Many people are confusing the federal student loan program and private loans which may pay bills but how, when and if you pay them back are completely different.

As a parent, your student’s private student loans may impact your investing and business start-up funding options.

Understand the Retain Investor realities – Jeff Cline-Founder

If you are on this page looking for answers on the long road to student loan payback make sure you understand which loan you have. In many cases you may have both soo lets dicest both.

First:

A Guide To Federal Student Loan Repayment Plans

Camilo Maldonado

Graduating from college is an exciting time, but entering the real world also comes with serious financial responsibilities. Now that student loans total more than $1.4 trillion, they affect families in every corner of our country.

While getting student loans is relatively easy, paying them off is a more involved multi-year process. To get loans, you might have just filled out the FAFSA, signed a few papers and boom, you were done. However, paying them off can be more complicated than simply waiting for the bill to arrive and then making your payments.

There are EIGHT different federal student loan repayment plans that you can choose from. The different plans may seem similar, but each has distinct pros and cons. As a result, choosing the best option for your personal situation is important – your hard-earned dollars will be at stake. If you don’t choose a repayment plan, your loan servicer will place you on the Standard Repayment Plan. The eight repayment plans are:

  • Standard Repayment Plan
  • Graduated Repayment Plan
  • Extended Repayment Plan
  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Pay As You Earn Repayment Plan (PAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)
  • Income-Sensitive Repayment Plan
  • Standard Repayment Plan

The Standard Repayment Plan (for non-consolidated loans) features fixed payments made for no more than 10 years. Having the shortest repayment period, the Standard Repayment Plan saves you money over time because you’ll pay the least amount of interest over the life of the loan. The catch is that the monthly payments may be slightly higher than what you’d see under other plans. The Standard Repayment Plan is good for someone looking to pay off their loans as quickly as possible, or someone who has a high income and doesn’t want to face even larger monthly payments on an income-based repayment plan. This plan should NOT be used by those seeking Public Service Loan Forgiveness.

(Note: If you consolidate your federal loans and choose to pay on the Standard plan, then your repayment period will last from 10 years to 30 years, depending on the total amount of debt you have.)

Pros of the Standard Repayment Plan

  • 10-Year repayment time means you’ll pay less interest over time.
  • Fixed payments so you know exactly how much you owe every month.
  • Cons of the Standard Repayment Plan
  • Higher monthly payments than other plans.
  • The payments are fixed, so if your income drops, the loans may further strain your finances.

Graduated Repayment Plan

The Graduated Repayment Plan features lower initial payments that increase every two years. Similar to the Standard Repayment Plan, the repayment period is typically no more than 10 years. Under this plan, the range of your monthly payments will never be less than the amount of interest that accrues monthly or more than three times greater than any other payment. The Graduated Repayment Plan is good for someone looking to pay off their loans as quickly as possible, while having a low starting income that is expected to grow throughout the 10 year repayment period. This plan is NOT recommended for those seeking Public Service Loan Forgiveness because your loan will already be paid off in 10 years. (Note: As with the Standard Plan, the repayment period may be as long as 30 years if you have consolidation loans.)

Pros of the Graduated Repayment Plan

  • 10-year repayment period allows you to free yourself of student debt more quickly than other options.
  • Payments rise over time, allowing new graduates to handle student loan payments on entry-level wages upon entering the workforce.

Cons of the Graduated Repayment Plan

  • If your income doesn’t grow as expected, the higher payments toward the end of the loan repayment period may strain your finances.
  • You’ll pay slightly more over the life of the loan compared to the Standard Repayment Plan.

Extended Repayment Plan

The Extended Repayment Plan allows you to extend the repayment period for up to 25 years. Monthly payments may be fixed or graduated and are generally lower than those found in the Standard Repayment Plan and Graduated Repayment Plan. The Extended Repayment Plan is good for someone looking for a low monthly payment. However, you’ll end up paying a lot more interest over the life of the loan. Someone with a high income but with large financial obligations might also seek this payment plan. We feel that only those in specific circumstances should consider this plan, because the Income-Driven plans offer both longer repayment periods and payments that flex with your ability to pay.

Pros of the Graduated Repayment Plan

  • Lower monthly payments than the Standard Repayment Plan and Graduated Repayment Plan, making the loans less burdensome on a monthly basis.
  • Monthly payments may be fixed or graduated, which gives you flexibility to decide.

Cons of the Graduated Repayment Plan

Not everyone is eligible. You must have more than $30,000 in outstanding Direct Loans. Due to the longer repayment period, you will pay more interest over the life of the loan, when compared to a shorter repayment plan.

Income-Driven Repayment Plans

There are four different Income-Driven Repayment Plans. According to the U.S. Department of Education, these plans set your monthly payment at an amount that is “intended to be affordable based on your income and family size.”

The payment for these plans is typically a set percentage of your income. Some people may qualify for no monthly payments depending on their income and family size. The repayment period for these plans varies between 20 and 25 years.

After the end of the repayment period, any remaining loan balance will be forgiven by the government if your federal student loans aren’t fully repaid yet. According the U.S. Dept. of Education, “periods of economic hardship deferment, periods of repayment under certain other repayment plans, and periods when your required payment is zero will count toward your total repayment period.” These plans are good for low and lower-income individuals with remarkably high loan balances, because they help keep your payments low. Loan forgiveness at the end of the repayment period is especially helpful for those in the lowest income brackets with high amounts of debt.

If you are seeking Public Service Loan Forgiveness (PSLF), then you’ll need to pick one of these plans:

  • Revised Pay As You Earn Repayment Plan (REPAYE Plan)
  • Pay As You Earn Repayment Plan (PAYE Plan)
  • Income-Based Repayment Plan (IBR Plan)
  • Income-Contingent Repayment Plan (ICR Plan)
  • Revised Pay As You Earn Repayment Plan (REPAYE)

The REPAYE plan sets your monthly payment at 10% of your “discretionary” monthly income. Under this plan, your repayment period is 20 years if all of your loans were for undergraduate studies. If any loans were for graduate studies, the repayment period jumps to 25 years. (For the purposes of this program, discretionary income equals the difference between your annual income and 150% of the poverty guideline for your family size and state.)

The REPAYE plan is good for those with high balances and a modest income. It is also a solid plan for an individual who doesn’t mind if their monthly payment is larger than what it would be under the Standard Repayment Plan since there is no cap. Additionally, for those with very large loan balances, the government subsidizes some of the interest that accrues if your monthly payment is not large enough to cover the interest payment.

Pros of the REPAYE Plan

  • Any borrower with eligible federal loans can make payments under the REPAYE plan.
  • Loan forgiveness at the end of your repayment period.
  • The monthly payments will decrease if your income decreases, keeping the payment affordable.
  • Depending on your income and family size, your monthly payment may be lower than the amount you’d pay under the Standard Repayment Plan.
  • Good option for those seeking Public Service Loan Forgiveness.

Cons of the REPAYE Plan

  • Each year you must recertify your income and family size, creating additional work on your part.
  • If you don’t recertify your income and family size annually, you will be removed from the REPAYE plan.
  • Depending on your income and family size, your monthly payment might be higher than the amount you’d pay under the Standard Repayment Plan.
  • Due to the longer payment period, you may pay more in interest over the repayment period than under other repayment plans.

Pay As You Earn Repayment Plan (PAYE)

The PAYE plan sets your monthly payment at 10% of your monthly “discretionary” income, but never more than the monthly payment you would make under the Standard Repayment Plan. Under this plan, your repayment period is 20 years.  (Discretionary income is defined as it is in the REPAYE program.) The PAYE plan is good for those with high loan balances. The PAYE plan is different from the REPAYE plan because with the PAYE plan your monthly payment will be capped at the Standard Repayment Plan level even if your income balloons.

Pros of the PAYE Plan

  • Lower monthly payment than under the Standard Repayment Plan.
  • If your income increases to the point where your monthly payment would be more than the Standard Repayment Plan, your payment will no longer be based on your income. Instead, your payment will be the amount you would pay under the Standard Repayment Plan.
  • Loan forgiveness at the end of your repayment period.
  • The monthly payments will decrease if your income decreases, keeping the payment affordable.
  • Good option for those seeking Public Service Loan Forgiveness.

Cons of the PAYE Plan

  • You can only qualify for the PAYE plan if your monthly payment under the plan is lower than what you’d pay under the Standard Repayment Plan, and if you are considered a “new borrower.”
  • You must recertify your income annually, otherwise your payment will be the amount you would pay under a Standard Repayment Plan with a 10-year repayment period, “based on the loan amount you owed when you initially entered the income-driven repayment plan.”
  • Due to the longer payment period, you may pay more in interest over the repayment period than under other repayment plans.

Income-Based Repayment Plan (IBR)

The IBR plan sets your monthly payment at 10% (for new borrowers on or after July 1, 2014) or 15% of your monthly “discretionary income”, but never more than the monthly payment you would make under the Standard Repayment Plan. Under this plan, your repayment period is 20 years if you are a new borrower on or after July 1, 2014, otherwise it’s 25 years. (Discretionary income is defined as it is in the REPAYE and PAYE program.) The IBR plan is good for new borrowers who have high balances and want a lower monthly payment. For those who don’t qualify as new borrowers, your payment of 15% of income will mean you’ll pay more than under the PAYE plan. However, higher monthly payments do result in lower interest paid over time.

Pros of the IBR Plan

  • Your monthly payment will NEVER be more than what you’d pay under the Standard Repayment Plan.
  • If your income increases to the point where your monthly payment would be more than the Standard Repayment Plan, your payment will no longer be based on your income. Instead, your payment will be the amount you would pay under the Standard Repayment Plan.
  • Loan forgiveness at the end of your repayment period.
  • The monthly payments will decrease if your income decreases.
  • Good option for those seeking Public Service Loan Forgiveness.

Cons of the IBR Plan

  • You must recertify your income annually, otherwise your payment will be the amount you would pay under a Standard Repayment Plan with a 10-year repayment period, “based on the loan amount you owed when you initially entered the income-driven repayment plan.” Due to the longer payment period, you may pay more in interest over the repayment period than under other repayment plans.

Income-Contingent Repayment Plan (ICR)

The ICR plan sets your monthly payment as the lesser of 20% of your “discretionary”  income or what you’d pay under a repayment plan with a fixed payment over 12 years. Under this plan, your repayment period is 25 years. (This plan uses a different definition of discretionary income:  For ICR it’s the difference between your actual income and 100% of the poverty guideline for your state and family size.) The ICR plan is good for someone looking for a slightly lower payment and slightly longer repayment period than under the Standard Repayment Plan. This plan is only available for those with FFEL loans. Additionally, it does not qualify for PSLF.

Pros of the ICR Plan

  • Anyone with eligible federal loans can make payments under this plan.
  • Loan forgiveness at the end of your repayment period.
  • It’s the only income-driven repayment option for parent PLUS loan borrowers.
  • Depending on your income and family size, your monthly payment may be lower than the amount you’d pay under the Standard Repayment Plan.
  • Good option for those seeking Public Service Loan Forgiveness.

Cons of the ICR Plan

  • The 25 year repayment period means you may pay a lot more in interest over the life of the loan.
  • Depending on your income and family size, your monthly payment might be higher than the amount you’d pay under the Standard Repayment Plan.
  • You must recertify your income annually, otherwise your payment will be the amount you would pay under a Standard Repayment Plan with a 10-year repayment period, “based on the loan amount you owed when you initially entered the income-driven repayment plan.”

Income-Sensitive Repayment Plan

According to the U.S. Department of Education, the Income-Sensitive Repayment Plan is “available to low-income borrowers who have Federal Family Education Loan (FFEL) Program loans.” Under this plan, your repayment period is 10 years. The monthly payment is determined based on your annual income.

Pros of the Income-Sensitive Repayment Plan

  • The 10-year repayment period means that you’ll pay less interest over the life of the loan than loans with longer repayment periods.
  • The monthly payments will decrease if your income decreases.
  • Cons of the Income-Sensitive Repayment Plan
  • Only low-income borrowers with FFEL Loans may qualify.
  • The monthly payments will increase if your income increases.

Which Repayment Plan Is Right For Me?

Determining which repayment plan to select depends on several factors. For one, you need to check which plans you qualify for. The U.S. Dept. of Education’s site has the eligibility requirements for the different plans. Your income, family size, and personal circumstances must also be considered. For example, if you have a low income, then an income-driven plan may give you a lower monthly payment that is easier to handle. If you plan on pursuing public service loan forgiveness (PSLF), then the Standard Repayment Plan is not a good option.

This student loan repayment calculator is a great way to assess your situation and determine which plan will give you a manageable student loan payment so that you can create a solid plan to pay off your student loans. You’ll want to input your loan amounts and see the estimated monthly payments. You’ll also want to consider your future expected earnings and see which payment plan makes the most sense for you!

For more information:

https://studentaid.gov/manage-loans/repayment/plans

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Private Student Loan Forgiveness Plan

Why Seek Professional Help for Private Student Loan Forgiveness?

Navigating the complexities of private student loan forgiveness can be daunting. Unlike federal student loans, private loans often lack clear-cut forgiveness options, making it essential to seek professional help. Here are several reasons why consulting with a financial expert or attorney can be beneficial when dealing with private student loan forgiveness.

1. Understanding Complex Terms and Conditions

Private student loans come with various terms and conditions that can be difficult to interpret. A professional can:

  • Clarify Terms: Explain the fine print and terms of your loan agreement, helping you understand your obligations and rights.
  • Identify Opportunities: Highlight any hidden clauses or provisions that might offer relief or benefits.

2. Expert Negotiation Skills

Professionals have experience negotiating with lenders and can often secure better terms than borrowers can on their own. They can:

  • Negotiate Settlements: Work with your lender to negotiate a settlement, potentially reducing the total amount you owe.
  • Lower Interest Rates: Help lower your interest rates or extend repayment terms to make your payments more manageable.

3. Customized Financial Strategies

A financial expert can assess your unique situation and develop a tailored strategy for managing your debt. They can:

  • Analyze Finances: Review your overall financial health to create a sustainable repayment plan.
  • Debt Consolidation Advice: Advise on whether consolidating your private loans is a viable option and help you find the best consolidation loan.

4. Access to Specialized Programs

While private student loans typically do not have forgiveness programs like federal loans, some relief options may be available. Professionals can:

  • Identify Programs: Inform you about employer repayment assistance programs, state-specific forgiveness options, or other niche programs that you might qualify for.
  • Application Assistance: Guide you through the application process for these programs, increasing your chances of approval.

5. Legal Protection and Advocacy

If you face aggressive collection tactics or potential legal action from your lender, an attorney can:

  • Provide Legal Defense: Represent you in court or during negotiations to protect your rights.
  • Ensure Compliance: Ensure that your lender complies with all relevant laws and regulations, potentially identifying any violations that could work in your favor.

6. Emotional Support and Stress Relief

Dealing with debt can be stressful and overwhelming. A professional can:

  • Provide Support: Offer emotional support and reassurance throughout the process.
  • Reduce Stress: Handle communications with your lender, reducing the stress and burden on you.

7. Long-Term Financial Planning

A professional can help you not only address your current debt but also plan for your financial future. They can:

  • Improve Credit: Offer strategies to improve your credit score over time.
  • Financial Goals: Help you set and achieve long-term financial goals, such as saving for a house or retirement.

Conclusion

Seeking professional help when trying to figure out private student loan forgiveness can provide you with the expertise, negotiation skills, and personalized strategies needed to manage and potentially reduce your debt. With their assistance, you can navigate the complexities of private student loans more effectively and work towards a more secure financial future. If you’re struggling with private student loan debt, consulting with a financial expert or attorney can be a crucial step towards relief and financial stability.

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Private Student Loans Impact Parents too?

How Private Student Loans Impact Parents’ Credit and Potential for Investing or Starting a Business

When parents take on private student loans, either by cosigning or borrowing directly for their child’s education, it can significantly impact their credit profile and financial opportunities. Here’s a detailed look at how these loans can affect parents’ credit and their ability to secure financing for investing or starting a business.

Impact on Parents’ Credit Score

  1. Credit Utilization Ratio
    • Increased Debt Load: Private student loans add to the total amount of debt parents owe, affecting their credit utilization ratio. A higher debt load can lower their credit score.
    • Debt-to-Income Ratio: Lenders look at the ratio of debt to income to assess creditworthiness. Higher levels of debt can make it harder to qualify for new credit.
  2. Payment History
    • Timely Payments: Making consistent, on-time payments on private student loans can positively impact parents’ credit scores by demonstrating responsible financial behavior.
    • Missed Payments: Late or missed payments can significantly damage credit scores, making it more difficult to secure future financing.
  3. Credit Inquiries
    • Hard Inquiries: Applying for private student loans results in hard inquiries on the parents’ credit report. Multiple hard inquiries in a short period can temporarily lower credit scores.

Potential Challenges in Getting Credit for Investing or Starting a Business

  1. Reduced Borrowing Capacity
    • Higher Existing Debt: Lenders may be hesitant to extend additional credit to parents who already have substantial existing debt from private student loans.
    • Lower Credit Limits: Even if approved, parents might receive lower credit limits on new loans or credit lines, affecting their ability to invest or fund a business adequately.
  2. Higher Interest Rates
    • Perceived Risk: Higher debt levels and lower credit scores can lead to higher interest rates on new loans, increasing the cost of borrowing for business or investment purposes.
  3. Collateral Requirements
    • Secured Loans: To mitigate risk, lenders might require parents to provide collateral for business loans. High existing debt can limit the amount of available collateral.
  4. Business Loan Approval
    • Stricter Criteria: Business loans often have stringent approval criteria. High levels of personal debt, including private student loans, can make it harder to meet these requirements.
    • Creditworthiness: Lenders consider personal creditworthiness when approving business loans, so a lower credit score due to private student loans can impact approval chances.

Strategies to Mitigate Negative Impacts

  1. Improve Credit Score
    • Timely Payments: Ensure all loan payments are made on time to maintain a positive payment history.
    • Reduce Other Debts: Pay down other high-interest debts to improve the debt-to-income ratio and credit utilization ratio.
  2. Explore Refinancing
    • Lower Interest Rates: Refinancing private student loans at a lower interest rate can reduce monthly payments and overall debt load, improving financial flexibility.
  3. Seek Alternative Funding
    • Investors and Partners: Look for investors or business partners to share the financial burden and reduce reliance on personal credit for business funding.
    • Crowdfunding: Consider crowdfunding platforms to raise capital for business ventures without affecting personal credit.
  4. Build a Strong Business Plan
    • Financial Projections: A solid business plan with clear financial projections can increase the likelihood of securing business financing despite personal debt.
    • Demonstrate Potential: Show potential lenders the business’s profitability and ability to generate revenue, which can offset concerns about personal debt levels.
  5. Utilize Business Credit
    • Separate Personal and Business Credit: Establish business credit separately from personal credit to protect personal credit scores and improve the business’s borrowing capacity.

Conclusion

Private student loans can significantly impact parents’ credit scores and their ability to secure financing for investing or starting a business. By understanding these impacts and implementing strategies to mitigate them, parents can better manage their financial obligations and pursue their entrepreneurial or investment goals. If necessary, seeking advice from financial advisors or credit counselors can provide additional support in navigating these challenges.

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Are Parent Plus loans eligible for student loan forgiveness?

Understanding Parent PLUS Loans: A Comprehensive Guide

Parent PLUS Loans are a federal student loan option available to parents of dependent undergraduate students. These loans can help cover educational expenses not met by other financial aid. This comprehensive guide will explore the key aspects of Parent PLUS Loans, their benefits, eligibility requirements, and repayment options.

What are Parent PLUS Loans?

Parent PLUS Loans are federal loans issued by the U.S. Department of Education. They allow parents to borrow money to help pay for their child’s college education. These loans cover the cost of attendance minus any other financial aid received and have a fixed interest rate.

Benefits of Parent PLUS Loans

  1. Coverage of Educational Costs
    • Parent PLUS Loans can cover a wide range of educational expenses, including tuition, room and board, books, and other supplies.
  2. Fixed Interest Rate
    • These loans come with a fixed interest rate, providing predictable monthly payments over the life of the loan.
  3. Flexible Repayment Options
    • Parent PLUS Loans offer various repayment plans, including options that adjust monthly payments based on income.
  4. No Prepayment Penalty
    • Borrowers can make extra payments or pay off the loan early without incurring penalties.
  5. Deferment Options
    • Parents can defer payments while the student is in school and for six months after graduation, allowing time to manage other financial obligations.

Eligibility Requirements

  1. Credit Check
    • Unlike other federal student loans, Parent PLUS Loans require a credit check. Parents with adverse credit history may need an endorser or may be required to meet additional requirements to qualify.
  2. Parent-Dependent Relationship
    • The borrower must be the biological or adoptive parent (or in some cases, a stepparent) of a dependent undergraduate student enrolled at least half-time at an eligible school.
  3. U.S. Citizenship or Eligible Non-Citizen
    • Both the parent and the student must be U.S. citizens or eligible non-citizens.
  4. Filling Out the FAFSA
    • Parents must complete the Free Application for Federal Student Aid (FAFSA) to apply for a Parent PLUS Loan.

Applying for a Parent PLUS Loan

  1. Complete the FAFSA
    • Start by completing the FAFSA to determine eligibility for financial aid.
  2. Apply for the Loan
    • Apply for a Parent PLUS Loan through the Federal Student Aid website. The application process involves a credit check and providing information about the parent and the student.
  3. Sign the Master Promissory Note (MPN)
    • If approved, the parent must sign an MPN, agreeing to the loan terms and conditions.
  4. Loan Disbursement
    • The loan funds are disbursed directly to the student’s school to cover educational expenses. Any remaining funds are typically given to the parent or student for other costs.

Repayment Options

  1. Standard Repayment Plan
    • Fixed monthly payments over 10 years. This plan generally results in the lowest total interest paid.
  2. Graduated Repayment Plan
    • Payments start lower and increase every two years, designed for parents whose income is expected to rise over time.
  3. Extended Repayment Plan
    • Payments can be fixed or graduated over 25 years, reducing monthly payment amounts but increasing the total interest paid over the life of the loan.
  4. Income-Contingent Repayment (ICR) Plan
    • Parents can consolidate their Parent PLUS Loan into a Direct Consolidation Loan to qualify for ICR, which bases monthly payments on income and family size.

Managing Parent PLUS Loans

  1. Loan Servicers
    • The U.S. Department of Education assigns a loan servicer to handle billing and other services. Parents should communicate with their loan servicer for any questions or issues.
  2. Deferment and Forbearance
    • Parents can request deferment or forbearance to temporarily postpone or reduce payments in cases of financial hardship.
  3. Loan Forgiveness
    • While Parent PLUS Loans are not typically eligible for forgiveness programs, consolidating into a Direct Consolidation Loan and opting for ICR can potentially lead to forgiveness after 25 years of qualifying payments.

Conclusion

Parent PLUS Loans can be a valuable tool for financing a child’s education, offering benefits such as fixed interest rates and flexible repayment options. Understanding the eligibility requirements, application process, and available repayment plans can help parents make informed decisions about borrowing. By carefully managing Parent PLUS Loans, parents can support their child’s educational goals while maintaining their own financial stability. If you have questions or need assistance, consulting with a financial advisor or the loan servicer can provide additional guidance.

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