Your Student Loan Repayment Study Sheet.

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What are student loans costing us?
Student loan debt has exploded over the past few years, from a total of $579 billion in 2008 to $1.02 trillion at the end of 2013.  This near double of student loans over only a 5-year period accounts for the majority of consumer debt increase over that same period.  By most recent estimates, about 70% of all college students take out student loans and owe money at graduation, with the average price tag a whopping $26,600 per student.

As students enter the working world, this level of debt often holds them back – from buying cars or houses in their 20’s, from getting married and starting families for lack of finances, from starting businesses, and even from moving out on their own.  It becomes harder for them to open other positive lines of credit and pay all of their bills, and the financial shortfall often falls onto credit cards.

In fact, debt and finances are a major contributor to the precipitous rise in stress levels among 18-24-year olds.  But there is help – now there are tools available to help manage student loans so they are affordable and eventually, paid in full.

Understanding Federal vs. Private student loans.
Any discussion of student loan management must first start by outlining the difference between Federal and Private debt.  Private loans, or alternative education loans, are issued and backed by private lenders.  Federal loans, however, are backed by the U.S. government as an incentive for education.

It’s important to note that all student loans are unsecured debt, which means there is no collateral for the lender if you defaulted (like with a loan secured by a home or a car, etc.)

Generally, there are far more options to help with Federal loans than private loans because so many government programs exist.

What options are available?
Help with student loan payments usually comes in the form of Consolidation, Rehabilitation, or Conversion.

Consolidation:
Like we detailed with the options above, consolidating several loans into one loan can often reduce your payments and help you pay it off more efficiently.  You can try to lock in a low fixed rate instead of dealing with fluctuating variable rates.  Total interest charges may be lower with one loan, as well, and repayment plans are often set for 15 or 30 years instead of the 10-year repayment plan that is standard when student loans are cast.

Rehabilitation:
If your loan is in default, rehabilitation may be the best option for you.  Whether you missed only a payment or two or you haven’t been paying at all, this process helps you get back in good standing.  Basically, you agree on a realistic payment plan with your institution that you stick too.  Once you do that and the loan is back in good standing, it will probably be bought by a lender, and considered rehabilitated.  But collection costs and late fees may be added to the loan’s principal, but this will stop default reporting on your credit, any wage garnishments, and forced withholding by the IRS you suffered while in default.

Conversion.
Conversion is the process of shifting your Federal loans to Private loans.  Some times, this makes sense if you can lock in lower fixed interest rates and spread the loan’s repayment out over a longer period.  However, it’s not common that conversion to Private loans is in a borrower’s best interest, so be sure to consult with us before you do anything that’s permanent – and you’ll regret.

Most prevalent – Federal Student Loan Repayment Plans:

If you’re paying off federal student loans, you are one of nearly 37 million borrowers with outstanding student debt. The U.S. government offers you several repayment plans, including some that give you a maximum of 25 years to pay off your student debt, while others are tailored to your income and family size. You can even switch your plan if your needs change.

Standard Plan
You’ll pay a fixed monthly amount until your loans are paid in full or for up to 10 years. Your monthly payments will be at least $50. If you do not select a repayment option, you will be defaulted into this plan.

Graduated Plan
In this plan, your payments are not fixed. They are low at first and gradually increase. It’s a good plan if you expect your income to grow steadily over time. No payment will ever be more than three times your lowest payment.

Extended Plan
This plan follows a fixed or graduated monthly payment, but you have up to 25 years to pay it off. You pay more interest than other plans, but payments are lower than a Standard Plan.

Income-Based Plan
Your monthly payment is based on 15 percent of your discretionary income, family size and state of residency during any period where there’s a financial hardship.

Income-Contingent Plan
Your monthly payments are calculated on your adjusted gross income, family size, and total loan amount. You have up to 25 years to pay it off under this plan.

Pay-As-You-Earn Plan
Also known as President Obama’s Student Loan Plan. Monthly payments are calculated on a similar basis to the Income-Based Plan, but payments are capped at 10 percent of discretionary income. It’s adjusted annually and you have up to 20 years to pay the debt.

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Which option is right for you?  That’s the big question, and one we can help you answer.  Feel free to contact Blue Water Credit for a no-risk consultation, and we’ll be sure you make the grade when it comes to student loans!

If you would like help to see what program you may qualify for please call 916-315-9190 ext 300.

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