With the start of a new year, and new programs in place, now is an important time for all student loan borrowers to make sure that they have dotted every i and crossed every t with their student debt. Overlooking a simple form or not making a couple of phone calls could be the mistake that costs an unsuspecting borrower thousands of dollars. Don’t let any of the following five simple items be the reason you unnecessarily spend too much on your student debt.
Item 1: IBR borrowers need to take a close look at REPAYE
The thing that makes the income based repayment plan great is that total debt has no effect on your monthly payment. This program helps countless student loan borrowers keep their debt current without breaking the bank. REPAYE, the newest federal repayment plan, could help many IBR borrowers save more each month. The best part about REPAYE, or Revised Pay-As-You-Earn, is that it requires only 10% of a borrowers discretionary income where IBR requires 15%. An average borrower with a $300 monthly payment on IBR could see his or her payment lowered to $200 per month without losing eligibility for many forgiveness programs.
However, switching from IBR to REPAYE is not a slam dunk for all borrowers. This is especially true for married couples who have filed their taxes separately to get lower IBR payments. REPAYE doesn’t have a “filing separately” exception like IBR. Because of this major difference, and some other smaller differences, it is important to understand the basics of REPAYE and to call your lender to discuss how it could help you.
If you are a more recent graduate lucky enough to be on the PAYE plan, odds are that this checklist item does not apply to you.
Item 2: Certify Public Service Payments
Many student loan experts will tell you that certifying your public service payments on a yearly basis is not necessary. Even if it is not a required step, it is an excellent practice for all borrowers to have in place. Yearly certifications are a great idea for two key reasons. First, if you ever change employers, getting the paperwork in order years later becomes much more difficult. Second, going through the certification process can help you find out if there are any issues with your student loan plan. We have seen many people who thought they were working towards forgiveness, only to learn that something was wrong and they need to start from the beginning.
Getting certified requires one simple form, and it is time well spent.
Item 3: File your income verification on time
It is no secret that plans such as IBR, PAYE and now REPAYE are great options for many borrowers. One of the smaller downsides to these plans is that borrowers must submit income verification with their lender every year. The process does not take long, but forgetting to do it on time can be very expensive.
If you fail to submit your income information on time, your monthly payment with take a big jump until you turn in the new paperwork. This delay extends the time necessary for most forgiveness programs. Worse yet, many borrowers don’t realize that when you don’t turn in the paperwork on time, you are technically “kicked out” of the program. Though it is easy to get signed back up, getting kicked out is a very expensive mistake. When a borrower leaves and income based program, any additional interest that they have not paid gets added to the principal balance. This mistake can cost thousands in the long run.
Item 4: Strike while the iron is hot on private consolidation
Odds are pretty good that we will look back to 2016 as the last of the “good days” of private student loan consolidation. A number of market conditions are currently in the borrowers favor. As we enter 2016, interest rates are still at near record lows, but with the federal government signaling that they will be gradually increasing rates, these days are numbered. Locking in interest rates in the 2 to 3% range will become increasingly harder.
There are also a ton of companies currently offering consolidation services. This intense competition has lead lenders like SoFi, Laurel Road, and CommonBond to offer incentives of up to $150 for new customers. If lenders start to buckle under the pressure from competitors, these promotions could become a thing of the past.
Ultimately, private student loan consolidation is not everyone, but if it is something you are considering, now is the ideal time to take a look.
Item 5: Put together a plan
This is the last item on our list, but it is the most important one. Have a student loan plan in place. The planning process can be tedious because there are lots of rules and programs to learn about, but it is essential.
Just paying the bills that come each month, or worse yet, ignore the bills that come each month, is a huge mistake. Understanding how and when you will eliminate your student debt can take a load off your shoulders and put some money in your pocket. If you are lost, take a look around our student loan discussion forums to ask questions and learn from others. Make 2016 the year you got things under control.