edtechdev/chatbotfiles · Datasets at Hugging Face

text stringlengths 0 312
professional or graduate students.
There are also aggregate loan limits that apply to put a maximum cap on the total amount you can borrow for
student loans.
Direct PLUS Loans
Direct PLUS Loans are additional loans a parent, grandparent, or graduate student can take out to help pay for
additional costs of college. PLUS loans require a credit check and have higher interest rates, but the interest is
still tax deductible. The maximum PLUS loan you can receive is the remaining cost of attending the school.
Parents and other family members should be careful when taking out PLUS loans on behalf of a child. Whoever
is on the loan is responsible for the loan forever, and the loan generally cannot be forgiven in bankruptcy. The
government can also take Social Security benefits should the loan not be repaid.
Private Loans
Private loans are also available for students who need them from banks, credit unions, private investors, and
even predatory lenders. But with all the other resources for paying for college, a private loan is generally
unnecessary and unwise. Private loans will require a credit check and potentially a cosigner, they will likely
have higher interest rates, and the interest is not tax deductible. As a general rule, you should be wary of
private student loans or avoid them altogether.

Repayment Strategies
Payments on student loans will begin shortly after you graduate. While many websites, financial “gurus,” and
talking heads in the media will encourage you to pay off your student loans as quickly as possible, you should
give careful consideration to your repayment options and how they may impact your financial plans. Quickly
paying off your student loans or refinancing your student loans into a private loan may be the worst option
available to you.

Payment Plans
The federal government has eight separate loan repayment programs, each with their own way of calculating
the payment you owe. Five of the programs tie loan payments to your income, which can make it easier to
afford your student loans when you are just starting off in your career. The programs are described briefly
below, but you should seek the help of a licensed fiduciary financial adviser familiar with student loans when
making decisions related to student loan payment plans.
The standard repayment plan sets a consistent monthly payment to pay off your loan within 10 years (or up to
30 years for consolidated loans). You can also choose a graduated repayment plan, which will begin with lower
payments and then increase the payment every two years. The graduated plan is also designed to pay off your
student loans in 10 years (or up to 30 years for consolidated loans). A third option is the extended repayment
plan, which provides a fixed or graduated payment for up to 25 years. However, none of these programs are
ideal for individuals planning to seek loan forgiveness options, which are discussed below.
Beyond the “normal” repayment options, the government offers five income-based repayment options: (1) the
Pay As You Earn (PAYE) repayment plan, (2) the Revised Pay As You Earn (REPAYE) repayment plan, (3) the
Income-Based Repayment (IBR) plan, (4) the Income-Contingent Repayment (ICR) plan, and (5) the Income-

Access for free at openstax.org

10.5 • Education Debt: Paying for College

Sensitive Repayment (ISR) plan. Each program has its method of calculating payments, along with specific
requirements for eligibility and rules for staying eligible in the program. Many income-based repayment plans
are also eligible for loan forgiveness after a set period of time, assuming you follow all the rules and remain
eligible.

Loan Forgiveness Programs
Many income-based repayment options also have a loan forgiveness feature built into the repayment plan. If
you make 100 percent of your payments on time and follow all the other plan rules, any remaining loan
balance at the end of the plan repayment term (typically 20 to 30 years) will be forgiven. This means you will
not have to pay the remainder on your student loans.
This loan forgiveness, however, comes with a catch: taxes. Any forgiven balance will be counted and taxed as
income during that year. So if you have a $100,000 loan forgiven, you could be looking at an additional $20,000
tax bill that year (assuming you were in the 20 percent marginal tax rate).
Another option is the Public Service Loan Forgiveness (PSLF) program for students who go on to work for a
nonprofit or government organization. If eligible, you can have your loans forgiven after working for 10 years
in a qualifying public service job and making 120 on-time payments on your loans. A major advantage of PSLF
is that the loan forgiveness may not be taxed as income in the year the loan is forgiven.
Consider Professional Advice
The complexity of the payment and forgiveness programs makes it difficult for nonexperts to choose the best
strategy to minimize costs. Additionally, the strict rules and potential tax implications create a minefield of
potential financial problems. In 2017, the first year graduates were eligible for the PSLF program, 99 percent of
applicants were denied due to misunderstanding the programs or having broken one of the many
20
requirements for eligibility.

Your Rights as a Loan Recipient
As a recipient of a federal student loan, you have the same rights and protections as you would for any other
loan. This includes the right to know the terms and conditions for any loan before signing the paperwork. You
also have the right to know information on your credit report and to dispute any loan or information on your
credit file.
If you end up in collections, you also have several rights, even though you have missed loan payments. Debt
collectors can only call you between 8 a.m. and 9 p.m. They also cannot harass you, threaten you, or call you at
work once you’ve told them to stop. The United States doesn’t have debtors’ prisons, so anyone threatening
you with arrest or jail time is automatically breaking the law.
Federal student loans also come with many other rights, including the right to put your loan in deferment or
forbearance (pushing pause on making payments) under qualifying circumstances. Deferment or forbearance
can be granted if you lose your job, go back to school, or have an economic hardship. If you have a life event
that makes it difficult to make your payments, immediately contact the student loan servicing company on
your loan statements to see if you can pause your student loan payments.
The Consumer Financial Protection Bureau (CFPB) has created a series of sample letters (https://openstax.org/
l/debtcollectors) you can use to respond to a debt collector. You can also file a complaint (https://openstax.org/
l/consumercomplaint) with the CFPB if you believe your rights have been violated.

Applying for Financial Aid, FAFSA, and Everything Else
Take this first step—you will need to do it. The federal government offers a standard form called the Free
Application for Federal Student Aid (FAFSA), which qualifies you for federal financial aid and also opens the
20 https://www.forbes.com/sites/zackfriedman/2019/05/01/99-of-borrowers-rejected-again-for-student-loan-forgiveness/

323

324

10 • Understanding Financial Literacy

door for nearly all other financial aid. Most grants and scholarships require you to fill out the FAFSA, and they
base their decisions on the information in the application.

professional or graduate students.

There are also aggregate loan limits that apply to put a maximum cap on the total amount you can borrow for

student loans.

Direct PLUS Loans

Direct PLUS Loans are additional loans a parent, grandparent, or graduate student can take out to help pay for

additional costs of college. PLUS loans require a credit check and have higher interest rates, but the interest is

still tax deductible. The maximum PLUS loan you can receive is the remaining cost of attending the school.

Parents and other family members should be careful when taking out PLUS loans on behalf of a child. Whoever

is on the loan is responsible for the loan forever, and the loan generally cannot be forgiven in bankruptcy. The

government can also take Social Security benefits should the loan not be repaid.

Private Loans

Private loans are also available for students who need them from banks, credit unions, private investors, and

even predatory lenders. But with all the other resources for paying for college, a private loan is generally

unnecessary and unwise. Private loans will require a credit check and potentially a cosigner, they will likely

have higher interest rates, and the interest is not tax deductible. As a general rule, you should be wary of

private student loans or avoid them altogether.

Repayment Strategies

Payments on student loans will begin shortly after you graduate. While many websites, financial “gurus,” and

talking heads in the media will encourage you to pay off your student loans as quickly as possible, you should

give careful consideration to your repayment options and how they may impact your financial plans. Quickly

paying off your student loans or refinancing your student loans into a private loan may be the worst option

available to you.

Payment Plans

The federal government has eight separate loan repayment programs, each with their own way of calculating

the payment you owe. Five of the programs tie loan payments to your income, which can make it easier to

afford your student loans when you are just starting off in your career. The programs are described briefly

below, but you should seek the help of a licensed fiduciary financial adviser familiar with student loans when

making decisions related to student loan payment plans.

The standard repayment plan sets a consistent monthly payment to pay off your loan within 10 years (or up to

30 years for consolidated loans). You can also choose a graduated repayment plan, which will begin with lower

payments and then increase the payment every two years. The graduated plan is also designed to pay off your

student loans in 10 years (or up to 30 years for consolidated loans). A third option is the extended repayment

plan, which provides a fixed or graduated payment for up to 25 years. However, none of these programs are

ideal for individuals planning to seek loan forgiveness options, which are discussed below.

Beyond the “normal” repayment options, the government offers five income-based repayment options: (1) the

Pay As You Earn (PAYE) repayment plan, (2) the Revised Pay As You Earn (REPAYE) repayment plan, (3) the

Income-Based Repayment (IBR) plan, (4) the Income-Contingent Repayment (ICR) plan, and (5) the Income-

Access for free at openstax.org

10.5 • Education Debt: Paying for College

Sensitive Repayment (ISR) plan. Each program has its method of calculating payments, along with specific

requirements for eligibility and rules for staying eligible in the program. Many income-based repayment plans

are also eligible for loan forgiveness after a set period of time, assuming you follow all the rules and remain

eligible.

Loan Forgiveness Programs

Many income-based repayment options also have a loan forgiveness feature built into the repayment plan. If

you make 100 percent of your payments on time and follow all the other plan rules, any remaining loan

balance at the end of the plan repayment term (typically 20 to 30 years) will be forgiven. This means you will

not have to pay the remainder on your student loans.

This loan forgiveness, however, comes with a catch: taxes. Any forgiven balance will be counted and taxed as

income during that year. So if you have a $100,000 loan forgiven, you could be looking at an additional $20,000

tax bill that year (assuming you were in the 20 percent marginal tax rate).

Another option is the Public Service Loan Forgiveness (PSLF) program for students who go on to work for a

nonprofit or government organization. If eligible, you can have your loans forgiven after working for 10 years

in a qualifying public service job and making 120 on-time payments on your loans. A major advantage of PSLF

is that the loan forgiveness may not be taxed as income in the year the loan is forgiven.

Consider Professional Advice

The complexity of the payment and forgiveness programs makes it difficult for nonexperts to choose the best

strategy to minimize costs. Additionally, the strict rules and potential tax implications create a minefield of

potential financial problems. In 2017, the first year graduates were eligible for the PSLF program, 99 percent of

applicants were denied due to misunderstanding the programs or having broken one of the many

20

requirements for eligibility.

Your Rights as a Loan Recipient

As a recipient of a federal student loan, you have the same rights and protections as you would for any other

loan. This includes the right to know the terms and conditions for any loan before signing the paperwork. You

also have the right to know information on your credit report and to dispute any loan or information on your

credit file.

If you end up in collections, you also have several rights, even though you have missed loan payments. Debt

collectors can only call you between 8 a.m. and 9 p.m. They also cannot harass you, threaten you, or call you at

work once you’ve told them to stop. The United States doesn’t have debtors’ prisons, so anyone threatening

you with arrest or jail time is automatically breaking the law.

Federal student loans also come with many other rights, including the right to put your loan in deferment or

forbearance (pushing pause on making payments) under qualifying circumstances. Deferment or forbearance

can be granted if you lose your job, go back to school, or have an economic hardship. If you have a life event

that makes it difficult to make your payments, immediately contact the student loan servicing company on

your loan statements to see if you can pause your student loan payments.

The Consumer Financial Protection Bureau (CFPB) has created a series of sample letters (https://openstax.org/

l/debtcollectors) you can use to respond to a debt collector. You can also file a complaint (https://openstax.org/

l/consumercomplaint) with the CFPB if you believe your rights have been violated.

Applying for Financial Aid, FAFSA, and Everything Else

Take this first step—you will need to do it. The federal government offers a standard form called the Free

Application for Federal Student Aid (FAFSA), which qualifies you for federal financial aid and also opens the

20 https://www.forbes.com/sites/zackfriedman/2019/05/01/99-of-borrowers-rejected-again-for-student-loan-forgiveness/

323

324

10 • Understanding Financial Literacy

door for nearly all other financial aid. Most grants and scholarships require you to fill out the FAFSA, and they

base their decisions on the information in the application.