Today, let’s walk through the analysis that goes into making this decision and explore the reasons why a borrower might choose to stay on SAVE or switch to another plan.

The SAVE Forbearance Problem

With Donald Trump winning the election, the SAVE repayment plan as we know it is likely coming to an end. The plan is struggling in the court system, and it is unlikely that the new administration will work to keep it in place.

With the SAVE litigation forbearance likely ending in the coming months, many borrowers want to know the next steps. The problem is that we don’t know what options will be available moving forward. IBR has a high likelihood of being available indefinitely, while ICR and PAYE could be returning before Biden leaves office. REPAYE might also reappear.

The biggest downside with the SAVE forbearance is that the time spent in this payment pause does not count toward student loan forgiveness. Initially, I hoped this rule might change retroactively, but the new administration is unlikely to take that approach. For many borrowers, switching to a plan that counts toward forgiveness could make the most sense.

What protections do borrowers have in place? Learn how Trump’s election could impact various federal repayment plans and forgiveness programs.

The Case for Staying on the SAVE Forbearance

For some borrowers, staying on SAVE might still make sense despite the uncertainty. Here’s why:

• 0% Interest: While the forbearance is active, borrowers enjoy a 0% interest rate on their loans. This is a considerable savings and it means the forbearance is truly a student loan pause.
• Unknown Resolution and Timing: We don’t know when the SAVE forbearance will end or what repayment plans will be available at that time. Waiting provides time to make a decision when more information is available.
• Payment Break: The payment break allows borrowers to save up for whatever comes next or build up an emergency fund.
• PSLF Buyback Potential: The buyback program could still benefit borrowers working toward Public Service Loan Forgiveness (PSLF).

The election is a big change and there is certainly temptation to “take action” in order to protect yourself moving forward. Being proactive might feel good, but in many cases, being patient might be the prudent approach.

Switching to IBR Now

One of the most stable options available is the Income-Based Repayment (IBR) plan. Here are some key considerations:

• Stability: IBR is statutory law and is expected to remain a reliable repayment option moving forward. This makes it a good choice for borrowers looking for long-term stability.
• Forgiveness Progress: By switching to IBR, borrowers can begin making qualifying payments toward loan forgiveness immediately.
• Tax-Free Forgiveness Window: Enrolling in IBR now may allow borrowers to receive forgiveness before taxes on forgiven balances return in 2026, potentially saving thousands of dollars in tax liabilities.

Drawbacks of Switching to IBR

Switching to IBR has some drawbacks that borrowers should be aware of:

• Higher Costs: For many borrowers, IBR can be more expensive than SAVE, particularly for those who don’t qualify for the more favorable terms of IBR for New Borrowers (2014 version). The older version of IBR requires borrowers to pay 15% of their discretionary income, compared to SAVE’s 10%. This difference alone can lead to significantly larger monthly payments. 
• Discretionary Income Definition Change: IBR defines discretionary income as the amount above 150% of the federal poverty level, whereas SAVE uses a more generous 225% of the federal poverty level.
• Eligibility Limitations: IBR comes with an income cap, meaning not everyone will qualify for this plan. Borrowers whose income exceeds the cap may be ineligible. These borrowers could be better off waiting to see what happens with SAVE/REPAYE.
• Income Recertification: Many borrowers have not recertified their income since before the pandemic. A new recertification could result in a significant payment increase if income has risen during that time.

Waiting for ICR or PAYE to Return

For borrowers not eligible for IBR but eligible for PAYE, waiting might be a smart move, as PAYE could soon become available for new enrollments again.

Income-Contingent Repayment (ICR) is also worth considering. It’s a good option for borrowers with higher incomes and smaller balances who are close to reaching forgiveness. ICR doesn’t get much attention, but it can work well in specific scenarios.

What we know for now is that the Biden administration plans to bring both of these plans back. Additionally, with SAVE unlikely to survive, bringing back both of these plans seems logical, and potentially legally required.

Holding Out Hope for REPAYE

I’m not ruling out the possibility that REPAYE could return.

There is also the potential for a REPAYE/SAVE hybrid plan, which might incorporate some changes from SAVE—such as the 10% discretionary income payments—but eliminate the earlier forgiveness and 5% discretionary income payments that are currently being litigated. This could end up being a compromise solution in the near future.

A REPAYE/SAVE hybrid is probably the optmistic outcome for borrowers, but I think it is a somewhat realistic outcome as well.

Final Thoughts: Two Things to Keep in Mind

If you decide to switch out of the SAVE forbearance, remember that processing times for IDR enrollments are still quite slow. Moving to IBR now and then switching to another plan in a few months might not save much time overall.

Above all, it’s important not to assume the worst. Borrowers’ fears about what could happen to their repayment options are justified, but assuming that all forgiveness and IDR plans will be eliminated is premature. The ideal strategy is to stay flexible and be ready to adjust as more information becomes available.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Should I Switch Out of the SAVE Forbearance? appeared first on The Student Loan Sherpa.

Ironically, due to an unusual series of events, the group of borrowers who may benefit most from the SAVE plan are not necessarily those in the most financial distress, but rather borrowers who are financially better off and able to repay their loans in full.

SAVE Repayment Plan Background and Litigation

The SAVE plan (Saving on a Valuable Education) was designed to fix some of the biggest complaints about previous federal income-driven repayment (IDR) plans. With SAVE, borrowers could protect a greater portion of their income from their student loan payments, and for those with lower balances or without graduate debt, forgiveness could be achieved sooner.

However, several state attorneys general challenged the legality of the SAVE plan, filing a lawsuit to block its implementation. As a result, a preliminary injunction was issued, preventing borrowers from making payments under the plan for the time being. This block will remain in effect until the litigation is resolved, and the case could drag on for years, potentially going all the way to the Supreme Court.

Despite the legal challenges, the Department of Education has offered some protections to impacted borrowers. Most notably, borrowers who signed up for SAVE are placed in an interest-free forbearance while the litigation is ongoing, meaning they are not accruing interest on their loans during this period.

The Big Winner is Borrowers Who Plan to Repay in Full

While SAVE was intended to help borrowers in financial distress, an unintended consequence of the litigation is that borrowers who are focused on repaying their loans in full may come out as the biggest winners. With the payment and interest pause in place, this situation mirrors the COVID-19 payment freeze, which allowed borrowers to make substantial progress on eliminating their debt without accruing interest.

For borrowers who are already in a strong financial position, this pause represents a unique opportunity. They can continue making voluntary payments, chip away at the principal balance, and ultimately pay less in total interest over the life of the loan.

How to Enroll in SAVE to Get 0% Interest

Despite the ongoing litigation, borrowers can still enroll in the SAVE plan, and by doing so, they will receive the 0% interest benefit. The enrollment process is once again available by signing up at studentaid.gov.

Unlike other IDR plans, there is no income cap for SAVE enrollment. Borrowers in any tax bracket can sign up for SAVE and take advantage of the interest relief.

Once enrolled, borrowers are placed in a special forbearance status, meaning that although they are not required to make payments, interest will not accrue on their loans either. This creates a window to plan your repayment strategy without the burden of growing debt.

Maximizing the Benefit

Borrowers looking to make the most out of this situation should consider taking an active approach to managing their loans. One of the smartest moves is to set aside the money you would have used for student loan payments into a high-yield savings account.

By doing this, you gain two key advantages. First, instead of paying interest on your student loans, you can earn interest on your savings. This allows you to turn the payment pause into a financial gain. Second, it gives you flexibility. If you encounter a financial emergency down the road, such as a car repair or unexpected medical expenses, the funds in your savings account will be readily available. In contrast, once a payment is made toward your student loan, that money is no longer accessible.

When the litigation finally ends and payments resume, you can use the money saved to make a lump-sum payment, potentially knocking out a significant portion of your balance or eliminating it entirely. Likewise, you can switch into a more appropriate repayment plan if the new SAVE payments end up being too high.

Final Thoughts

The ongoing SAVE litigation has created a unique opportunity for borrowers to improve their financial standing. Whether you’re aiming for debt elimination or just trying to get through the legal uncertainty, there are strategies you can implement to make the most of this situation.

For borrowers looking to pay off their loans in full, this is a prime opportunity to reduce your balance without accruing interest. By enrolling in SAVE, taking advantage of the interest pause, and using smart savings strategies, you can turn a period of uncertainty into a period of financial gain.

The post SAVE Plan Litigation: Why Higher-Income Borrowers Are The Big Winners appeared first on The Student Loan Sherpa.

Obtaining lower interest rates can save you hundreds or even thousands of dollars on your student loans.

Sign Up for Auto-Debit or Monthly Automatic Withdrawal

This route is the low-hanging fruit.

Signing up for automated payments saves .25% interest with pretty much every student loan company. Some lenders even offer a .50% reduction if you open a checking account. Saving a fraction of a percent in interest may not seem like much, but it can add up. For example, if you have $40,000 in student loans, that quarter percent savings is worth $100 per year. Not exactly huge savings, but a decent reward for minimal effort.

Even though this is an easy move that every borrower can make, we don’t recommend it for everyone. There are a couple of circumstances where it is best to stick with manual payments.

You can’t trust your lender – The automatic payments give your lender the green light to take money out of your checking account. Unfortunately, there is an element of danger here. This is especially true if your monthly payments might change, such as being on a variable-rate repayment plan. Taking out a fixed amount each month is one thing, but if there is a chance your lender takes out more than what you planned for, be cautious. Once your lender removes that money, it is hard to get back.

You can’t trust yourself – Smart student loan repayment is all about paying extra when you can and targeting high-interest student loans. The savings from this approach will far exceed the potential savings from a .25% interest rate reduction. If signing up for automated payments will cause you to be lazy when making extra payments, stick to manual payments. Lenders maximize profits when borrowers pay the minimum each month over the life of the loan. Don’t let a slight interest rate reduction bait you into maximizing your lender’s income.

Lender Rate Reduction Programs

Lenders seldom advertise or publicize interest rate reduction programs, but they do exist. Private lenders created these programs to help borrowers who had fallen behind on their debt. It is typically available only to those with an income insufficient to keep up with payments. A rate reduction program is rarely a term of the loan contract. As a result, lenders can change the requirements whenever they want.

The nice thing about rate reduction programs is that they can help. Lenders usually give most borrowers who cannot make a monthly payment the option of forbearance or deferment. Delaying payments is typically good for the lender and bad for the borrower, however. The balance on the account will grow due to unpaid interest. Once the deferment or forbearance ends, the borrower has a bigger student loan problem. Continuing to make payments with a lower interest rate allows a borrower to put a dent in the principal balance.

Perhaps the most notable rate reduction program is with Sallie Mae/Navient. Over the years, they have changed the requirements and tweaked terms several times. At present, borrowers can sign up for an interest rate reduction that lasts for six months. Qualifying requires a borrower to provide Navient a detailed accounting of their monthly expenses. Generally speaking, the further behind a borrower is in repayment, the more likely Navient is to help. We have also found that the quality of assistance depends upon whom you talk to you. If one call attempting enrollment is unsuccessful, a second or even third try might make a difference.

Pay Down High-Interest Debt First

On the surface, paying down high-interest student loans first might not seem like a method of lowering interest rates. However, we would argue that it does.

The math is relatively easy. Suppose you have two loans at $10,000 each. One has an interest rate of 8%, and the other has an interest rate of 2%. Your combined debt is $20,000 at an average interest rate of 5%. If you pay off the loans with equal payments, your average interest rate will stay at 5%. However, if you start to pay off the high-interest loan faster, your average interest rate will drop. So, if you eliminate the high-interest loan first, your average interest rate will become a very favorable 2%.

Many people realize that paying extra on their student loans is a great way to pay off loans faster and save money on interest. We like to call these people responsible borrowers. However, we found that when these responsible borrowers don’t focus on the high-interest debt, it can cost them.

Utilizing this approach doesn’t require an excellent credit score or enrollment in any program. If you just pay extra towards your highest interest rate student loan, your average student loan interest rate will drop over time. Finding that bit of extra money to attack high-interest debt can save a lot of money in the long run.

Enroll in the SAVE Plan

Signing up for SAVE can help you lower your interest rate in two different ways.

First, because the SAVE plan is currently being challenged in court, borrowers who sign up for SAVE can get there interest rate lowered to 0% as long as the case is pending. The case could take years to resolve.

Second, once the lawsuit is over, assuming SAVE survives, borrowers can receive the SAVE subsidy which covers the monthly unpaid interest each month on the loan.

Suppose your federal student loans generate $300 in interest each month, but your required monthly payment is only $100. As a result, your federal student loan balance is growing by $200 every month. Because the federal government doesn’t capitalize the interest each month, many borrowers think that their balance is just staying the same. Once an event that triggers interest capitalization occurs, the balance can jump by hundreds or even thousands of dollars.

Signing up for SAVE fixes this problem. Going back to our example, instead of growing by $200 each month, SAVE covers the extra $200, so your balance doesn’t move. For borrowers with significant student loan balances and smaller incomes, SAVE is an excellent option.

Even if SAVE were to be eliminated in the litigation, the older REPAYE plan would likely be reinstated. Like SAVE, REPAYE offers an interest subsidy. However, unlike SAVE, the REPAYE subsidy only covers half of the excess interest.

Join the Military

Choosing to serve your country can be a big boost in student loan repayment. For starters, numerous student loan forgiveness programs exist specifically for the military, such as the Military College Loan Repayment Program.

In the realm of interest rates, enlisting has immediate benefits as well. Military service can lower your student loan interest rates in two ways:

Servicemembers Civil Relief Act (SCRA) Interest Rate Cap – The SCRA limits all student loan interest rates for active-duty members of the military to 6%. This limit applies to both federal and private student loans. In fact, this interest cap applies to all debt, so long as the debt exists before you begin active duty. If you acquire new debt after active duty starts, it does not qualify for the interest rate cap. Federal law guarantees this rate cap, but you will probably have to contact your loan servicer to get things set up.

0% Interest for Service in a Hostile Area – Anyone who qualifies for special pay by serving in a hostile area doesn’t have to pay interest for up to 60 months. This benefit applies to all Federal Direct student loans issued after October 1, 2008.

Enlisting is obviously a major commitment. But, anyone currently in the military or considering joining should be aware of the potential opportunities to lower their interest rates.

Get Congress to Act

If you have student debt, it probably means that you don’t have millions of dollars to pay lobbyists or contribute to campaigns. However, borrowers as a group still wield enormous power in Washington.

Over the years, there have been proposals that would allow federal borrowers to lower their interest rates to the same levels that banks get when they borrow from the government.

Showing up to vote each November is critical to influencing DC. Think about the senior citizens. Seniors on Medicare and Social Security individually don’t have much money to spend on campaign contributions. But, they vote, and everyone in Congress knows it. Student loan borrowers currently number over 40 million. If they all voted for candidates who pledged to make a difference on student loans, lower interest rates could be just the beginning.

Refinance Student Loans at a Lower Interest Rate

Student loan refinancing is another excellent way to get a lower interest rate on your student loans.

When you refinance your student loans, a new lender pays off some or all of your old student loans in full. The borrower then agrees to repay the new lender according to new terms. The downside to this approach is that this eliminates the old loan’s terms and perks. So, if you like having income-driven repayment plans or loan forgiveness, it is best to skip refinancing and stick with federal loans.

The big advantage of refinancing is the enormous potential interest savings. College students without a job or a degree are risky bets and usually get charged higher interest rates by lenders. Graduates with a job and a degree are far less risky and generally more able to get better interest rates.

The more savvy a borrower is about the refinance process, the more they can save. There are multiple ways that a borrower can use refinancing to get lower interest rates…

Pick a Shorter Repayment Term or Loan Length

By refinancing student loans to a shorter-term loan, borrowers can significantly lower interest rates.

As an example, take a look at the best rates currently available on 5-year fixed-rate loans.

Rank	Lender	Lowest Rate
1		3.95%
2		3.99%*
3		4.88%

If we stretch things out to 20 years, the lowest possible rates jump considerably:

Rank	Lender	Lowest Rate
1		6.08%*
2		6.53%
3		6.55%

To see rates available for 5, 7, 10, 15, and 20-year loans, be sure to check out our best refinance rates by category page. These rates are updated monthly to provide a good idea of the best available rate for any given loan type.

The longer the loan repayment length, the riskier a variable-rate loan becomes. We typically suggest that all borrowers avoid variable-rate loans longer than ten years. However, if interest rates are at extreme highs, a longer-term variable-rate loan might make more sense.

Shop Around to Find the Best Rate

In the realm of student loan refinancing, the surest way to get the lowest possible rate is to shop around.

All lenders offer a range of loan types and loan options. What they don’t advertise is that all lenders evaluate applications differently. Lenders put different weights on different factors, such as the college you attended, how long you have been in your job, and your profession. A borrower with a high credit score and average income might get vastly different results than a borrower with an average credit score and high income.

Accordingly, the companies advertising the best rates may not be the company that actually offers you the best rate. Because there are so many variables in play, it is essential to check rates with several different lenders. We typically suggest investigating 5-10 lenders out of the many student loan refinance companies.

The good news about shopping around is that it takes very little time. Most borrowers can get a rate quote within 5 to 10 minutes.

Fortunately, shopping around does not hurt your credit score. The credit agencies treat multiple applications within the same window as a single application. This allows borrowers to shop around without fear of negative credit consequences. To be safe, try to keep your shopping around confined to a one- or two-week window.

Get a Cosigner

This option is a pretty lousy way to get a lower interest rate when you refinance. It can help borrowers with less than perfect credit qualify, but it is a massive obligation for the cosigner.

Getting a cosigner to help pay for college is one thing. Getting a cosigner to refinance is another story. Refinancing for some is more of a luxury. Obtaining lower interest rates is nice and saves money, but does it justify the risk that your cosigner is taking on?

That being said, borrowers who are struggling to get approved may be able to refinance successfully with the help of a cosigner. If that cosigner was on the original loan, this move might make even more sense. The cosigner’s obligation doesn’t change, but the borrower’s ability to pay it off faster is improved. This is a win for both parties.

Some borrowers use refinancing as a workaround to get their cosigner released from the loan. If the cosigner is on the original loan but not the refinanced loan, the cosigner has no further obligations when the refinance goes through.

Pay Off Existing Debt First

When refinancing, the two most significant factors in approval decisions are your credit score and your Debt-to-Income ratio (DTI).

Completely eliminating a debt can have a considerable impact on your DTI. Lenders usually don’t care about your current debt balances. For example, if you have a car loan, it doesn’t matter if you owe $20,000 or $5,000. The impact comes from monthly payments on your credit report. Lenders care about the $300 per month that you owe on your car loan. If you eliminate that monthly payment, your DTI improves. It also increases your chances of scoring the best possible interest rate.

If you are about to eliminate a monthly payment, be sure to let some time pass so that the debt doesn’t appear when lenders check your credit report.

Fix or Improve Your Credit Score

Lenders consider your credit score when determining the rates they offer you. Therefore, anything that you can do to improve your credit score will help your cause.

Correcting errors on a credit report is a quick way to get a boost, but that isn’t the only way to improve it. The impact of negative items on a credit report drops with time.

Find a New Job or Get a Raise

This tip probably falls into the easier-said-than-done category, but it can make a big difference to your debt-to-income ratio.

Different lenders have different requirements for documenting income and time required at a job, but a recent paystub is sufficient proof of income for many.

Refinance Again

The option to refinance a second or third time is something that many borrowers fail to consider.

The good news for consumers is that there is no rule or limitation on refinancing multiple times.

If you have had the good fortune of getting a higher-paying job, improving your credit score, or eliminating some old debt, there is a good chance that better rates may be available. Similarly, if the first time through the refinance process you skipped out on shopping around, a second bite at the apple might be an excellent opportunity to lock in the best deal.

With many lenders offering refinancing services, jumping around a few times can be an effective strategy.

Lowering Student Loan Interest Rates

The thirteen different approaches that can be used to get lower interest rates represent an opportunity for nearly all borrowers to get some help on their student loans.

Different strategies require different levels of effort, but for many, a minimal investment of time can result in major savings.

The post 13 Ways to Get a Lower Interest Rate on Your Student Loans appeared first on The Student Loan Sherpa.

The purpose of this article is to help borrowers identify and avoid student loan scams. Much of the advice contained below comes directly from the Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau (CFPB). I’ve also included details on some of the types of scams I’ve seen over the years.

Calling Out Scammers by Name: I’d love to make a list of known scammers as a resource for borrowers. Sadly, a scary experience dealing with a scam company makes going that route especially difficult.

What Does a Student Loan Scam Look Like?

The most effective scams that I have seen create a sense of urgency with borrowers. Act now before the opportunity disappears.

For many responsible borrowers, a limited offer is worth investigating. If there is even a chance that the offer is legitimate, the potential savings would be enormous.

While the rules for student loans do change, it never happens quickly, and it never costs any money to benefit. All federal student loan programs are free to enroll. Additionally, paying for expert help just to fill out paperwork is almost always a mistake.

This graphic from the FTC best summarizes some of the telltale signs of a scam:

Lower Student Loan Interest Rates: Real or Scam?

The good guys and the bad guys both promise lower interest rates.

What is Legitimate – There are many student loan refinance companies that can actually lower your interest rates. Most of them work with both federal and private student loans.

The legitimate companies make money by offering lower interest rates to borrowers who are highly likely to pay back their student loans. These lenders pay off your existing debt with your old lenders. Then, you pay back the new company at, what is hopefully, a lower interest rate. The aggressive advertising, lower interest rates, and sign-up bonuses often trigger the “too good to be true” alarm for many consumers.

The best way to know you are dealing with a legitimate company is that good credit will be required. They will need your credit report to determine if you are a borrower who pays back your debt and can afford the loan.

This service is normally advertised as student loan refinancing, and there are many lenders in the refinance business. I’ve ranked and reviewed the nationwide companies offering student loan refinancing. Note that although some lenders received negative reviews, they are still legitimate companies. They just provide rates and terms I think could be better.

When a Lower Rate is a Scam – One of the biggest red flags to be aware of is when a company promises you lower interest rates and student loan forgiveness. You can get lower rates by refinancing your federal loans. However, those loans become private loans and lose eligibility for federal forgiveness programs. Alternatively, you can pursue federal forgiveness, but the government won’t be cutting your interest rate.

If everybody gets a lower interest rate, it is also probably a scam. Refinance companies only make money if they are smart in choosing their customers. If they pay off the loans for people who won’t pay back their debt, they will lose money.

Obama, Trump, or Biden Student Loan Forgiveness

Scammers love to advertise forgiveness programs associated with the current president. They try to benefit from the harsh political climate by appealing to a particular point of view.

However, it isn’t fair to say that all federal forgiveness programs are a scam. It has just been my experience that if somebody attaches the President’s name to the program, it is more likely to be fraudulent in some way.

What is Legitimate – Many student loan forgiveness programs exist for federal student loans. The most common are the forgiveness programs offered through income-driven repayment plans and Public Service Loan Forgiveness. There are also programs for borrowers in certain occupations, such as teachers and military personnel.

You can enroll in the legitimate programs directly through your federal student loan servicer. No special expertise is required. Although, researching and understanding the programs is very helpful for preventing errors. Furthermore, there is no cost to signing up for any of the student loan forgiveness programs. Federal law created these programs and are often a term in your student loan contract with the government.

Legitimate student loan forgiveness does not immediately wipe away all of your debt. It takes years to reach. It is a good idea for some borrowers, while others are better off aggressively paying off their debt.

Student Loan Forgiveness Scams – One of the biggest giveaways to a student loan forgiveness scam is a high-pressure sales environment. If somebody is aggressively trying to push you into a program that will erase your debt, it should be a red flag. Another huge red flag is any fees associated with the program. Again, student loan forgiveness is federal law, and signing up costs nothing. There should be no enrollment fees or monthly costs.

Another common red flag is when a company advertises a special relationship with the Department of Education. Such a relationship doesn’t exist. Student loan programs are open to all federal borrowers. No outside company can change your eligibility.

Finally, if you are working with a company that requires your FSA PIN, now known as the FSA ID, you are likely getting scammed. The Department of Education makes it clear that the borrower is the only person who should have access to this number.

You can achieve enrollment in any student loan forgiveness program through your federal student loan servicer. Any third party that tries to enroll on your behalf likely has bad intentions. At best, they are charging you money to fill out forms that you could submit on your own. At worst, they are flat-out stealing your money or your identity.

Student Loan Consolidation Scams

Student loans are consolidated when multiple existing loans are combined into one new larger loan. There are two types of consolidation. One is federal student loan consolidation, and the other is private loan consolidation. For many borrowers, student loan consolidation is a helpful or even necessary step. Unfortunately, there are also scammers advertising student loan consolidation services.

Legitimate Student Loan Consolidation – Many borrowers elect to consolidate their federal loans to gain eligibility for certain programs. For example, FFEL loans are not eligible for public service loan forgiveness, but they can be included in a federal direct consolidation loan and gain public service forgiveness eligibility. You can consolidate your federal student loans only directly through the federal government. This process can only take place using the Department of Education’s consolidation site.

Student Loan Consolidation Scams – If you are paying for this service, it is almost definitely a scam. Whether you are consolidating your federal loans for program eligibility or consolidating on the private market for a lower interest rate, the cost to you should be $0. Another red flag is if the company you are working for asks for your FSA ID or FSA PIN.

$0 Per Month Student Loan Payments

Like many other scams, the $0 per month payment scams start with a legitimate federal program and use it to take advantage of borrowers.

What is Legitimate – Federal student loans do have income-driven repayment plans. If you don’t have any income or your income is below a certain level, your monthly payment could actually be $0. It is also possible that the government could eventually forgive your loan. This is something you can do directly with your student loan servicer and requires no expertise or special knowledge.

When $0 Payments are a Scam – If you see advertising for income-driven payments, the odds are pretty good that it isn’t legitimate. Loan servicers and the federal government don’t spend money advertising these options. They have no incentive to promote these programs. They simply make it available for the borrowers who need help. If you are seeing aggressive advertising from a company offering $0 payments, it is a huge red flag.

Private lenders don’t have income-driven repayment plans. If you see an advertisement for this, somebody is probably trying to sell you something, and you probably don’t want to buy it.

Personalized Student Loan Consultations 

There are numerous self-described student loan specialists offering personalized advice for individual student loan circumstances. This is a gray area in the world of student debt.

For the sake of transparancy, I should disclose that I am someone who falls into this category of self-described specialists offering individual guidance.

As such it probably isn’t fair for me to say who or what is legitimate and what might be a scam. What I will say is that when shopping for a service like this be wary of ongoing fees and lofty promises.

Paying someone for an hour of their time and insight is reasonable. There isn’t any reason for monthly charges, or charges based upon the amount of debt forgiven. Likewise, nobody can promise loan forgiveness or a specific outcome. Anyone engaging in either practice should be viewed with some skepticism.

Red Flags to Avoid

If the specific details covered so far don’t apply directly to your situation, the Consumer Financial Protection Bureau has some excellent general guidelines for identifying and avoiding student loan scams.

According to the CFPB, the following are all signs of a scam:

Pressure to pay high up-front fees. It can be a sign of a scam when a debt relief company requires you to pay a fee up-front or tries to make you sign a contract on the spot. These companies may even make you give your credit card number online or over the phone before explaining how they’ll help you. Avoid companies that require payment before they actually do anything, especially if they try to get your credit card number or bank account information.

Promises of immediate loan forgiveness or debt cancellation. Debt relief companies cannot negotiate with your creditors for a “special deal.” Federal law sets payment levels under income-driven payment plans. For most borrowers, loan forgiveness is only available through programs that require many years of qualifying payments.

Demands that you sign a “third party authorization.” You should be wary if a company asks you to sign a “third party authorization” or a “power of attorney.” These are written agreements giving them legal permission to talk directly to your student loan servicer and make decisions on your behalf. In some cases, they may even step in and ask you to pay them directly, promising to pay your servicer each month when your bill comes due.

Requests for your Federal Student Aid ID. Be cautious about companies that ask for your Federal Student Aid ID. Your FSA ID — the unique ID issued by the U.S. Department of Education to allow access to information about your federal student loans — is the equivalent of your signature on any documents related to your student loan. If you give that number away, you are giving a company the power to perform actions on your student loan on your behalf. Honest companies will work with you to develop a plan. Further, they will never use your FSA ID to access your student loan information.

A Couple Final Tips from the Sherpa

I once received a call from a student loan company that was going to fix my student loans. The glaring red flag was the fact that they didn’t even know my name. If you call me to offer a service and don’t even know my name, I know you are a spammer. Enough Americans have student loan debt that some scammers just call every phone number they can.

However, I’ve received mail from companies that had detailed information about my student debt situation. After some investigation, I determined that they were scams attempting to charge me for free federal student loan programs. The lesson: companies that have your loan information on file may not be legit. To this day, I have no idea how the scammers knew about my debt balance.

Finally, calls, texts, emails, letters, and ads about brand new laws and special programs from Congress are almost always scams. Any new student loan program from the government gets a ton of attention. These programs are easy to verify via a quick Google search. Don’t ever assume that some company has special access or information.

The post Student Loan Forgiveness Scams vs. Legit Programs – How to Tell the Difference appeared first on The Student Loan Sherpa.

For borrowers, understanding the potential duration of the SAVE litigation forbearance is crucial as they navigate this uncertainty. Here’s why these lawsuits could drag on for years, potentially ending up in the Supreme Court.

Lawsuits Take Time to Resolve

While the challenges against the SAVE plan have just begun, federal lawsuits typically take a significant amount of time to resolve. On average, federal civil cases can take about one year to resolve, depending on the complexity of the case and the court’s schedule. However, this statistic includes dismissals and if we just look at cases that go to trial, resolution at the district court level takes on average two years.

For complex cases like the SAVE lawsuit, the timeline could extend even further, potentially exceeding two years.

Appeals and the Potential for a Supreme Court Hearing

After a district court decision, either party can appeal to the circuit court. If two circuits reach different conclusions, it creates a circuit split, making it more likely that the Supreme Court will review the case to ensure consistent legal interpretation nationwide.

Currently, there are two different lawsuits challenging the SAVE plan, each in a separate circuit, which increases the likelihood of divergent rulings.

The Supreme Court, however, is selective in the cases it hears. It receives approximately 7,000 petitions annually but typically accepts only about 100 to 150 of them. For a case to be heard, at least four of the nine justices must agree to grant a writ of certiorari. Cases that involve significant national issues or present unresolved questions of federal law—such as the extent of executive authority in creating repayment plans—have a higher chance of being reviewed. This is especially relevant for the SAVE litigation, given its similarity to previous student loan cases that went to the Supreme Court and the possibility of a circuit split.

How Long the Supreme Court Process Takes

If the Supreme Court agrees to hear a case, the timeline can extend considerably. From the time a case is accepted for review, it generally takes three to six months before oral arguments are heard, as both sides prepare their briefs. After oral arguments, the justices deliberate, and it often takes an additional three to six months for a decision to be issued, depending on the complexity of the case. Altogether, if the Supreme Court becomes involved, it can easily add another year to the case.

Where Is the Line Drawn?

The SAVE litigation isn’t just about student loan policies; it raises broader questions about the scope of presidential authority. The central issue is how much power Congress granted the executive branch to create or modify repayment plans. While previous plans like Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) were established using similar statutory authority without judicial intervention, the SAVE plan’s scope is under closer scrutiny.

Most agree that there are limits. For instance, the President cannot unilaterally create a repayment plan that charges borrowers zero dollars per month for incomes below $3 million per year, with loan forgiveness after just five months. Such an extreme measure would effectively cancel all student debt, which would clearly exceed Congressional authority.

The question for the courts to decide is whether or not SAVE exceeds the authority granted by Congress.

How Long Will SAVE Litigation Forbearance Last?

Given the complexities outlined above, borrowers may face a lengthy period of uncertainty. The SAVE litigation forbearance—which pauses payments and interest accrual while legal challenges are pending—could last as long as the court process continues, potentially stretching several years if the case goes through multiple appeals and ends up before the Supreme Court.

While both parties in these cases will be interested in resolving the case quickly, given the high stakes, it could easily last three years before the cases are resolved.

Will the Election Impact the Lawsuit? The outcome of the 2024 election could impact how long the lawsuit lasts. A Harris administration would almost certainly continue to pursue the SAVE plan. A Trump administration may decide against moving forward with the lawsuit and start the process of unwinding the SAVE regulations.

What Does This Mean for Borrowers?

• Extended Uncertainty: Borrowers might experience long periods of financial ambiguity while waiting for a final resolution.
• Challenges in Financial Planning: The uncertainty around payment obligations makes it difficult to plan for major financial decisions.
• Staying Informed Is Key: Following legal developments can help borrowers prepare for different potential outcomes.
• Avoid Mistakes: Borrowers shouldn’t make extra payments during this forbearance as it won’t count toward forgiveness.

Conclusion

The SAVE litigation is likely to be a drawn-out battle, especially if the case proceeds through appeals and reaches the Supreme Court. While legal proceedings can be unpredictable, understanding the process can help borrowers make informed decisions and prepare for what lies ahead.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Why the SAVE Lawsuit Could Drag on for Years and Reach the Supreme Court appeared first on The Student Loan Sherpa.

Like the page that tracks the SAVE litigation, this page will remain updated with the latest news, updates, and developments on Forgiveness 2.0.

Forgiveness 2.0 Basics

Unlike previous efforts that aimed to forgive some debt for nearly all federal borrowers, the Department of Education is now focusing on those most in need and arguably most deserving of federal assistance. This targeted approach includes four key groups:

• Borrowers with balances larger than their original loans.
• Borrowers who have been in repayment for decades.
• Borrowers who are eligible for forgiveness but haven’t applied.
• Borrowers enrolled in low-financial-value programs.

By concentrating on borrowers who are struggling and unlikely to repay their debt in full, the Department of Education strengthens its position should the forgiveness plan face legal challenges.

Timeline and Current Status

• August 1, 2024: The Department of Education emails borrowers, giving them until August 30th to opt out of any potential forgiveness.
• September 3, 2024: Seven states sue to block Forgiveness 2.0.
• September 5, 2024: The Southern District of Georgia grants the plaintiffs’ request to temporarily block Forgiveness 2.0 from being implemented while the case is pending.
• October 2, 2024: The case gets moved from Georgia to Missouri potentially opening a small window for the Department of Education to move forward with forgiveness.
• October 3, 2024: A Missouri judge blocks the Department of Education from moving forward with forgiveness.

The case has no entered into another likely long holding pattern for borrowers.

The dismissal of Gorgia as a plaintiff and the move to Missouri was a small win for the Biden adminstration, but there are much bigger battles to still be fought.

The full litigation process could take years, as a trial is expected, followed by appeals that could eventually reach the Supreme Court.

The Legal Theory Behind Forgiveness 2.0

Previously, the Department of Education attempted to forgive up to $20,000 per federal student loan borrower by relying on the HEROES Act. This act, passed shortly after 9/11, was designed to help the federal government respond to disasters. The Department argued that the COVID-19 crisis justified student loan relief, but the Supreme Court disagreed.

One significant advantage of using the HEROES Act was the ability to act swiftly, bypassing the lengthy rulemaking process that other approaches would have required.

This time, the Department took a more conventional approach under the Higher Education Act (HEA). The rulemaking process began in 2023 and was still not completed at the time the lawsuit was filed.

Last fall, the Department released an issue paper exploring the legislative authority for forgiveness under the HEA. This approach, while slower, was intended to provide a more robust legal foundation for the forgiveness effort.

The Influence of the Upcoming Election

Complicating the legal outlook is the upcoming presidential election, which could dramatically shift the trajectory of this case.

If former President Trump is re-elected, there is little doubt that the plan for Forgiveness 2.0 would be abandoned, effectively ending the litigation.

Conversely, if Kamala Harris takes office, her administration is expected to continue defending the plan in court, potentially extending the litigation process.

Borrower Planning and Strategy

If your loans are potentially eligible for forgiveness under Forgiveness 2.0, no additional steps are necessary at this time to qualify or get your loans discharged. However, it is crucial to monitor the situation closely in case any changes require quick action.

Odds of Forgiveness 2.0 Happening

Estimating the chances of Forgiveness 2.0 becoming a reality is difficult. The legal footing for this plan is likely stronger than the initial attempt to forgive up to $20,000 per borrower, but the recent setbacks in the SAVE litigation and the initial ruling in this case indicate that winning in court will be challenging.

When combined with the uncertainty surrounding the upcoming election, the most likely outcome at this point is that Forgiveness 2.0 may not come to fruition.

Stay Up to Date: Student loan rules are constantly changing, and lawsuits often complicate matters. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Will Student Loan Forgiveness 2.0 Hold Up in Court? A Legal Perspective and Analysis appeared first on The Student Loan Sherpa.

While payments aren’t required during this time, doing nothing could lead to missed chances to save money, plan effectively, and get ahead. Whether you’re extending the grace period or preparing to enter repayment, how you handle these six months can set the tone for your financial future.

Understanding the ins and outs of the grace period is the first step toward getting your loans under control.

What is the Student Loan Grace Period?

Grace conjures images of dignity, courtesy, and elegance. So, a grace period for your student loan repayment sounds nice. However, the term “grace period” is misleading.

Most federal and private student loans offer a grace period in which you aren’t required to make any payments towards your student loans. This period begins after you have left school or fall below half-time enrollment status. The grace period typically lasts for six months.

Although it seems like you aren’t paying any money during the grace period, the reality is that you probably are. Even though you’re not making payments, your interest is still accruing on most loans. In other words, your debt is growing.

Special Grace Period Rules

A few federal loans have special rules during the grace period:

Subsidized Student Loans – During the grace period, the Department of Education continues to pay the interest accrued on Federal Direct Subsidized Loans.

Graduate PLUS Loans – PLUS loans technically do not have a grace period. However, graduate and professional students automatically get a six-month deferment after finishing school or dropping below half-time enrollment.

Parent PLUS Loans – Repayment begins immediately on Parent PLUS Loans. However, parents can request a six-month deferment after their child finishes school or drops below half-time enrollment.

After the six-month grace period, repayment officially begins.

How Should I Handle the Grace Period?

The grace period is an ideal time to prepare for repayment. Strategically, borrowers can use this time to create a budget, explore repayment options, and even make early payments to reduce the principal balance, which can minimize accruing interest. It’s also an opportunity to decide if consolidation or an income-driven repayment plan is right for you.

However, many borrowers make the mistake of doing nothing during the grace period. Failing to act can result in being placed on the standard repayment plan, which is the most expensive option. Borrowers also risk losing contact with loan servicers, which could lead to delinquency or default. Missing critical updates or communications during this time can have lasting consequences. By actively preparing during the grace period, you can avoid costly mistakes and set yourself up for success.

Sherpa Tip: Before throwing money at your student loans, have a plan.

If PSLF or another form of loan forgiveness is the strategy for your federal loans, paying down accrued interest doesn’t usually make sense.

If you have a high-interest private loan, attacking it right away is often a smart strategy.

Pros and Cons of Extending the Grace Period

Many borrowers consider extending their grace period through various deferment or forbearance options, but this isn’t always advisable.

While extending your grace period provides extra time to find employment, it also delays repayment and can cause interest to accumulate. This can lead to a larger balance when repayment begins.

If you don’t urgently need the extension, entering repayment earlier can help you tackle your loan balance sooner and avoid the effects of capitalization on your interest. In most cases, getting signed up for an income-driven repayment plan is the ideal option. Most recent graduates qualify for $0 per month payments for the first year that they are in repayment. Not only does this save money, but $0 IDR payments count toward student loan forgiveness.

Student Loan Forgiveness and the Grace Period

Unlike time on an IDR plan, time spent in the grace period does not count toward forgiveness.

Even with the recent IDR count adjustment that credited borrowers for periods of deferment and forbearance, the grace period was excluded. PSLF seekers who are working in eligible jobs should consider leaving the grace period as soon as possible to continue building progress toward forgiveness.

Exiting the Grace Period Early

While there isn’t a formal way to simply “opt out” of the grace period, borrowers can effectively exit early by consolidating their loans.

A federal Direct Consolidation Loan pays off existing loans, including those still in the grace period, and does not come with a new grace period. Repayment begins immediately, allowing borrowers to start working toward loan forgiveness sooner.

However, the consolidation process can take months, so timing is important. If you are several months into the grace period, starting consolidation might cause further delays before repayment and forgiveness progress can begin.

Final Thoughts

For most federal student loan borrowers, navigating the six-month grace period is their first foray into managing student loans. Figuring out the best approach can be challenging, and loan servicers are not always helpful.

While it may seem overwhelming and unnecessarily confusing, it is also the ideal time to get your student loans in order. The longer you wait to get things under control, the more time you will lose toward forgiveness, and the more money you may unnecessarily spend.

This is one of those situations that isn’t easy, but for those willing to put in a bit of work, the benefits are significant.

The post Understand and Navigating the Six-Month Grace Period on Federal Student Loans appeared first on The Student Loan Sherpa.

The quick answer: Your student loans aren’t going anywhere. The abolition of the Department of Education wouldn’t result in student loan forgiveness. Instead, student debt repayment could become even more burdensome. In fact, transferring federal loans to another department or the private sector for collections could make repayment more expensive and complicated for borrowers.

Let’s take a closer look at what eliminating the Department of Education could mean for federal student loans, drawing from both recent political developments and conservative policy proposals like Project 2025.

Sherpa Thought: The connection between Donald Trump and Project 2025 is a matter of some debate. The goal behind this article is to help borrowers understand what abolishing the Department of Education might mean for them. There is a lot of legal and practical uncertainty on this topic.

There is ample evidence to suggest a connection between Trump and Project 2025, but even if there isn’t a connection, Project 2025 provides a detailed conservative framework that the Trump campaign hasn’t yet provided.

Should clarifying details into the plan to eliminate the Department of Education become available, this article will be updated accordingly.

Structural Changes: Where Would Federal Student Loans Go?

When discussing the possibility of dismantling the Department of Education, it’s important to understand that student loans would still need to be managed somewhere. The likely candidate is the Department of the Treasury. But this shift wouldn’t be seamless, nor would it be favorable for borrowers.

Federal Debt Collection Moving to the Treasury

The most likely outcome of abolishing the Department of Education would be that federal loans would transfer to the Treasury Department. The Treasury, which already handles tax collection, would take over the role of debt collection for student loans. This could have serious consequences for borrowers.

Under Treasury control, loan servicing could become more aggressive. Instead of working with loan servicers overseen by the Department of Education, borrowers might face collection techniques similar to those used for unpaid taxes. This could involve garnishing wages or intercepting tax refunds more frequently, making repayment harsher for borrowers struggling with debt.

Additionally, in the short term, things would be confusing for borrowers. Any transition is typically accompanied by both new procedures and mistakes.

Privatization of Federal Student Loans

Another possibility is that student loans could be sold off to private debt collectors. This idea aligns with conservative policies going back to the Reagan administration, which advocated for reducing the federal government’s role in education. Project 2025, a conservative think tank proposal tied to Trump’s potential future administration, envisions moving federal student loan management to the private sector.

If loans were sold to private companies, borrowers could face even more aggressive repayment tactics. Private companies have a duty to shareholders to maximize profit, and they might impose arbitrary barriers to loan forgiveness programs or income-driven repayment plans.

Sherpa Thought: In the 2020 election cycle many Democrats campaigned on the idea of student loan forgiveness for all. It was an untested legal theory that we have since learned will not hold up in court.

The notion of selling federal student loans to private lenders appears at this point to fall in the same category. It isn’t immediately clear whether or not these loans could be sold. Thus far, they haven’t, and its never really been considered.

A future adminstration could try to push this boundary. For example instead of paying servicers to manage federal loans, they could get paid by servicers and allow the servicer to keep some or all of the principal and interest collected.

The Master Promissory Note: An Important — but Limited — Protection

Borrowers sign a Master Promissory Note (MPN) when they take out federal student loans. This contract with the government is supposed to protect borrowers from drastic changes to repayment terms. However, it’s efficacy has limits.

While it offers some protection, it’s unlikely to completely shield borrowers from the significant changes that could arise from eliminating the Department of Education. The terms of the MPN and what actually happens in practice can often be different.

A good example of this disparity is the Public Service Loan Forgiveness program. PSLF is guarenteed both by statute and by the MPN. However, when the first batch of borrowers applied for PSLF, the rejection rate was 99%. Thousands of borrowers though they were eligible for PSLF, but were rejected due to confusing red tape, and at times, misleading guidance from servicers. It was until Congress, the President, and the Department of Education made some changes that PSLF started working for borrowers.

Practical Consequences: Why Repayment Could Become More Difficult

Even if programs like Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) aren’t eliminated, they could become practically inaccessible or more challenging. Here’s why:

Barriers to Enrollment and Forgiveness

The early troubles with PSLF provide a template of what could go wrong for borrowers. PSLF wasn’t eliminated, but the process of qualifying became so difficult that it was practically out of reach for most borrowers. A similar situation could arise if federal loans are transferred to the Treasury or private debt collectors.

The entities managing your loans could impose arbitrary hoops to jump through, making it difficult for borrowers to get approved for IDR or forgiveness programs. These barriers could force many borrowers to give up and pay the full balance, even if they would otherwise qualify for forgiveness.

The added complexity of transferring loans to new servicers, whether government or private, could also cause delays and confusion. Borrowers might find themselves in limbo, unsure where to turn for help with their loans. Meanwhile, interest would continue to accrue, leaving borrowers worse off financially.

Increased Costs for Borrowers

With the potential transfer of loans to the Treasury or the private sector, borrowers could face higher costs overall. These cause could include late fees, higher bills from selecting the wrong repayment plan, and less debt getting forgiven.

Project 2025: A Glimpse into Trump’s Plans

While Donald Trump’s campaign hasn’t released detailed policy plans for student loans, Project 2025, a conservative policy proposal crafted by think tanks aligned with his administration, provides insight into what might happen.

Key Student Loan Proposals in Project 2025

1. Privatizing Federal Loans: Project 2025 calls for restoring federal student loans to the private sector. This would include privatizing Parent PLUS, Graduate PLUS, and other federal loans. The goal is to allow market forces to influence educational borrowing, potentially leading to higher interest rates and more restrictive borrowing terms for students.
2. No Loan Forgiveness: Under Project 2025, loan forgiveness programs would be significantly altered. The proposal suggests a new income-driven repayment plan that requires borrowers to pay 10% of their income above the poverty line. The propsal calls for eliminating IDR forgiveness via new legislation. However, if new legislation cannot be passed, forgiveness would come after 25 years.
3. End of PSLF: Project 2025 explicitly calls for the termination of Public Service Loan Forgiveness, a program that they argue prioritizes government and public sector work over private employment. This aligns with the broader conservative goal of reducing federal support for public sector roles.
4. Taxpayers as Investors: One of the key principles of Project 2025 is treating taxpayers like investors in federal student aid. The plan suggests that taxpayers should expect a return on their investment, meaning borrowers would be expected to repay their loans in full, with no interest rate subsidies or forgiveness.

Can Trump Actually Do This? The Role of Congress and Executive Power

While Trump could use executive power to begin dismantling the Department of Education, significant changes to federal student loans would require Congressional approval. This makes the political landscape critical to any potential changes.

What Could Be Done via Executive Action?

Some changes, like moving loan management or weakening the Department of Education, could be done through executive orders. However, completely abolishing the Department and enacting sweeping changes to loan programs would likely require legislation getting passed in Congress.

It’s also important to note that even if the Department is weakened or gutted by executive action, the changes could create confusion and delays, affecting borrowers in the short term.

Congress: The Deciding Factor

If Trump were to push for the abolition of the Department of Education, he would need the support of Congress to pass the necessary legislation. This could be a tall order, especially in a divided Congress. The ability to enact sweeping changes will depend on the political composition of the House and Senate.

Conclusion: Uncertainty Ahead for Borrowers

While the idea of abolishing the Department of Education might sound like a bold political move, the reality for borrowers would likely be more complicated and costly. Federal loans aren’t going away, but repayment could become more expensive and less accessible. The transfer of loans to the Treasury or new servicers could lead to harsher collection tactics, fewer repayment options, and increased costs for borrowers.

As with any major policy proposal, it’s important to remember that what a candidate promises and what actually happens can be very different. Whether Trump or another future president moves forward with this plan, federal student loan borrowers should be prepared for uncertainty and challenges ahead.

Final Sherpa Thought: The decision to publish this article was a difficult one. There are many questions at this point without concrete answers, which opens the door to speculation. Making guesses without knowing all the facts is often a bad idea.

Ultimately, the decision to move forward with publication was based on my desire to shed some light onto a topic that hasn’t gotten much attention.

If you have thoughts that you think should get added to this conversation, please let me know in the comments below or send me an email.

The post Abolishing the Department of Education: Trump, Project 2025, and the Uncertain Future of Federal Student Loans appeared first on The Student Loan Sherpa.

When putting a roof over your head is a hardship, keeping up with student loans may seem like more of a luxury and less of a necessity.

Fortunately, there are many programs to help student loan borrowers and renters facing financial challenges.

Income-Driven Repayment for Federal Borrowers

One of the best perks that go with federal student loans is the availability of income-driven repayment plans. The idea behind income-driven repayment is that borrowers make payments based upon what they can afford instead of what they owe.

Borrowers with large loan balances may qualify for low monthly payments. Those who have an income below 150% of the federal poverty level can qualify for $0 per month payments.

A key benefit of IDR plans is that they offer long-term payment relief, allowing borrowers to make reduced payments for as long as needed. IDR isn’t a temporary relief program like a forbearance. Instead, it is a viable path to eliminate debt. After 20 or 25 years worth of IDR payments, borrowers can have their remaining balance forgiven.

Monthly Rent and IDR Payments: Unfortunately, your exact rent bill isn’t a factor in deciding how much you can afford on an IDR plan.

Instead, the Department of Education uses a simplified formula for determining discretionary income that considers family size.

Avoiding Temporary “Fixes” that Make Things Worse

When finances get tight, most people tend to focus on getting through this month or this year. While it may feel difficult to plan beyond the short term, long-term financial planning is essential with student loans.

Many lenders will offer a temporary forbearance or deferment on student loan payments. Pausing payments may seem helpful, but in many cases, it only makes things worse. Even though you are not required to make payments, interest still accrues. At the end of the payment pause, your balance will be larger and the monthly bill will be higher.

A forbearance or deferment might help if you are temporarily laid off or you are waiting to start a new job. However, if you are currently doing the best you can, and you don’t see things changing before the payment break ends, a deferment or forbearance is likely a mistake.

Borrowers should focus on putting together a plan to eliminate their debt. Temporary fixes will only make things more difficult in the long run.

Getting a Break from Private Lenders

Private lenders are notoriously ruthless when it comes to student loan bills. This is especially true for borrowers who fall behind or enter collections.

Don’t get shamed into making a student loan payment that you cannot afford. Keeping a roof over your head and food in your belly is more important than your student loan payment.

Any payment made should be part of a long-term plan to eliminate debt. For some borrowers this means pursuing forgiveness. For others, it means repayment in full.

Even though things are more difficult with private loans and lenders, there are still opportunities for borrowers. In some cases, calling your lender to work out a reduced payment schedule or lowered interest rates can make a big difference. If your credit score is solid, refinancing at a lower interest rate can also work.

If your payments are unreasonably high and your lender won’t work with you, consider filing a complaint with the Consumer Financial Protection Bureau. These complaints help shine a light on shady lender practices and help borrowers find the student loan assistance they need.

Aggressively Pursue Lower Interest Rates

Interest is the enemy of student loan borrowers. It is literally a daily fight to keep loan balances from spiraling out of control.

I’ve put together a list of 13 different ways borrowers can get lower interest rates on their student loans. Many of these options may not apply to your current circumstances. Some probably will.

Slight differences in your interest rate can make a big difference in your life. Finding the right strategies and opportunities can make life with student loans far more manageable.

Dealing with Monthly Rent Changes

Rental prices are currently spiking across much of the United States.

Many tenets face a difficult decision: find a way to pay an even higher monthly rent or move. For the 1 in 4 renters who currently spend over half their monthly income on rent, a price increase is devastating.

Fortunately, there are some resources available to help pay rent. Comprehensive lists of resources can be found at the Consumer Financial Protection Bureau and the National Low Income Housing Coalition.

Sherpa Tip: Markets go up and down.

Right now, inflation is on the rise, and prices are moving up. However, this is not a permanent situation.

If the trends reverse, renters may be able to get monthly rent reductions from their landlords. As the market changes, some landlords may willingly reduce rent prices if it means keeping a good tenet and not having to fill a vacancy.

You Are Not Alone

Many lenders and collections agencies use aggressive tactics to guilt borrowers into making student loan payments they can’t afford.

Your bank account balance has nothing to do with your worth as a person.

Don’t fall into the trap of thinking you did something wrong or that you deserve brutal financial circumstances. Millions of Americans are struggling to manage their student loans and make rent payments.

If you are reading this, it means you just read a long article about student loan repayment for people struggling with rent. My usual advice for people facing tough times is not to ignore their loans. You clearly are not making that mistake. If you are here, my advice is simple: do what you can, and cut yourself some slack. Student loan repayment is already hard enough. Don’t make it even harder by beating yourself up.

As always, if you have some questions, feel free to send me an email.

The post Dealing With Student Loans When You Can’t Afford Rent appeared first on The Student Loan Sherpa.

While deferments and forbearances might initially seem like a smart choice, they often lead to more problems. In fact, there are only a couple of circumstances in which a typical deferment is a smart decision.

The primary problem with deferments and forbearances is that borrowers are charged interest during the break in payments, so their balance grows.

The big exception to the “deferments and forbearances are dangerous” guidance occurs when a borrower isn’t charged interest. For example during the Covid-19 payment pause and the more recent SAVE litigation pause, borrowers were not charged interest.

Reasons you may want a deferment:

• Planning a major purchase like a car
• You are saving for a down payment on a new home
• The holidays are coming up
• You don’t start your new job for a few months
• You expect a raise in a few months
• Summer vacation should not be interrupted by student loans
• You are looking for a job/a better paying job

The reason(s) most deferments and forbearances are a mistake

Taking a break from paying your student loans is a bad idea from a financial and psychological point of view.

Financially, it is a terrible idea because of all the interest involved.

It isn’t just that you are not reducing your balance, the problem is that your balance is growing each month. If you defer on your student loans because of a financial hardship, the debt is only going to grow. Your issues, like your interest, compound each month you choose not to pay.

Another way of viewing the danger of a deferment is to remember that most lenders prefer borrowers take deferments early in repayment.

Most student loans include a six-month grace period post-graduation, during which no payments are required, but interest continues to accrue. During this time, the balance of the loan just grows. Deferments and forbearances increase lender profits. The only time a lender doesn’t want to do a deferment or a forbearance is if they fear that the borrower will never be able to pay back the debt.

From a mental standpoint, getting a deferment or forbearance on your loan can create bad habits.

In the six months you are not paying your loan, you may grow accustomed to spending money you really don’t have. Breaking bad spending habits is especially hard to do. The other problem with deferment is that you may think in the back of your mind that it will always be an option. However, for most loans, deferments and forbearances are limited. If you run out, and you really need another, you are out of luck. Therefore, you should never plan on using them and treat them as an option only in case of an emergency.

The Interest Free Forbearance Exception

If the big risk to a forbearance is the daily interest charges, our analysis changes dramatically with a forberance that doesn’t charge interest.

For most federal and private loan borrowers, opting for a pause in payments at 0% interest isn’t an option. Lenders don’t make any money, and borrowers don’t have any incentive to make payments. Five years ago, the idea of an interest-deferement was a pipe dream for borrowers.

The Covid-19 pandemic changed things. In March of 2020, federal student loan borrowers were put on a payment pause that did not charge interest. More recently, borrowers on the SAVE repayment plan were put on an interest-free forbearance while the legal challenges to block the plan are being litigated.

When these payment pauses happpen, the analysis changes. For the borrowers who find themselves with an interest-free forebearance, making payments is almost always a mistake. Borrowers have several great alternatives to choose from. For example, instead of paying down an interest-free loan, these borrowers can put money in a savings account, earn interest, and then make a lump sum payment as the interest-free forbearance is coming to an end.

When should you get an interest-charging deferment?

The answer to this question is pretty easy.

If you absolutely cannot afford to pay your loans, and you have no other choice, pick a deferment.

While deferment is a bad idea for the reasons already discussed, delinquency and default are much worse. Not only will you run into late fees and still get hit with the huge interest payments, but it will also hurt your credit score.

The key takeaway: Only seek deferment when you’re truly unable to make your student loan payments, not simply to avoid them.

Even in this emergency situation, a deferment only makes sense some of the of the time.

Obtaining a deferment may be a logical move if you’re waiting for your first paycheck from a new job. If there is no extra income in your future, and your bills are not going to change, a deferment won’t fix anything. Six months later you will be in the exact same position, except your loan balance will be larger.

Borrowers who cannot afford their debt and don’t see things changing need to work with their lenders to investigate options to get lower interest rates or change repayment plans.

Deferment and Forbearance Alternatives

Part of the reason a deferment or a forbearance is usually a bad idea is because better alternatives exist.

For borrowers challenged by federal loans, income-driven repayment plans offer the ability to get lower payments, potentially down to $0 per month. Though the monthly bill is identical to a deferment, it helps a borrower work toward forgiveness.

Private loans get more tricky, but with many options to lower interest rates, borrowers should be pursuing these options before settling for a deferment or a forbearance.

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