As life begins to return to some sense of normalcy, so do the things that were put on hold during COVID. While there hasn’t been much good as a result of the pandemic over the past two and a half years, the suspension of student loan repayments and interest was one of them.
On March 27, 2020, the original coronavirus relief bill, also known as the CARES Act, was signed into law by then-President Donald Trump, which helped most federal loan borrowers students by temporarily suspending payments and involuntary collections on student loans held by the federal government until September 30. , 2020. It was later extended several times but President Trump.
On December 22, 2021, President Joe Biden announced that the final and final loan extension would be granted until May 1, 2022. The pause includes the following relief measures for eligible loans:
- Suspension of loan repayments
- 0% interest rate
Interestingly, it has just been announced that many members of Congress and the Senate are asking President Biden to extend the loan forgiveness until August 1. This would give borrowers more time to prepare and save for the repayment restart.
While there is time, it is important to understand your options regarding student loans and student loan repayment. This is especially important for people who haven’t paid anything on their student loans yet due to the relief bill.
Options for Repaying Student Loan Debt
Current nursing students, graduate nursing students, and nurses with student loans will once again be saddled with thousands of dollars in student debt. It is estimated that over 70% of nursing students will graduate with some degree of student debt. According to a 2017 report from the American Association of Colleges of Nursing, graduate nursing students expect to graduate with a median debt of between $40,000 and $54,999.
Nurse.Org had the chance to speak with Kyle Gallagher from GradFin to sort out some of your options and some things you can do now to prepare.
We also talked,
- The possibility of student loan debt cancellation by the current administration.
- Refinance your current student loans at a lower interest rate.
- Options to keep loan payments at a reasonable monthly amount based on your income.
Kyle Gallagher is Senior Vice President of Business Development and has helped over 4,000 borrowers with their student loan repayment plans. He has particular expertise in helping nurses and other healthcare professionals with student loan debt.
Nurse.Org (NO) – Student loan repayment is expected to start in May (2022), what general/sustainable advice do you have for nurses who have been without payment for almost 2 years?
Kyle Gallagher (KG) – The most important thing a borrower should do before the CARES Act extension expires is to check their repayment plan and what their monthly payment will be. If the borrower does not select a repayment plan, their loans will automatically default to the standard 10-year repayment plan. It is important for borrowers to do this because often the standard 10-year repayment plan is not the optimal strategy.
If borrowers wish to enroll or are currently enrolled in an Income Oriented Repayment (IDR) plan, it is important that they obtain these estimates or approved amounts from their loan officers (Studentaid.gov) or they call a trained professional for help. Navigating these programs can be complicated.
NO – Federal student loans have fixed interest rates. Can you explain what this means and how it affects borrowers?
KG – All federal student loans have fixed interest rates, which means that regardless of whether the market goes up or down and regardless of any adjustments to the federal funds rate, the interest rate(s) will remain the same as when of the original loan issuance.
NO – For students interested in borrowing money for nursing school – is there one specific type of loan that is better than another?
KG – For the vast majority of nursing students, direct federal student loans are preferred over private student loans.
Nurses pursuing an undergraduate degree will be limited to the maximum Federal Direct Student Loan for their year of enrollment. An undergraduate nursing student can borrow the maximum from the Direct Federal Student Loan and then borrow through Private Student Loans or, if their parents are willing/able to help, they can borrow through Parent Plus Federal Loans for the rest of their tuition.
NO – What options do individuals have if their monthly student loan payments are too high?
KG – If the borrower has federal student loans, using an income contingent repayment (IDR) plan to lower their monthly payment is a great option. There are four named IDR programs and each has slightly different rules for calculating payment and accrued interest. It is important for a borrower to understand their IDR program and how it works. If these programs are not managed properly, they can end up costing borrowers dearly.
As a last resort, borrowers who hold federal student loans can suspend their loans. This is not favorable because the loans will continue to earn interest and the borrower does not earn any qualifying payments for forgiveness opportunities.
NO – Loan providers offer Income Contingent Repayment (IDR) plans if someone is unable to meet their monthly payment. What are the pros and cons of this type of payment plan?
KG – Income-contingent repayment (IDR) programs are available for federal borrowers. There are affordability considerations for entering some of the plans, but other plans are available to borrowers who choose to use them. There are several strategic reasons why borrowers use different plans at different times in their repayment.
There are four named IDR planes:
- Pay As You Earn Review
- Pay as you earn (PAYE)
- Income Based Reimbursement (IBR)
- Income Contingent Reimbursement (ICR)
Each of these plans has different rules for interest accrual, payment calculations, consideration of spouse’s income, consideration of spouse’s federal student loan debt, loan forgiveness, loan eligibility, etc. It is important that you weigh all of these factors in your decision making when choosing a plan.
- IDR plans do not consider loan size and interest rate when calculating your monthly payment. This can be very dangerous for a borrower because IDR plans allow student loans to amortize or grow negatively while you think you are making payments.
- IDR plans normally calculate your monthly payment using a percentage of your Discretionary Income from the previous year. Some plans will look at the combined household income of a married couple instead of just the participant. This can lead to a very high calculation for the monthly payment if not handled properly.
- IDR plans have built-in forgiveness opportunities for participants who participate for 240 or 300 months depending on the plan and training. As the tax laws are written today, these forgiveness events are fully taxable as income in the year the loans are forgiven.
- IDR plans create affordable monthly payments for borrowers with large student loan balances who cannot afford to repay on time.
- IDR plans are repayment plans consistent with the Public Service Loan Forgiveness (PSLF). You must successfully participate in an IDR or the standard rebate program to earn payments eligible for rebate.
- Some IDR plans allow married couples to file their taxes as a “married filing separately.” In this case, the plan will only use the participating spouse’s income to calculate the monthly payment.
- Some IDR plans have interest rate subsidies that can protect borrowers against negative amortization of their loans at the full interest rate.
- Some IDR plans will look at the total federal student loan balance of both spouses when calculating the monthly payment.
NO – For current students: What is the benefit of paying interest on their loan while they are still in school?
KG – If a borrower knows there is no chance you will pursue government loan forgiveness (for their federal student loans) or have private student loans, make interest payments while is still in school can save the borrower a lot of money in repayment. Typically, private student loans that require interest payments while still in school have reduced or lower interest rates than private student loans that require no payment. Additionally, payments made will reduce the loan balance so that the borrower has a lower starting point when the loan is issued and enters repayment.
NO – With ongoing talks about student loan cancellation by the current administration, should nurses pay the minimum on their student loans or pay more if possible?
KG – The possibility of a general cancellation of student debt is a subject that has been discussed in Washington since President Biden took office. However, we have yet to see an official plan.
The president has made significant progress in canceling student loans for Americans with lifelong disabilities, students who have been defrauded by for-profit institutions, and with the limited PSLF waiver that offered significant flexibility to borrowers who were working. full-time for qualified employers but have not met their repayment plan and/or have eligible loans.
NO – If nursing students and graduates still have questions about loan repayment and the process around consolidation, refinance, and income-driven repayment, what would you suggest.
KG – Contact a professional to guide you through the process.
Sifting through all the information about student loan debt and repayment plans can be extremely overwhelming, especially without the proper guidance. It is important to remember that nurses are there to save lives and be there when needed for our patients – there are resources available to you regarding your debt.
Kyle Gallagher works with individuals across the country and is available by email (firstname.lastname@example.org) or phone (305-975-5182).