What should students consider when looking at new repayment options for their student loans?


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Borrowers of student loans who were in a waiting pattern have now new payment options.

Ongoing litigation has placed millions of borrowers enrolled into the Saving for a Valuable Education plan (SAVE) into forbearance, and thrown initiatives for student loan forgiveness into limbo. Due to this, some borrowers might want to change to a newly reopened payment plan to gain more stability and a pathway to forgiveness.

Investopedia interviewed Alyssa Schaefer. She is the general manager and chief customer experience officer of Laurel Road. This digital banking platform specializes in budgeting and student loan counseling. Schaefer shared her thoughts on what to consider as borrowers change repayment plans. Interview has been edited in order to be concise and clear.

INVESTOPEDIA : Why would someone enrolled in SAVE want to change to another repayment plan?

ALYSSA SCHAEFER One of the main reasons why you wouldn't want to stay in SAVE and continue to be under forbearance is because, under the SAVE program, that time period that you're in forbearance doesn't actually count toward your forgiveness period.

If you’re in the Public Service Forgiveness Loans (PSLF), your period of forgiveness can be as long as 10 years. It could take 20 to 25 or more years for you to repay your income-driven loan (IDR).

INVESTOPEDIA – What are the factors that borrowers should consider before choosing a plan of repayment?

SCHAEFER: In general, if you're sitting down and thinking about what payment plan may be right for you, you want to think about number one: your income growth potential. So this is often overlooked, and it's difficult to know in advance, but you may want to really think about what's the most likely scenario.

So, for example, if you're a resident doctor, not making much money, but you have the potential to make much more money, you want to think about how that's going to impact your student loan.

Number two, you want to think about your loan balance, how much you have to pay off, and how quickly you're going to be able to pay that off. So, for example, if you're paying off your loan, and you're probably going to be able to pay your loan off sooner than 10 years. Consider whether an ICR may be the best option for you, as it has a longer period of forgiveness.

You might want to think about some of your life decisions, and not that you would change your mind about any of those life decisions, but how they're going to impact your student loan payments.

If you're getting married, for example, and you're marrying a high-income earner, this could impact your payment to your student loans if you're going to file taxes jointly because that income will be combined with your income. Then, if you're in the ICR program, it's going to calculate that 20% onto your total income. 

Lastly, I would say that because of all these nuances, we always advise people to work with an expert—somebody who knows these programs deeply and has worked with hundreds and thousands of borrowers, giving them advice about the best plan. Each situation is unique.

The biggest piece of advice we can give is to make sure that you are making rational decisions. Do not rush. It’s important to take time. Be sure to carefully examine your financial situation. Take time to consider your options. Experts are available to help.

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leadzevs/ author of the article

LeadZevs (John Lesley) is an experienced trader specializing in technical analysis and forecasting of the cryptocurrency market. He has over 10 years of experience with a wide range of markets and assets - currencies, indices and commodities.John is the author of popular topics on major forums with millions of views and works as both an analyst and a professional trader for both clients and himself.

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