Recently a client came to me worried that her student loan payment was going up this month because of the new laws. However, there are no new laws yet, just proposals. If those proposals do become law in the future, some people may see their payments go up.
Could you be one of them? Answer the questions below to find out:
If you answered “yes” to questions 1-4 or “no” to question 5, the new proposals student loan might impact you. Here’s how:
- The proposed laws impact loans issued or guaranteed by the Federal government. Private loans are a different ballgame and are not included in the proposed changes.
- If you are in the Public Service Loan Forgiveness program* you do need to be paying attention, but don’t panic. The current budget proposals suggest eliminating this program. However, it appears that people currently participating the program will be grandfathered in. So if you aren’t yet in the program but thinking about it, jump on that ASAP.
- If you are in any of the income-based repayment plans, also pay attention. Right now most income based plans require you to pay only 10% of your discretionary income. The current proposal eliminates them all in favor of one single plan where borrowers would pay 12.5% of their discretionary income, instead of the 10%. However, there is an upside for undergraduate loans – under this plan, after 15 years of payments the remaining balance would be forgiven. Under the current regulations they are not forgiven until the 20 year mark. This might be a pinch in the short term but save you money in the long term.
- If you are planning on loan forgiveness in an income-based plan with undergraduate loans this is the same good news/bad news scenario as shown above. Your payments might jump in the short term but the loan will be forgiven 5 years earlier. However, if you have student loans from graduate school you will have to wait 5 years longer for forgiveness to kick in. Under the new plan you would not be eligible until you have made payments for 30 years.
- No changes seem to be in the works for borrowers on the standard or graduated 10-year plan. If this is you, carry on as normal.
Again, none of this is law yet, so if it looks like your payments might go up, you have time to prepare. Think about creating a budget now that will enable you to handle the higher payments if they arrive. And if you read all of this and thought – “I have no idea what kind of plan I’m on,” or “I have no idea how to get prepared” Don’t feel bad – that’s pretty common with my clients. If you’d like help with any of this email me! I am opening up my calendar for a few free consultation sessions over the next few weeks.
*For those not familiar with it the Public Service Loan Forgiveness program forgives your loans after 120 payments if you are working for a government agency, a non-profit, or certain schools. It’s a great program and if you think you may qualify, you should definitely check it out here.