Student Loan Myths you Need to stop Believing

College students have a tendency to ask each other for advice on financial management and student loans. It’s great to ask people in similar situations to yours for advice; however, the lack of understanding of student loans and related programs has led to a splurge of student loans myths.

There’s an abundance of student loan myths out there that are costing borrowers heaps of money and are pushing them further into debt.

Check out these common student loan myths that people need to stop believing.

1. Paying Off Your Student Loan Early Will Cost You

This isn’t true. Your student loans do not work like mortgages where you’ll be charged with a “prepayment penalty”.

If you have the money, you can pay off your loan early and save yourself thousands of dollars’ worth of interest. You have the flexibility to refinance your loan at any time.

2. Federal Student Loans are forgiven after 10 year by default

As much as we would appreciate it if federal student loans just disappeared after a 10-year period, it’s not possible. However, the federal government does offer a program called Public Service Loan Forgiveness that allows a student’s payments to be “forgiven”.

Students with federal loans are allowed to pay apply for Public Service Loan Forgiveness if they are working a minimum of 30 hours a week in a public service/non-profit job and if they’ve made at least 120 timely monthly payments.

Note that even if students meet the criteria, they will still have to apply for the program—nothing happens by default.

3. You can take a Break from Monthly Payments

While a break from monthly student loan payments will be awfully convenient in an individual’s life, it’s not advisable.

If you fail to pay off your phone bill, your line will get cut or you could be penalized with a late fee. In order for you to get your connection back, you’ll have to pay the phone bill along with the fee.

Missing your monthly payments will cost you in the same way. It will heavily impact your credit score and increase interest. You may save some extra cash for a short-period but in the long run it will cost you much more.

Don’t avoid paying your monthly amount. You should aim to pay off your student loans as fast as possible.

In case you are struggling to make payments, consult a loan service or loan specialist to help you with refinancing.

4. Income-Based Repayment Plans Don’t Impact Credit Scores

Students use income-based repayment plants to tailor student loans to their needs. An income-based repayment plan can reduce monthly payments based on the size of your family and your monthly income.

Many students make the mistake of thinking that since their monthly student loan payments have gone down, they owe less money and interest. They need to understand that their monthly payment amount has to include interest charges—if it doesn’t, they’ll go into even more debt and their credit score will take a hit.

5. You can Save on Interest by Consolidating Loans and Refinancing

First and foremost, “consolidation” and “refinancing” are not the same and should NOT be used interchangeable.

Direct Consolidation Loan

Federal student loan consolidation refers to merging all federal student loans into a single Direct Consolidation Loan. The purpose of consolidation is to make your life easier since you can now make a single monthly payment as opposed to multiple ones. Your interest rate will not be lowered but it will be a weighted average of the interest rates of your previous federal loans.

Keep in mind that Direct Consolidation Loan is only for federal student loans—private loans don’t count.

Refinancing Student Loans

For refinancing a loan, you’ll have to work with a private lender. Refinancing involved combining several federal AND private loans into a single monthly payment with a new interest rate that is determined by your financial health and credit history.

However, when you opt for refinancing, you give up some of the protections that come with federal student loans such as income-based repayment plans and federal service loans.

With that being said, for borrowers that only have private loans, refinancing is a great option.

Do you require assistance with student loan forgiveness and refinancing programs? Get in touch with the student loan specialists at American Student Services. We’ll walk you through your options and see if you’re eligible for programs that can help your financial situation.

Call us at 1-800-409-0719 for more information on our services.

Everything You Need To Know About Public Loan Forgiveness

Employees of the government and non-profit organizations are eligible for a Public Service Loan Forgiveness plan (PSLF).

PSLF is a loan forgiveness program that allows outstanding balance of Direct Loans to be “forgiven” after the payment of 120 monthly payments. PSLF is only available to borrowers working full-time (more than 30 hrs a week).

To apply for PSLF you’ll need to fill out and submit an Employment Certification form. It’s best to complete the form as early as possible to ensure you’ve been making qualifying payments and can avail the benefits of PSLF.

Qualifying Employment

Not everyone can apply for PSLF, you’ll need to be employed by the government or a non-profit organization. Employment with government agencies working at the state, local, federal and even tribal level, will make the borrower eligible for PSLF.

Qualifying Monthly Payment

These payments need to be made:

For the complete amount stated on the bill
Under an eligible repayment plan
While working full-time
Within 15 days after the due date

Note that these payments can only be made when the borrower is obliged to make them. This means that monthly payments cannot be made when the borrower is in school, in their grace period, deferment or forbearance.

The borrower should consult a federal student loan servicer to waive the forbearance or deferment when it applies.

The 120 payments needed for the borrower to qualify for forgiveness, do not have to be consecutive; if there’s a period where you’re working with a non-qualified employer for a while, you won’t lose credit for any payments you’ve made earlier.

You will only receive credit for paying the required amount. Don’t expect to qualify for PSLF faster by making larger monthly payments.

Qualifying Repayment Plans

A borrower cannot qualify for PSLF unless they are in an income-driven repayment plan. The reason for this is simple: the Standard Repayment Plan only last 10 years, therefore there’s no outstanding balance to forgive.

People that want to get loan forgiveness but aren’t on an income-driven repayment plan should switch immediately to start making qualifying monthly payments. Make sure you assess whether switching to the new repayment plan is best for you before you make the switch.

Applying for PSLF

To apply for PSLF, you need to have made at least 120 monthly payments. This means you have to wait at least 10 years after graduation before you can actually apply for forgiveness.

Because PSLF is tied to income-driven repayment plans, you’ll need to submit an Employment Certification form every year to accommodate for changes in your income. The information on the form will be used to ensure you’re making qualifying payments.

Since the process is long and tedious, it helps to have a loan specialist to guide you. At American Student Services, we have a team of loan specialists that assist student loan borrowers in picking the right repayment plans and loan forgiveness programs for them. We also help them with student loan consolidation and refinancing.

Get in touch with us for more information on our services.

Understanding Student Loan Repayment Plans

When students take out loans for education, they need to pay special attention to their repayment plans. Loans provide financial support to students who want to obtain higher education, but at the same time, they burden them with years of debt.

A student’s repayment plan defines the monthly payment amount, the duration of the loan as well as the interest rate.

The longer the term of the loan, the more interest the borrower will pay in total. A borrower’s immediate costs may reduce with a long-term loan, but their overall cost may be much higher.

Let’s look at some of the repayment options that are offered to student loan borrowers:

Standard Repayment Plan

The Standard Repayment Plan is the default plan for student loans.

In a standard repayment plan, the loan needs to be paid back over a 10-year period. Compared to other payment plans (incomed-driven and extended plans), standard repayment plans offer a lower interest rate.

There are two types of standard repayment plans:

Standard/Level: Monthly payments remain the same over the course of the 10 year loan.

Graduated: Here, the student begins by paying a lower monthly payment and, over time, the monthly payments increase. This allows students to settle into their careers without being burdened with a large monthly payment; as their career progresses, they are more capable of making larger monthly payments.

When the repayment plan first begins, the monthly payment goes toward interest and NOT the principal amount.

Extended Repayment Plan

If a borrower has a direct loan or a FFELP and has a balance greater than $30,000 then an extended payment plan can allow them to lengthen the duration of the loan from 10–25 years.

Borrowers looking to reduce monthly payments should consider this option:

There are two types of extended repayment plans:

Extended Graduated: In this version of the plan, monthly payments start low and then increase every 2 years. This is best for those who may not currently have a steady income but expect to earn more over time. At the beginning of the plan, the monthly payments go toward interest and not the principal amount.

Income-Driven Payment Plans

In these plans, the monthly payments are primarily dependent on the borrower’s income. At the borrower’s income increases, so do their monthly payments.

They monthly payment is also impacted by the size of the borrower’s family and the kind of loans they have taken out. To be eligible for these plans, the borrower should be ready to share information related to their income and related financial history including tax returns.

To retain these plans, borrowers must submit accurate information related to taxes every year.

Can’t decide what repayment plans is best for you? Let our loan specialists guide you in making an informed decision.

At American Student Services we aid student loan borrowers with repayment plans, refinancing, loan consolidation and student loan forgiveness.

An Overview of Private Student Loan Consolidation (Refinancing)

Consolidating a student loan refers to the act of merging several student loans into one.

Federal student loans can be combined into a single Direct Consolidation loan; however, when it comes to merging private student loans, the term “consolidation” becomes problematic. This is because private student loans are not “consolidated”; they are refinanced.

Let’s take a look at how refinancing student loans work:

Refinancing of Private Loans

Credit unions, banks and private lenders as well as online-only lender all offer refinancing options. Even financial institutions that may not offer private student loans will still refinance them.

When loans are refinanced with a private lender, the prepayment period can be extended to 30 years. The duration of the loan will depend on the borrower’s credit score and the total amount that is being refinanced.

Consolidation of federal loans may not require an origination and/or prepayment fees, but private loan refinancing definitely does.

When can a Private Student Loan be refinanced?

This depends entirely on the lender. Some lenders allow refinancing options after just 24 months of payments; some will allow students to refinance while they are in school and others may require that a student wait until they are about to complete their education.

When it comes to private loans, the lender sets the terms and conditions so it’s imperative that borrowers read all related documentation meticulously before signing anything.

Generally lenders do require that students are employed before offering them the option to refinance. If the borrower fails to make their monthly payments, the interest rate and credit score will be impacted.

If you can get a low interest rate, getting your loan refinanced can actually help you save money.

Interest Rates

The interest rate on the refinanced loan depends on how risky the borrower is. The lender will assess the borrower’s income, credit score, career history and even their educational background before deciding the interest rate.

One way to reduce the interest rate is to get a co-signer with a great credit score. Borrowers will also have to show that they are consistent with payments—no lender wants a troublesome client!

Loans that should be Excluded from Refinancing

Borrowers who decide to refinance can choose which loans they want to include:

Here are some loans that should be excluded:

Loans with lower interest rates than what is being offered
Loans that are almost fully paid off
Federal student loans that provide protection
Private student loans that have better terms than those offered with refinancing

Benefits of Refinancing Private Student Loans

It can help reduce monthly payments, interest rate and even the total borrowed amount
Co-signers can be released if the borrower’s income and credit score have increased
Some lenders provide students the option to refinance Parent PLUS loans too

Who is Private Student Loan Refinancing for?

Refinancing private student loan if a wise option for borrowers:

With a financial cushion (savings)
With a stable job
With a high credit score
That aren’t looking for student loan forgiveness

Do you think private student loan financing is right for you? Consult our loan specialists to find out! At American Student Services, we help student loan borrowers with repayment plans, loan consolidation, refinancing and student loan forgiveness.

Everything You Need To Know About Public Loan Forgiveness

Everything you need to know about public loan forgiveness:

Public loan forgiveness

Understanding Student Loan Repayment Plans

Here are some of the repayment options that are offered to student loan borrowers:

Student loan repayment

Should you Consolidate Your Student Loans?

Overwhelmed by student loans? Join the club! According to Forbes, as of 2018, around 42 million graduates have debt worth $100,000 or less. What’s even more shocking is that 2 million of those borrowers have student debt worth MORE than $100,000!

Millions of college/university students rely on student loans for financial support. As they graduate, most students will have a mix of both private and federal student loans. They may have multiple loan servicers along with several due dates and monthly payments which they have to keep track of.

Even the most organized of borrowers can get frustrated trying to keep track of their loans and miss monthly payments every now and then. As a result, their credit score suffers and the interest rates of their loans increase.

If you’re a graduate struggling to keep up with multiple loan payments, you should consider consolidating them into a single loan.

Student Loan Consolidation

Student loan consolidation is the merging of federal student loans into a single Direct Consolidation Loan. By consolidating your loan, the federal government issues a brand new loan; students will then have to make just one payment every month as opposed to many.

Direct Consolidation Loans have a fixed interest rate that remains the same throughout the duration of the loan. The rate is in based on the weighted averages of loans that were consolidated.

By choosing to consolidate their federal loans, students can limit some of the stress and anxiety that comes with paying off student debt. Also, they may now be eligible to apply for other federal programs that can provide even more financial relief, like income-driven repayment (IDR) plans.

On the surface student loan consolidation looks like a great option for all graduates but not everyone benefits from it.

Here are some of the pros and cons students have to think about before opting for loan consolidation:

1. You need to lower monthly payments

As soon as a student graduates, they’re enrolled in a Standard Repayment Plan with a term of 10 years. If they are unable to make monthly payments they can have the amount reduced by consolidating their federal student loans.

With a Direct Consolidation Loan, the term of loan can be extended to 30 years which substantially lowers the monthly payment amount. The purpose of extending the term of the loan and reducing monthly payments is to give students some room to settle into their careers.

Note that although the monthly payment amount will be lower, you’ll be paying more interest over time.

2. You’re not eligible for loan forgiveness and IDR plans

Students who received loans via Perkins Loans or the Federal Family Education Loan Program cannot receive the following benefits:

IDR Plans: These extend payment terms and cap monthly payments at a percentage of the student’s discretionary income. Based on the size of the student’s family, they can qualify for monthly payment amount of $0.

The remaining balance of the loan can be forgiven after 20–25 years of payment; however, the amount that was forgiven is still taxable.

Public Service Loan Forgiveness (PSLF): Borrowers working in government agencies or for non-profit organizations may qualify for loan forgiveness after successfully making at least 120 monthly payments. For these borrowers, the amount that is forgiven is tax-free.

3. You prefer fixed a interest rate

Some older federal loans have variable interest rates that fluctuate with market conditions. When you consolidate federal student loans, you have a fixed-rate that remains constant throughout the term.

What’s better—Consolidation or Refinancing?

The terms “student loan consolidation” and “refinancing a loan” are incorrectly used interchangeably. Student loan consolidation is ONLY an option for federal loans; private loans cannot be consolidated—they can be refinanced.

There are some big perks to consolidating a loan; however, you probably will not save money in the long-run.

Refinancing a Student Loan

When refinancing, borrowers will need to get a refinancing loan through a private lender which equals the sum of a few or all their student loans (private and federal).

The refinanced loan will have completely new terms (minimum monthly payment amount, interest rate, repayment period). But borrowers that wish to refinance their loans miss out on benefits such as Public Service Loan Forgiveness (PSLF) programs and IDR plans.

Wondering whether loan consolidation or refinancing is the right option for you? Let our loan specialists help you out! American Student Services assists students with repayment plans, loan consolidation, refinancing and student loan forgiveness.

Get in touch with us for more information on our service.