Graduating during this pandemic means navigating a tough job market and unique student loan rules. Some of these rules are still subject to change.

However, amid the chaos and confusion, there is opportunity. Today I’ll share guidance designed especially for classes of 2020 and 2021.

Get Ready for Interest Rates to Go Up on Federal Student Loans

One of the few bright spots of the last year has been the 0% interest rate on federal student loans. Not only are payments not required at this time, there is almost no incentive to pay down your federal loans.

Unfortunately, this will eventually come to an end. That could happen as scheduled this fall, or it could be extended yet again. What we do know for sure is that the loans will eventually return to their original interest rates.

Once interest resumes, you will suddenly feel your budget tighten, and student debt will become a more pressing issue. Until that time, I suggest the following two steps:

1. Build up your emergency fund – There are a ton of variables over the next couple of years. Having some extra cash set aside just for an emergency isn’t a luxury; it is a necessity. Your emergency fund doesn’t need to be huge, but it shouldn’t be ignored.
2. Take a peek at your future payments – The Department of Education has an excellent resource called the Loan Simulator. The Loan Simulator allows borrowers to preview monthly payments on all of the available federal repayment plans. Getting a glimpse of your future bills will help things go smoother once repayment starts.

Don’t Refinance Federal Loans Too Soon

Student loan refinance is a popular tool to lower interest rates and speed up repayment. Used properly, it is an excellent resource. But, misused, it can be a huge mistake.

If you just finished school, it is probably too soon to refinance your federal student loans. The big danger with refinancing is that it converts federal student loans into private student loans. This conversion is a big deal because private student loans don’t have income-driven repayment plans or options for forgiveness.

Wait until your finances are solidly under control before considering refinancing federal loans. Because there is no way to undo loan refinancing, play it safe by avoiding the process until you are confident it is the right move for you.

Refinance Private Loans Whenever the Opportunity Arises

Refinancing private loans is significantly less risky. Because the loans are already private, borrowers won’t be giving up any of the federal protections. Instead, borrowers trade a higher interest loan for a lower interest loan.

A nice feature of the refinance process is the lack of expenses. Borrowers don’t have to pay application fees or any other transaction costs. If you can get better loan terms, it usually makes sense to refinance the private loans.

The downside is that the best refinancing terms are only available to the people who need the least help. If you have an excellent credit score and a good job, refinancing is an easy process likely to lead to significant savings. However, if you are struggling to get by, refinancing may only offer further disappointment. As your income or credit score improves, the refinance options and rates will also improve. For this reason, borrowers should investigate refinancing whenever their credit profile improves. Common improvements include getting a new job, paying off some debt, or having negative items fall off your credit report.

If you are going to refinance right now, the best option is probably a 20-year fixed-rate loan. The extended repayment length doesn’t obligate borrowers to stretch repayment out 20-years. A borrow is allowed to pay off a 20-year loan in five years without penalty. The value of a longer loan is that it lowers the minimum required monthly payment. This provides valuable flexibility. The downside of a longer repayment period usually is much higher interest rates. However, the current offerings for these longer loans are quite low.

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

Borrowers opting for a 5-year loan may find rates around 2%, but the longer loan is probably a better deal for recent grads due to the increased flexibility.

Get Advice from Others but do your own Research

The rules for student loans look a lot different than what they did ten years ago. Loan terms are different, and repayment plans have changed. This is especially true for 2020 and 2021 graduates. Changes to student loan repayment plans and pandemic-specific relief mean the traditional strategies won’t always apply.

Well-intentioned friends and family may offer outdated advice. They may also have excellent tips and suggestions. You will have to do your own research before you know anything for certain.

Talking with others is a good thing, but it can’t be the only thing you do. Think of these conversations as brainstorming. Getting input from other borrowers is a great way to generate ideas, but more work is still required before reaching a final plan.

Verifying information through studentaid.gov is a good start. Chatting with your loan servicer can also be helpful. Keep in mind that loan servicers will be extremely busy once repayment begins for everyone, so having these conversations before repayment starts is advised.

What About Student Loan Forgiveness from Biden?

At this point, nobody knows for sure what will happen. President Biden canceling some student debt is a possibility. However, the most likely outcome will probably be that nothing happens.

If any debt is forgiven, the most likely amount is $10,000. Thus, lowering your balance from $20,000 to $15,000 probably won’t impact any cancellation. However, lowering your balance from $12,000 to $7,000 may result in less debt forgiven.

Borrowers optimistic about cancellation happening should keep this in mind as they make a plan to eliminate their debt.

The post Student Loan Repayment Memo for 2020 and 2021 College Graduates appeared first on The Student Loan Sherpa.

The PLSF rules for full-time employees who are also attending school are a bit complicated.

Fortunately, there are a couple of ways to work around the default rules. Using the strategies outlined below, some borrowers may be able to get an early start on their Public Service Loan Forgiveness countdown.

The Challenge for Employed College Students and Recent Grads

Many people simplify the PSLF requirements to say that student loan forgiveness happens after ten years of government or non-profit work. However, a bit more is required. Borrowers must make 120 certified payments to qualify for PSLF. These payments don’t need to be consecutive, and they can be $0 payments, but the certified payment tally is the critical requirement.

The problem for those working full-time while attending school is that students get an automatic in-school deferment on their federal loans. If the loan is on an in-school deferment, a borrower cannot make certified payments.

Similarly, recent grads are given a six-month “grace period” after leaving school. Here again, the grace period is automatic, and time at a PSLF-eligible employer will not count towards the required ten years.

Fortunately, this is a way to avoid both hurdles.

Declining the Six-Month Grace Period

If you start working a government or non-profit job right after college, the grace period will delay PSLF.

Under the law, there is no mechanism to decline or waive the grace period. However, it is possible to skip the grace period and start the PSLF clock early.

During Federal Direct Consolidation, borrowers have the option to enter repayment on their consolidated loan immediately. Thus, it is possible to consolidate immediately after graduation and start repayment. This move would move up the PSLF clock.

There are a couple of downsides to this approach. First, federal direct consolidation can take several weeks at the minimum. The time during the consolidation process will not count towards PLSF. Secondly, federal direct consolidation isn’t always a good idea. Transforming federal loans into a federal direct consolidation loan has benefits, but it also carries risks. Borrowers should understand the pros and cons of federal consolidation before starting the process.

PSLF for Government Employees in School

Even though the in-school deferment is automatic in most cases, declining is an option for some borrowers.

Suppose a teacher is working on her Master’s Degree while teaching full-time at a PSLF-eligible employer. She could reach out to her loan servicer to decline the in-school deferment for the loans already in repayment.

However, there is a big limitation to this exception. The request would not apply to new loans borrowed during the return to school.

If a graduate student were to use this approach, they would essentially have two “batches” of loans. The undergrad loans would have one tally of certified payments, and the graduate loans would have a separate count. If PSLF were the goal for both the undergrad and graduate loans, it wouldn’t make sense to enter repayment early on the undergrad loans. Because monthly payments are based upon income rather than the loan balance, getting PSLF early on some of your loans doesn’t help much. Instead of making a total of 120 certified payments, a borrower who started early with some of their loans would make a few extra early payments, but a subsequent 120 would still be necessary for the graduate loans. The most efficient route will usually be to make 120 certified payments that count towards all loans.

In other words, if your loans are in two “batches” with different clocks, you will have to make more than 120 certified payments.

The one time this approach could work would be for borrowers who are paying for graduate school without federal loans. If you are paying for school yourself or your employer is paying for school, declining the in-school deferment could be a huge advantage.

Skip the Early Start: Focus on Starting the PSLF Clock On Time

While it is possible to avoid an in-school deferment or a student loan grace period, the advantage is usually minimal.

Borrowers who are focused on earning Public Service Loan Forgiveness will usually be best served by making sure they start on time.

During repayment, many borrowers experience delays that can pause the countdown towards PSLF. For recent grads, a delay getting enrolled in an income-driven repayment plan can be a major issue. Work with your servicer to make sure you are enrolled as quickly as possible. For borrowers in repayment, missing an employment certification deadline can cause you to fall out of your IDR plan.

Another problem happens when borrowers realize their employer wasn’t actually eligible and they have to switch jobs. The PSLF Help Tool is an excellent resource for verifying employment eligibility. Within a month or two of starting repayment, it is a good idea to submit an Employer Certification Form (ECF) to ensure all the requirements are met.

Wanting to get an early start is commendable, but most borrowers should focus on avoiding delays.

The post Starting the Clock on PSLF for Current Students and Recent Grads appeared first on The Student Loan Sherpa.