As if student loan repayment wasn’t complex enough, it’s actually worse. Repaying student loans is far than a simple interest 10, 20 or 30 year loan. The number of borrowers who are fortunate enough to have stable, well paying jobs and can repay their loans using the standard ten year term are shrinking. Even in those cases, payments can severely cramp the budget, often preventing other important things in life such as a home, newer car, or new baby.
Borrowers need help in understanding their options more than ever. The choice isn’t always clear because so many factors can affect how much they repay and the time for repayment. As an example, it was recently reported in the Washington Post that borrowers have over 50 different choices when repaying their loans. And it’s not just about choosing the lower payment.
The issue comes squarely in focus when a borrower considers an income based repayment plan which effectively lowers the payment based on factors such as income, state of residence, and family size. Complexities loom however, as the borrower must decide which one of the programs fits their current and future needs. These repayment programs require consultation with a qualified advisor who can consult with a borrower and look at their financial future, goals, projected income, and other factors in order to chose the best program. Even then, that’s not the end of it.
Student loan borrowers need to consult with their advisor as situations change. Marriage, business changes, income fluctuations, and other life events warrant consulting with a professional. The goal is obviously to pay off the loans as quickly and cost effectively as possible. Or not? In some cases, loan forgiveness is an option. In fact, all of the IBR programs have forgiveness provisions at some point but as with all of the loan programs there are costs and considerations.
The student loan servicer
In an ideal scenario, you could call your loan servicer and ask what’s best for you. Right? Wrong. Their job is not to advise on your personal financial matters and whether or not a loan program is suited. Another point is that they may not always have consistent answers. We have worked with clients and their loan servicers for many years and frequently can get different answers depending upon who you talk to simply because these programs are complex. They are not equipped to provide extensive financial direction.
In the Washington Post article, the president of Navient places blame on the government. Regardless of who is at fault, ultimately it will be up to borrowers to get quality advice or they will suffer. Fortunately there are more and more professional advisors in our pool who are making a dedicated effort to remain knowledgeable about options for borrowers and the nuances of the increasingly complex government rules.