Confused about recent Federal Student Loan changes? Look no further!

If the Federal Student Loan changes over the past 18 months weren’t confusing enough, the U.S. Department of Education recently announced several more that may leave you wondering how you are affected this time around. The original COVID-19 Emergency Relief measures are tentatively set to expire on January 31, 2022, but the new provisions are either permanent, expire on October 31, 2022, and/or impact a smaller group of borrowers:

  • On August 20, the U.S. Department of Education announced that eligible Servicemembers would automatically, and retroactively, receive a 0% interest-rate benefit if they deployed to areas qualifying for imminent danger or hostile fire pay. This is not a new benefit; however, Servicemembers previously needed to submit a form, with supporting documentation, to find out if their loans and deployment qualified for the 0% interest waiver. 
  • Several updates have been made over the past few months regarding Federal Student Loan Servicers. PHEAA (FedLoan Servicing), Granite State, and Navient will no longer service U.S Dept of Ed-owned loans when their contract expires. Current borrowers will receive numerous notifications throughout the loan transfer process. Watch for those notifications: be sure to save the information or respond as requested.
  • The often-troubled Public Service Loan Forgiveness (PSLF) Program is receiving a giant makeover. Some of the provisions are temporary, while some remain unchanged. Regardless, these changes are significant and remain in effect until October 31, 2022. 

Are you still unsure of how these changes affect you? Contact an Iowa State University Extension and Outreach Financial Educator today! 

The information provided is educational in nature to help you make your own informed decisions and is not intended to substitute for professional advice or serve as an endorsement of any financial product or service. Consult with licensed professionals prior to implementing any of the information provided to determine the course of action is best for you. 

Ryan Stuart is a Human Sciences Specialist, Family Wellbeing, with Iowa State University Extension and Outreach. Ryan will be joining the regular blog team soon, so watch for more posts from him.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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New Resources on Student Loans

A student loan has two faces: it is a tremendous asset in making education possible, yet it can hold an individual back for decades afterwards. There are other ways to pay for post-secondary education (such as savings, earnings, scholarships or grants), but the reality is that most students take on student loans. Unfortunately, it is often easy to say “yes” to student loans without fully understanding the options.

A new set of ten brief fact sheets created by the national Extension system offers information designed to be clear and friendly for ordinary consumers.  In most cases these fact sheets are just 2 pages, with information divided into manageable segments on these topics:

  • Ways to pay for education. Some pieces address ways to save in advance for education, and ways to cover costs of schooling with your own money rather than borrowed money.
  • Types of student loans. One fact sheet explains the critical differences between federal and private loans, and within the federal loan category it explains subsidized versus non-subsidized loans. These key distinctions will affect the cost and repayment terms of loans, so clear understanding is vital to sound decisions.
  • Repayment issues. Several sheets address issues faced during the years of loan repayment: identifying and communicating with the loan servicer, understanding repayment options, recovering from default and more. Another highlights recent policy changes around student loans.
  • Lifelong impact. Research has shown a clear connection: high student loan balances are associated with delayed or lack of home ownership and also with fewer business start-ups by younger adults. The potential impact on retirement security is also huge: those who forego retirement saving during their 20’s and 30’s may end up with savings reduced by $200,000 or more by the time they reach retirement age. A fact sheet titled “Later Life Impacts” highlights the potential costs to individuals and to society, and suggests strategies for paying student loans as quickly as possible.

If you are considering student loans, or if you are working on repayment, you’ll make better decisions if you rely on research-based non-commercial information that you can understand. Seek out information from credible sources like Extension!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Co-Sign a Student Loan?

student loanThe Consumer Financial Protection Bureau received 2300 complaints about private student loans in the first six months of the fiscal year.  That is in addition to 1300 complaints about debt collection related to private student loans, according to a mid-year CFPB report.

A major focus of report published by arvato was on problems related to co-signers. In 2011, 90% of private student loans had a co-signer (usually a parent or grandparent), compared to 67% in 2008.  That’s a substantial increase in just three years, and it occurred for two main reasons:  1) more lenders required co-signers;  and 2) many lenders offered lower interest rates when a co-signer was included.

Co-signing any loan is something to approach with caution, because if the primary borrower fails to pay, the co-signer becomes fully responsible for the debt.  Parents or grandparents, however, may be willing to take that risk on a student loan because they want to support their child’s education.  In addition, they may be spurred on by a “co-signer release” provision found in many student loans.  These clauses typically indicate that after the borrower has made on-time payments for a certain number of months (perhaps 2-5 years), the co-signer will be released from the loan.  That means the co-signer will no longer be legally liable for repayment of the loan. Aside: I know that if I was considering co-signing, that release clause would be a big factor in my mind.

Unfortunately, many consumers are having difficulty bringing the co-signer release to fruition.  At the most basic level, the process or paperwork for releasing the co-signer is sometimes elusive – not visible on the lender’s website and sometimes not easily obtained even with repeated phone calls.

More seriously, in some cases the pre-requisites for co-signer release change over time or were not completely disclosed.  Examples:

  • One borrower requested release after reaching the required 28 months of on-time payments, only to find that they had increased it to 36 months.  By the time he reached 36 months, the requirement had increased to 48 months!
  • Other borrowers have found that in addition to so many months of on-time payment, the primary borrower also had to show a certain minimum credit score before the co-signer could be released.  This requirement was in no way disclosed when the loan was originated.

The moral of the story?  Always use caution.  Private student loans have fewer built-in protections than federally subsidized student loans; therefore, it is especially important for borrowers (and co-signers) to make sure they understand all the details up front, and have them in writing.

If you’re like me, tending to be trusting that a company will be true to the informational leaflets provided, that means learning to be a little less trusting, to make sure you get a loan contract with details clearly spelled out.

~Barb

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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