1. As of July 1 there are going to be big changes to student loans based on this Act Congress passed a while back. The biggest issue has to do with this income based plan where you pay only a percentage of your AGI minus the poverty level for your family size and state or some formula- it may be a little different for each lender. I think you can do this with almost any lender, but what may come along with this is debt forgiveness after 25 years- but note there will be tax consequences on that so by then your interest and everything could be a fortune and if you are doing income contingent payback you could find yourself going from a tax bracket of a $40,000 a year earner to like a $200,000...so not sure who thought that one up! Bottom line is pay off more than the minimum payment due and use the calculators to figure out how much you need to pay a month in order to minimize the total principle and interest combined- for me, if I make payments required for someone with an AGI minus the poverty level and that income number is between $60,000 a year and $90,000 a year I'm going to be paying tons more in interest based on the lower payments, not to mention the taxes on the forgiveness- you'd be surprised at how little more you can throw in each month to minimize that! Note that not all loans are going to qualify for the consolidation- it may exclude Perkins and some undergrad- but I'm not 100% sure. This also excludes private loans I think- but most people I believe do have government backed loans.
2. There is a public interest forgiveness if you work in public interest or for a 401(c)(3), which could include churches or teaching or whatever (I'm not certain about everything that qualifies), you get debt forgiveness after 10 years, or 120 monthly payments (not necessarily consecutive) and there are NO tax consequences. I know this will be available under the federal direct consolidation, but that's the one question I forgot to ask when I spoke with MOHELA. Basically it's a gamble- will you be able to make those 10 years of payments right off the bat or what if you have to take a break or something and by the end of it you didn't make it and just get forgiveness after 25 years that you have to pay taxes on. So it's a tough decision to make if you are going into that. You can do the income based payment plan and still qualify for this.
3. People have been saying you have to consolidate with federal direct loan consolidation to qualify for these debt forgiveness options- this is NOT true. You need to call your lender. I spoke with people at MOHELA and they said they are offering this. I spoke with Access Group and she said they release a statement in June about their new plan so she couldn't tell me right then but she did say "I'm not going to tell you no" as in I'm not going to tell you we aren't going to offer the forgiveness. So hold tight if you can another month or 2. You can request deferment or go ahead and set it up for 25 year plan to at least lower your monthly payment requirement if you are temporarily unemployed or something!
4. Check with your lenders about incentives to lower interest rates- MOHELA is offering for all my loans disbursed before 2008 to lower my interest rate by 3% if I do auto debit. For loans after that it's only a .25% decrease, but that 3% really makes a huge difference. I know that ACCESS group where I have my stafford loans was offering me a .8% reduction from 6.8% to 6% I believe on all loans after October 31, 2007- or it was before that- can't remember, but then they offered another .25% reduction if I do auto debit, bringing that down to 5.75%. The other loans, I believe after Oct 2007 just get the .25% reduction for auto debit bringing them down to 6.55%. Finally, some loans I already have consolidated with American Educational Services, some more stafford loans, which I had locked in at 3% also provide a .25% reduction in interest for doing auto pay, so now I am paying 2.75%. When I made a comparison of what I was going to pay in totals based on payments of a 5 year loan, 10 year loan, and 25 year loan, I found the amount of savings to be HUGE- like the 10 year loan difference a car, and the 25 year loan difference my dream car! So bottom line whatever you do- call and check out the incentives. When I also did a comparison of my lower interest rates on a 25 year fixed plan as compared to the 25 year fixed plan under federal consolidation I was saving myself a nice car in interest as well- this is all going to be different for each person!
5. The real bottom line is try to make payments that are higher than what you owe each month- even if you extend payments to 25 years-pay more if you can! The interest really adds up, and it's probably best to get them all paid off so you don't have those nasty tax consequences.
6. Unfortunately this whole situation just plain stinks- I still encourage you all to write senators and reps about passing something to lower the interest rates on this consolidation so we can actually get our heads above water.
7. I'm making no promises on anything here- this is just what I was told, but these lenders will be coming out with statements on their websites to explain exactly what they plan to do! Hopefully this helps some of you!
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