from forgiveness is nearly impossible, as evidenced by data from the National Consumer Law Center showing that out of the 2 million borrowers who could have qualified for student loan forgiveness via income driven repayment (IDR) plans in 2021, only 32 individuals actually received total student loan forgiveness.
Ways to repay student loans, simplified
The two most common ways to repay your federal student loan debt are balance-based repayment and income-driven repayment. Balance-based repayment is the traditional route most people know about, where you pay off 100% of the balance, plus interest; while the second option, income-driven repayment (IDR), designates payment amounts based on a percentage of your income and the size of your family.
IDR, said Student Loan Tutor officials, is the best choice for most borrowers who qualify, because an IDR program designates payment amounts that take into account your income and family size, with many people qualifying for as low as a $0-per-month payment. Then, once you have made payments for 20-25 years, depending on the specific IDR you’ve chosen, the total loan balance is forgiven and treated as taxable income.
More IDR options for paying student loans
In addition to the IDR program, certain repayment options have additional subsidies. For example, the new SAVE Plan eliminates 100% of remaining monthly interest for both subsidized and unsubsidized loans after you make a scheduled payment. This means if you make your monthly payment, your loan balance won’t grow due to unpaid interest that accrued since your last payment.
Another program that is very important to mention under the IDR options is Public Service Loan Forgiveness. You qualify for this program if you work for the federal, city or state government or a qualified 501(c)3 nonprofit, are in a qualified repayment plan and have made 120 total qualified payments. The employment requirement includes vocations such as nursing, medical doctors, public school teaching and many others. For example, you could technically have a million dollars in federal student debt forgiven, without any tax implication, after 120 qualified payments while working in a government or nonprofit capacity.
Don’t go it alone
Now that you understand some of the different options for federal student loan forgiveness, what can you do to improve your odds of actually realizing the forgiveness from less than a 1% gamble to near 100% certainty?
The answer is working with someone who is compensated to have your best interest in mind and has a vested interest in your outcome: a student loan attorney. They’re often expensive and offer simple advice, and rarely handle all of the document preparation and servicer follow-up and auditing.
Another option is to become a client of a company that specializes in student loan management. One of these companies can help you decide which forgiveness program fits your situation best, and revisit that strategy each year to make sure it still works and is saving you the most money. They also typically handle all the paperwork, filing and follow-up so you don’t fall behind in payments or miss deadlines.
About the Author
Zack Geist founded Student Loan Tutor in 2015. As one of the leading experts in federal student loan repayment, he and his team have taught thousands of student loan borrowers all over the country how to save enormous amounts of money and hassle. Geist currently splits his time between his farm on the Hamakua Coast of Big Island Hawaii and Salt Lake City, the location of Student Loan Tutor’s corporate offices. Schedule a free evaluation (a 90-minute call) with Student Loan Tutor here.
