Frustrated borrowers are often skeptical that a politician can actually help, but when it comes to navigating student loan red tape, they are a great resource.

How and Why Your Elected Officials Offer Assistance

For a member of Congress, having a team dedicated to helping voters cut through government red tape is just good politics. If a constituent reaches out and actually receives help, they’re likely to be very satisfied—and they might even tell their friends about the excellent assistance they received.

This kind of constituent support is particularly beneficial for student loan borrowers. We often find ourselves in situations where we know something is wrong and understand what needs to be done to fix it, but we just can’t get our issue in front of the right person.

That’s where your local House Representative or Senator comes in.

A single email or letter from a member of Congress is often enough to prompt action from the Department of Education or your loan servicer. In many cases, your issue gets escalated to someone higher up—someone who has the authority to resolve it. Often, this person is someone most borrowers would never have access to on their own.

Finding Your Elected Official

If you’re unsure who represents you in Congress or how to contact them, you can easily find this information on the Contact Us page at Congress.gov.

Simply enter your address, and you’ll get a list of all the elected officials who represent you in Washington, D.C. From there, you can follow links to the contact pages and phone numbers for each elected official.

I recommend writing an email because it’s easy for the office to forward, and it gives you the chance to think through your request before hitting send. However, if you’re more comfortable making a phone call, the Congress.gov contact page provides phone numbers too.

Additionally, if you live near one of your representative’s local offices, you might consider visiting in person to speak with someone.

How to Get Help from Your Representative

While these constituent services offices are eager to help, it’s important to understand that they receive many requests every day. To increase the chances of getting your issue addressed, I suggest the following tips:

• Keep It Simple: The more complicated your request, the less likely you are to get help. You need to clearly explain your situation to the congressional aide, who will then relay it to the Department of Education at the very least. Be concise and to the point. Also, remember that the person handling your request may not be an expert on student loans.
• Be Reasonable: Constituent services aim to keep voters happy. If you come across as demanding too much or as someone who will never be satisfied, their motivation to help you drops significantly.
• Keep It Short: It’s useful to mention that you’ve already contacted your servicer and the Department of Education without getting help. However, don’t overwhelm them with your life history or every detail of your interactions with MOHELA. Assume you have about two minutes of a staffer’s attention. What are the most critical points to cover?
• Be Specific About What You Want: Complaining about poor or slow customer service won’t get you far. Don’t just explain what’s wrong—tell them how to fix it.

Confused about the best appraoch? Schedule a call, and we can discuss the optimal strategy for your loans. I can help you craft your email or plan your call when you reach out for assistance.

Success Story Example

I recently consulted with a borrower who should have been included in the first batch of loans eligible for the one-time account adjustment. However, their servicer and the Department of Education could only say that they would eventually get to it, with no projected completion time.

I suggested that this borrower email their local elected representative. That email led to a phone call with the representative’s office, which in turn led to contact with the Department of Education.

Within a few weeks, the borrower’s file was reviewed for forgiveness eligibility under the one-time account adjustment, and they received a letter stating their loans would be forgiven.

By reaching out to their elected representative, clearly explaining the problem, and asking for an account review, this borrower was able to resolve their issue more quickly.

Request Template

Here’s a simple template you can use to reach out to your elected official:

Issues Most Likely to Succeed

If you’re seeking an apology or a pound of flesh, reaching out to your elected representative’s office won’t help.

You won’t be able to change student loan policy, and they won’t make a special exception for you.

However, this approach is highly effective for error corrections. If someone made a mistake processing your application, or if something is being ignored, contacting your representative is an excellent way to bring attention to the issue.

Final Thoughts

I know many of you might be skeptical that a politician would offer any real help. It might seem like a waste of time and effort.

But, in my experience, these requests can make a difference.

Some offices are more helpful than others, but given how little effort it takes to reach out—and considering the potential benefit—it’s often time well spent.

The post Asking Congress for Help with Your Student Loans Actually Works appeared first on The Student Loan Sherpa.

How to Look Up Your AGI

Finding your AGI is straightforward and there are a few options to locate the exact number:

1. 1040 Form: On the standard 1040 tax form, your AGI is listed on Line 11.
2. 1040-SR Form: If you use the 1040-SR form, designed for seniors, your AGI is on Line 11.
3. IRS Website: If you don’t have access to your physical tax documents, you can look up your AGI on the IRS website. Log into your account on IRS.gov, navigate to the “Tax Records” section, and you’ll find your AGI on your most recent tax return.

Understanding Adjusted Gross Income (AGI)

AGI is your gross income after specific adjustments, also known as “above-the-line” deductions. It includes your total income from wages, dividends, capital gains, business income, and other sources, minus allowable deductions like student loan interest, retirement plan contributions, and tuition fees.

Difference Between AGI and Annual Salary:

• Annual Salary: This is your total income before any deductions.
• AGI: This is your income after accounting for allowable adjustments. It’s typically lower than your annual salary due to these deductions.

To be clear, Adjusted Gross Income isn’t something that is used just for student loans. Instead, it is a critical figure during tax season. AGI is essential for determining eligibility for various tax credits and deductions, in addition to calculating your tax bill.

AGI for Married Couples

For married couples, understanding how AGI works is vital, especially when estimating student loan payments:

• Joint Filers: Couples who file jointly will have a shared AGI, which includes the combined income and deductions of both spouses.
• Separate Filers: Couples who file separately will have independent AGIs, meaning each spouse’s AGI is calculated based on their individual income and deductions.

When estimating student loan payments, using AGI is the best way to get an accurate picture of payments on various repayment plans. If your AGI includes your spouse’s income, it means you filed jointly and your spouse’s income will be factored into your student loan payment. If you file seperately, your spouse’s income is not included in your AGI and it does not impact your student loan payments.

For this reason, many married student loan borrowers elect to file their taxes separately.

Keeping AGI Down to Lower Student Loan Payments

Keeping your AGI as low as possible can result in lower monthly payments for those on income-driven repayment plans like SAVE. Here are some strategies:

• Above-the-Line Deductions: These deductions lower your AGI and include contributions to certain retirement plans, student loan interest, tuition fees, and health savings account (HSA) contributions.
• Below-the-Line Deductions: These deductions, such as standard or itemized deductions, do not affect your AGI.

Examples of Deductions That Lower AGI

1. 401(k) Contributions: Money contributed to a 401(k) retirement plan reduces your taxable income and thus your AGI.
2. Traditional IRA Contributions: Putting money in an IRA will also lower yoru AGI. (Note: Roth IRA contributions do not reduce AGI.)
3. Health Savings Account (HSA): Contributions to an HSA are deductible, lowering your AGI.
4. Student Loan Interest: Up to $2,500 of student loan interest can be deducted, reducing your AGI.

To dig deeper, check out this article for more detailed strategies on how to lower your AGI to reduce student loan payments.

By understanding and managing your AGI, you can better control your student loan payments and take advantage of income-driven repayment plans to reduce your financial burden and get more student debt forgiven.

The post Adjusted Gross Income (AGI) and Your Student Loans appeared first on The Student Loan Sherpa.

The government maintains records of when the loan was issued, the type of loan that was issued, the original balance, the current balance, interest rates, and the servicer assigned to the management of the loan.

For borrowers, these records are incredibly useful. Verifying servicer information is a great way to reduce fraud and to make sure that no loan gets lost in the shuffle.

In the past, the Department of Education maintained the National Student Loan Data System or NSLDS. The site wasn’t particularly fancy, but it made tracking down federal records incredibly easy. Sadly, the NSLDS was discontinued, and borrowers must now navigate the StudentAid.gov website to find loan records.

Locating Detailed Federal Student Loan Information

• Step 1: Visit https://studentaid.gov
• Step 2: Log in using your FSA ID.
  • Most borrowers should have an FSA ID if they have recently completed the FAFSA or recently applied for an Income-Driven Repayment plan.
  • Those that need to create an FSA ID can do it here.
  • Use this page if you have forgotten your login credentials.
  • When you successfully log in, you will be taken to the federal dashboard.
• Step 3: From the Federal Dashboard, click on the View Details link.
  • The View Details link will take borrowers to an Aid Summary.
  • The Aid Summary should include all federal loans and federal grants awarded.
• Step 4: From the Aid Summy click on View Breakdown.
• Step 5: For each servicer, click on View Loan.
  • At this point, the individual loan details should appear.
    
  • This will show the loan status, the current repayment plan, the interest rate, and the total balance.
• Step 6: For even more information, click on View Loan Details.
  • This page contains records of the loan status history, payments made towards PSLF, and the total payments that have been made to date on the loan.
  • The next link at the bottom of the page allows borrowers to review each loan individually.

Want to dig even deeper? At the top right of the Aid Summary Page there is a button to “Download My Aid Data.” Clicking this link will download a .txt file that contains the most detailed loan information available to borrowers.

Things to Keep in Mind about the Federal Database

The federal database contains a trove of information for borrowers, but it isn’t perfect.

There are a couple of major limitations that users should understand.

The information is only as good as the last time it was updated – Like most databases, it isn’t instantly updated. Payments made to servicers will not immediately be reflected in the loan information. The servicer first has to report the information back to the Department of Education so that the student aid website can be updated. As a result, the information could be a month behind.

No records of private loans – Having all student loans in the same place would be very useful, but the government only tracks federal student loans. Borrowers addressing their private student loans will have to track down the records using alternative means. College financial aid websites can be a helpful starting point, and credit reports can be used to fill in missing details.

What Happened to the NSLDS (National Student Loan Data System)?

The NSLDS was a fairly straightforward, no-nonsense way for borrowers to access federal student loan records. The NSLDS wasn’t pretty, but it was a valuable tool for borrowers.

Many in the student loan community were surprised when the Department of Education unexpectedly took down the NSLDS and offered no explanation.

What we do know for sure was that the NSLDS was an older website that contained vast amounts of confidential material. Securing this information may have necessitated a massive change to the existing system.

Additionally, the revamped studentaid.gov is arguably more helpful to student loan borrowers. Even though navigating to the full student loan records is a bit more tedious, the benefit is that most federal student loan resources can now be found in one place. Borrowers looking for loan information can easily navigate to options for repayment and applications for income-driven repayment. Valuable resources like the Federal Loan Simulator, the PSLF Help Tool, and a Loan Consolidation link are all in one place.

From a web design standpoint, the new system is decidedly more modern looking. The updated interface should make navigation easier for borrowers and appear more credible. The old NSLDS was so dated that it appeared to be sketchy, especially to a first time visitor.

The Best Uses for the Federal Student Loan Information

Most borrowers should be able to get basic questions answered from the revised studentaid.gov site.

These records can be especially valuable for the following uses:

Tracking down debt – Different lending programs and new loans each year can mean that borrowers have a dozen or more different federal student loans. When a borrower enters repayment, they may have one servicer, or they could have several. The best way for a borrower to ensure that they are making payments on all of their federal loans is to pull up a list of all of their loans and get contact information for the servicers that have been assigned.

Preventing Fraud – Avoiding student loan fraud has become increasingly difficult for borrowers. As the government changes servicers, borrowers have come to expect that servicer assignments occasionally change. When a company like Experian has a data breach, would-be scammers can gain access to borrower names, contact information, and loan balances. If a student loan bill appears from a new company, the federal records are the best way to verify that the bill is legitimate.

Planning Strategy – Which loan do I pay off first? Should I be paying down debt or saving for retirement? How long will it take to eliminate my student debt? Should I consider student loan refinancing? What repayment plan is best for my situation?

Many student loan questions can be tough to answer. Without detailed records, borrowers risk mistakes and missed opportunities.

The post How to Find the Database with Complete Federal Student Loan Records appeared first on The Student Loan Sherpa.

In most cases, federal student loan consolidation benefits those who need to resolve eligibility issues. For some, consolidation can be a pathway to qualify for student loan forgiveness or income-driven repayment plans.

In this article, I’ll go over the essentials of federal direct loan consolidation, along with many useful tips to maximize the benefits of consolidation.

What is Federal Student Loan Consolidation?

At its core, federal student loan consolidation involves merging multiple federal loans into a single loan.

To better understand the complex rules and details of student loan consolidation, it’s helpful to view it as a transformation process. Essentially, it turns old federal loans into a new one. While this often means combining several loans into one, borrowers also have the option to consolidate just a single loan.

This emphasis on “transformation” is important because the outcomes can vary greatly. Some borrowers make a mistake and transform a loan they might like into a lousy loan. Other borrowers use consolidation wisely and transform a flawed loan into a better federal loan.

What makes a good loan or a bad loan is all about perspective and circumstances. To best illustrate how to navigate this transformation, let’s look at some examples of what to do and what to avoid.

When Should Federal Student Loans be Consolidated?

A prime example of wisely using federal direct consolidation involves Federal Family Education Loan Program (FFELP) loans. Before 2010, these were issued by private lenders but guaranteed by the federal government. While they mostly functioned like federal student loans, they had certain restrictions.

One key limitation is that FFELP loans aren’t eligible for Public Service Loan Forgiveness (PSLF). But, by consolidating them into a federal direct loan, they become “federally held” loans, which then qualify for more forgiveness programs.

Another smart consolidation move is for Parent PLUS loans. These loans are not eligible for income-driven repayment plans or PSLF. However, converting them into a federal direct loan through consolidation makes them eligible for the Income-Contingent Repayment Plan and student loan forgiveness.

These consolidation strategies are beneficial for many borrowers because they transform loans with limited federal program access into ones with broader eligibility.

Nevertheless, it’s important to remember that this transformation isn’t always the best course of action.

When is Federal Student Loan Consolidation a Huge Mistake?

One major misstep in Federal Student Loan consolidation occurs when a borrower combines a Parent PLUS loan with other federal student loans. As mentioned earlier, consolidating a Parent PLUS loan alone can make it eligible for the Income-Contingent Repayment (ICR) plan. However, if this loan is combined with other federal loans, the new consolidated loan becomes ineligible for more favorable repayment plans like IBR, PAYE, and SAVE.

This misstep could end up costing the borrower a significant amount of money and is arguably one of the biggest blunders one can make with Parent PLUS loans.

Due to a potentially harmful outcome from consolidation, borrowers must consider program eligibility and progress before consolidating. While consolidation is a crucial step in some scenarios, it can be a huge mistake in others.

How do I Consolidate Federal Student Loans?

The actual process of federal direct consolidation is very simple.

The Department of Education will process all of the paperwork electronically. They estimate that filling out the form takes about 30 minutes.

Borrowers should be wary of third-party student loan consolidation services. Often masquerading as legitimate companies, these entities are better described as scams. They falsely claim to have a special connection with the Department of Education and offer assistance in qualifying for Income-Driven Repayment Plans and Student Loan Forgiveness. In reality, these companies are just middlemen who charge for their services without adding any real value. In many cases, they end up making errors and making the process even more difficult than necessary.

These companies have gotten so bad that at the top of the Department of Education’s Student Loan Consolidation information page, it displays the following:

As long as borrowers stick with the official Department of Education Student Loan Consolidation page and are careful only to consolidate when necessary, the process is relatively simple.

Other than deciding which loans to include in the consolidation, borrowers will also need to consider their repayment plan options. One of the options will allow borrowers to pick the plan with the lowest monthly payments. However, because multiple plans may have the same low monthly payment, borrowers should research their preferred repayment plan before consolidating. There are several repayment options that borrowers should consider.

Student Loan Consolidation and Forgiveness Progress

Many borrowers who choose to consolidate may have already made progress toward loan forgiveness under Public Service Loan Forgiveness or IDR forgiveness.

Historically, consolidating meant restarting the “forgiveness clock” at zero.

Fortunately, this old harsh rule has been eliminated. Now, borrowers can consolidate their loans without losing credit for their previous payment efforts.

This rule change makes signing up for the new SAVE plan considerably less risky.

Student Loan Consolidation vs. Refinancing

Student loan consolidation and refinancing are terms that are often confused or used interchangeably, but they refer to different processes. Some lenders that offer student loan refinancing label their services as consolidation, which can add to the confusion.

Here’s an easy way to distinguish the two:

• Student Loan Consolidation is a process exclusively handled by the federal government. It involves combining various federal loans into one federal direct loan. Importantly, consolidation does not change your interest rate in the traditional sense. Instead, the Department of Education calculates a weighted average of your existing loans’ interest rates and rounds it to the nearest 1/8th of a percent. The only exception is for some borrowers with FFEL Consolidation Loans, who may see an interest rate increase if they had a premium interest rate discount from their lender.
  
• Student Loan Refinancing is offered by private lenders. This process involves the private lender paying off your old loans, and in exchange, you agree to repay a new loan under the new lender’s terms. Refinancing is typically pursued to secure a lower interest rate. It can be applied to both federal government loans and private loans. There are various companies that offer refinancing services, so it’s crucial for borrowers to do their research and fully understand the implications, especially when refinancing federal student loans into private ones.

Important Details to Know Before Starting Federal Direct Consolidation 

Consolidation may result in two loans instead of one – Federal consolidation typically is presented as a way for borrowers to combine all of their federal student loans into a single loan. Many borrowers will end up with two separate loans if they consolidate. This is because the Department of Education keeps the subsidized loans separate from the unsubsidized.

Consolidation is one of the rare opportunities to switch federal servicers – During the student loan consolidation process, borrowers have the option of selecting their preferred loan servicer.

The credit score impact is minimal – When borrowers consolidate their loans, there might be a slight change in their credit score. For some, the score may increase because the old loans are marked as paid in full, and it’s often better for credit to have one larger debt instead of many smaller ones. However, for others, the score might decrease if their student loans were the oldest accounts on their credit report, as the average age of credit is a factor in credit scoring. Overall, consolidation doesn’t typically cause significant shifts in credit scores. The financial savings from consolidation are generally a more substantial benefit.

Hold off on Consolidation if you are about to buy a house – A ton of major changes on a credit report can cause some concern with mortgage companies. Borrowers who are about to buy a house should discuss consolidation with their mortgage company before starting the process.

The consolidation process can take months – Filling out the form may only take 30 minutes, but the actual process may take months. To consolidate, all of the old loans must be paid off in full, and doing this math takes the Department of Education some time. Don’t be surprised if there are some minor issues with this process.

After the math has been done, the borrower should receive a letter giving them one last chance to opt out of the consolidation. Though no action is required from the borrower during this time, the consolidation process is a bit time-consuming.

Consolidation can be used as a way out of default – Borrowers who have fallen way behind on their student loans can use consolidation as a quick fix to get out of default. However, borrowers also have the option to rehabilitate their loans before consolidation. There are several factors borrowers should consider when deciding between rehabilitating and consolidating their defaulted loans.

Private loans cannot be included in a federal consolidation – Being able to transform a private student loan into a federal government loan would be great, but it is not an option.

There is no minimum credit score or income requirement – Unlike refinancing with a private company, all federal borrowers are allowed to consolidate their federal loans. There is no credit check.

The post The Complete Guide to Federal Direct Student Loan Consolidation appeared first on The Student Loan Sherpa.

While $12,000 of forgiveness after 10 years sounds like an easy concept, there has been a lot of confusion. For example, many readers have written asking if the forgiveness is per loan or based on the total balance. I’ve even received some reports from readers who were given inaccurate information from their loan servicer.

This post should cover all of the fine print. Where the Department of Education hasn’t been clear, I’ve linked to the appropriate section of the Code of Federal Regulations. If you’ve got questions about early forgiveness under SAVE and this article doesn’t cover it, please leave a comment at the bottom of this article.

Determining Your Repayment Term

The path to forgiveness under the SAVE Plan is tied to your “repayment term.” This term is essentially the amount of time you need to be in repayment before qualifying for forgiveness. It varies based on the original principal balance of your loans.

Notably, the current loan balance does not influence the length of the repayment term. If your balance has grown due to interest, you won’t be penalized with a longer repayment length.

Three Rules for Repayment Term Calculations

• For Small Loan Amounts: The shortest term is 10 years for those who borrowed $12,000 or less.
• Incremental Increase: For every additional $1,000 borrowed above $12,000, the repayment term extends by a year. For example, a balance of $14,900 would have a repayment term of 13 years.
• Caps on Repayment Terms: The maximum term is capped at 20 years for purely undergraduate loans and 25 years for a mix of graduate and undergraduate loans, regardless of the borrowed amount.

Is the forgiveness timeline based on individual loan balances or the total amount borrowed?

To answer this question, let’s look at a simple example. Suppose a borrower has a total of six loans. Each loan was for $5,000. Thus, the borrower has a total original balance of $30,000.

Does forgiveness come after 10 years because each loan is less than $12,000, or does it take the full 20 to 25 years because the total balance is $30,000?

Sadly, the answer is that forgiveness will take 20 to 25 years.

The Department of Education hasn’t been very clear about this particular question. The StudentAid.gov article explaining early forgiveness leaves the answer to this question somewhat ambiguous.

For a more definitive answer, we must turn to the Code of Federal Regulations. For those unfamiliar, the Code of Federal Regulations is the source for the rules that the Department of Education and the loan servicers must follow.

34 C.F.R. § 685.209(k)(3) states that early forgiveness is based on “the borrower’s total original principal balance on all loans.”

The language is quite clear. If your total original balance exceeds $12,000, you won’t get early SAVE forgiveness after 10 years.

Loan Types and Eligibility

Even the phrase total original balance can get a little tricky in terms of determining the forgiveness timeline. For example, consolidated loans make things a bit more complicated.

Borrowers with unconsolidated loans are the easy ones. The Department of Education will look at the total original balance of each of your loans when determining the forgiveness timeline.

For those who have consolidated their loans, the Department of Education will look at the original balance of the loans that were included in the consolidated loan.

There are also a couple of other special circumstances:

• FFEL Program Loans: These are included in the timeline math because they can be consolidated into a federal direct loan to get eligibility for SAVE.
• Parent PLUS Loans: These do not impact the forgiveness timeline. However, if the Parent PLUS loan is consolidated into a federal direct loan, it will impact the timeline, according to the Department of Education.

Parent PLUS Loans and Early SAVE Forgiveness Example

As many Parent PLUS borrowers know, Parent PLUS loans are not eligible for the SAVE repayment plan. Thus, they do not qualify for early SAVE forgiveness.

This nugget of information is good news for borrowers who have a mix of both. Suppose you borrowed a total of $10,000 for your education and then borrowed Parent PLUS loans to help pay for your child’s education. In that scenario, you would be eligible for early forgiveness on the original $10,000.

However, if you consolidated the Parent PLUS loans into a federal direct loan, the debt would be included in the timeline analysis, derailing early forgiveness.

Steps to Access Early Forgiveness

1. Consolidation of Loans: If some of your loans are ineligible for the SAVE Plan, consolidating them into a Direct Consolidation Loan is necessary to qualify for early forgiveness. A common example would be an FFEL loan. Most borrowers won’t need to take this step.
2. Addressing Defaulted Loans: If your loans are in default, the Department of Education encourages you to utilize the Fresh Start program to make defaulted loans eligible.
3. Enrollment in SAVE Plan: Eligibility for early forgiveness requires enrollment in the SAVE Plan.

For most borrowers, getting early forgiveness only requires signing up for SAVE.

The Process of Loan Forgiveness

Once you are enrolled, eligible, and reach the timeline requirement, your loans will be placed in forbearance while your servicer processes the forgiveness. This period may extend beyond two to three months, but no payments are required during this time.

Final Thoughts on Early Forgiveness

Before this year, income-driven student loan forgiveness only made sense for borrowers with larger student loan balances.

Thanks to the new forgiveness timeline on SAVE, borrowers with smaller balances now have a more realistic path to debt freedom.

The post Early Forgiveness Under SAVE: Understanding Loan Size Limits and Other Fine Print appeared first on The Student Loan Sherpa.

However, it’s not all smooth sailing.

Retirees will need to engage in careful planning to minimize spending on student loans and maximize the potential for debt forgiveness.

Calculating Federal Student Loan Payments in Retirement

One of the reasons that federal student loans are preferable to private loans is the existence of Income-Driven Repayment (IDR) plans. The concept behind an IDR plan is straightforward: borrowers make payments based on their affordability, irrespective of their debt levels.

For retirees relying on Social Security, IDR plans often translate to monthly payments as low as $0. Those with a modest pension or living off savings may also qualify for very low or $0 monthly payments.

The crucial factor in determining IDR payments is the Adjusted Gross Income (AGI) from your most recent tax return. The lower your AGI, the more affordable your monthly student loan payment becomes.

To estimate your monthly payment using the latest and most cost-effective IDR plan, SAVE, you can use this calculator.

Automate $0 Payments: IDR plans are good for one year. After that year is up, borrowers must recertify their income.

New legislation now allows borrowers to authorize automatic recertification. For a borrower living on social security, this means they can qualify for $0 payments indefinitely if they select automatic recertification.

Keeping Student Loan Bills Low

The significant challenge for many retirees lies in keeping their Adjusted Gross Income (AGI) low, especially if 401(k) withdrawals play a crucial role in their retirement plan.

Withdrawing funds from a 401(k) or traditional IRA incurs taxation, leading to an increase in AGI and subsequently higher monthly payments.

Conversely, pulling money out of a Roth account, which has already been taxed, will not impact your AGI. Borrowers with both Roth and traditional IRAs may opt to rely on Roth withdrawals until their student debt is forgiven.

In certain scenarios, it might be advantageous to pack 401(k) withdrawals into a single tax year. Borrowers can use this approach to bury a single high AGI year from IDR calculations.

Sherpa Tip: Have a conversation with your financial planner regarding your student loans. Many financial planners may not be well-versed in the SAVE repayment plan and IDR calculations.

If you have significant federal student debt, this proactive planning is crucial.

Student Loan Forgiveness for Retired Borrowers

Another major perk of IDR plans is that the debt can usually be forgiven after 20 to 25 years of monthly payments.

There is no cap on the amount of debt eligible for forgiveness. However, it is possible that there may be a tax on this forgiveness. For now, this type of forgiveness isn’t taxed by the federal government, but it is scheduled to return in 2026. That said, there is hope that this tax eventually gets abolished.

Nonetheless, borrowers banking on IDR forgiveness should plan on a potential tax bill.

Estate Planning: Death and Disability Discharge

Another perk of federal student loans is that the debt does not survive your death. The federal government won’t come after your estate to collect student loan bills, and your kids will not inherit the debt.

When a student loan borrower dies, their federal loans are discharged. Likewise, if the borrower becomes disabled, the debt can also be discharged.

For this reason, borrowers shouldn’t feel obligated to pay off their debts for fear of leaving them behind for their children.

Student Loan Mistakes for Retirees to Avoid

Because student loan rules can be complicated, it is easy for some retirees to make a mistake.

Take care to avoid the following errors:

Don’t Make a Large Payment You Can’t Afford – Monitoring IDR payments and dealing with loan servicers can be a headache. However, with the available tools to keep repayment affordable, retirees shouldn’t feel obligated to pay off this debt quickly. This is especially true for those trying to get by on limited resources.

Watch 401(k) Withdrawals – If you are on an IDR plan, be careful about large 401(k) withdrawals. It could mean an entire year of higher student loan bills.

Don’t Miss IDR Certification Deadlines – If you choose not to automate certification, be certain not to miss a certification deadline. Borrowers who miss this critical deadline get placed on the standard repayment plan, which can mean massive monthly bills.

Don’t Be Afraid to Ask Questions – If your bill seems large or unaffordable, or if things appear confusing, don’t hesitate to ask for help. Servicers get paid to help borrowers navigate student debt. Feel free to leave a question in the comments if you get confused or frustrated.

The post Federal Student Loans in Retirement: Monthly Payment Calculations, Forgiveness, and Estate Planning appeared first on The Student Loan Sherpa.

Some are outright denied, while others might only be approved for smaller loans or face obscene interest rates.

Fortunately, there are steps that student loan borrowers can take to increase their chances of securing an approval and a fair interest rate.

Car Loan Basics for Student Loan Borrowers

Student loans affect buying a car in a couple of ways.

Firstly, your student loan repayment history influences your credit score. If you’ve missed payments or defaulted on your student loans, securing a car loan can become more difficult.

Secondly, student debt heavily impacts your debt-to-income ratio. The more student debt you have, the less favorable your debt-to-income ratio appears to lenders.

However, there’s a silver lining for borrowers. There are strategies to significantly improve your debt-to-income ratio without having to reduce your loan balance.

Improving Your Debt-to-Income Ratio (DTI)

The key to understanding Debt-to-Income (DTI) ratios is that lenders focus on your monthly finances rather than your total debt. In other words, the critical numbers here are your monthly debt payments compared to your monthly income.

Lowering your monthly student loan payment can improve your DTI ratio. One way in which this can be achieved is by applying for a new repayment plan.

For those with federal loans, using the new SAVE plan can be a great way to enhance your credit standing.

The one exception to the rule is for borrowers who qualify for $0 per month payments. In these cases, many lenders may treat this as if you’re in deferment or forbearance, and they might calculate your monthly payment as 1% of your total loan balance for DTI purposes. This assumption can significantly worsen an otherwise healthy DTI ratio.

Car Loan Quarks to Understand

If you are applying for a mortgage, there are numerous borrower protections and uniform standards that apply. The student loan impact on mortgage applications is much easier to understand. It also clarifies how a student loan tweak could improve a mortgage application.

By comparison, car loans are slightly less predictable. In some cases, car loans offer excellent terms to the consumer because the car loan is being used to help facilitate a car sale. In other cases, the car price is an afterthought because the dealer really wants you in a profitable car loan.

Some consumer protections with auto loans exist, but buyers should still exercise great caution.

Each lender has unique standards for deciding who gets a loan and what rate they receive. Like anything else, shopping around is essential for getting a fair deal. It also means that tweaks to improve your application might make a big difference with some lenders, while it doesn’t move the needle at other lenders.

Managing the Timeline

If you sign up for SAVE or choose a new repayment plan to help your auto loan application, it is critical to remember that the changes do not happen immediately.

First, the loan servicer has to process the application and update their system. Once the repayment plan application is processed, the borrower still has to wait for the new monthly payment to get reported to the credit bureaus. This reporting typically only happens once a month.

Because the entire process can take a couple of months, it is essential to do it in advance of financing your next car purchase.

Sherpa Tip: In an ideal world, consumers would be able to give the lender the new monthly payment and have their application adjusted accordingly. Sadly, because almost all credit decisions are now done by a computer, providing additional information usually doesn’t make a difference. That said, it never hurts to try.

Private Student Loans and Auto Applications

Unlike federal loans, which have a variety of repayment plan options, private loans are more limited.

In many cases, a borrower cannot adjust their monthly bill.

The best option to improve DTI figures for private loans is to refinance the loan. In many cases, borrowers can secure a lower interest rate and lower monthly payments. In the current interest rate environment, the 20-year fixed-rate loan is the best choice for most borrowers. For those who are refinancing to improve their DTI, it is almost certainly the best option.

As of November, 2024, the following lenders advertise the lowest interest rates on 20-year fixed-rate loans.

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

Other Considerations for Student Loan Borrowers Buying a Car

• Credit cards can have a massive impact. Unlike student loans, paying down a portion of your balance can lower your minimum monthly payment. If you are struggling to get approved for a decent loan, paying down credit card debt might be the best path forward.

• Switching repayment plans again. Once the car loan is secured, borrowers can return to their original repayment plan with a higher monthly payment. Alternatively, they can pay extra each month to pay the loan off as planned but keep the low minimum monthly payment for added flexibility.

• Make sure the car purchase is a good one. Auto prices are exceptionally high right now, and many people depend on a car to get to work. This is a recipe for making a regrettable mistake. Don’t let a dealer coerce you into making a purchase you cannot afford. Take your time to make a smart decision.

The post The Student Loan Borrower’s Guide to Getting a Car Loan appeared first on The Student Loan Sherpa.

However, focusing on student loans could mean putting off homeownership for years or even decades.

Finding an optimal strategy for balancing a desire for home ownership with your need to eliminate student debt isn’t easy. There isn’t a simple answer, and there isn’t an equation that will spit out the right decision.

The good news is that student loans don’t necessarily mean you can’t buy a home, and saving for a home doesn’t mean you have to be irresponsible with your student loans.

If you ask the right questions, you can find a realistic strategy that best fits your needs.

Interest Rate Considerations

Interest rates are vital when deciding whether to save for a down payment or eliminate debt.

If your savings account offers a 1.20% interest rate and your student loan charges a 9.60% interest rate, it might seem like paying down student debt is the obvious decision.

However, our analysis doesn’t end with a simple rate comparison.

For example, you could move your money to a different bank that offers a better interest rate. Some banks are now paying over 5% on savings accounts and CDs.

Likewise, there are options for student loans. If you have federal loans, paying the minimum and working towards forgiveness might be the best approach. If you have private loans, refinancing the debt with a new lender could lower the interest rate considerably.

In other words, even if you currently have a brutally high student loan interest rate and an atrociously low savings account interest rate, there are fixes available.

Your Goals Matter

The math on whether or not home ownership is a good idea is notoriously tricky.

The simple version is that the longer you stay in your house, the more it makes sense to buy.

Some factors go beyond building assets. You might want to live closer to family or work. Owning a home might be a major life goal.

If buying a home is important to you, it should be a consideration. Your happiness matters.

I’m not saying you should ignore your student loans and buy whatever makes you happy. Instead, I’m saying that your non-financial priorities also matter.

Sherpa Thought: A lot of personal finance advice makes judgments about right and wrong.

While some moves are objectively bad ideas or inherently risky, in many other cases, it comes down to personal preferences. The right decision for you may not be right for someone else.

When Student Loans Should Ge Paid Off First

There are situations where addressing your student debt is an obvious choice.

You might have so much student debt that you cannot qualify for a mortgage. If student loan payments eat up 40% of your income, there probably isn’t room for a home loan, and a mortgage company won’t lend you any money.

This doesn’t necessarily mean that you have to pay off all of your student loans, but it does mean that eliminating some of those loans may be required.

If you are in this situation, talking to a mortgage lender might be a good idea. Discuss which loans are the biggest issue on your credit report. It won’t necessarily be the loan with the highest interest rate. Sometimes it makes sense to attack a loan with a small balance but a large monthly payment.

Figure out the loan that is the biggest issue and attack it.

You can revisit the home mortgage question once your student debt situation becomes more manageable.

Student Loans Could be an Afterthought

In some cases, your student loan balance doesn’t matter.

Suppose you have over $100,000 of student loan debt. If that debt is federal and you work towards forgiveness, student loans shouldn’t change your plans.

Your monthly student loan payment will impact your Debt-to-Income ratio and potentially reduce home buying power. However, this situation may not change for over a decade.

Student debt will probably make buying a home more of a challenge, but paying them off first, or paying extra, doesn’t make sense.

Sherpa Tip: Sometimes, changing repayment plans is the only step needed to get student loans ready for a mortgage application. In many cases, picking the right repayment plan makes qualifying for a mortgage significantly easier.

Strategy for Borrowers Caught in the Middle

If you don’t fall into one of the aforementioned categories, figuring out the best approach can be complicated.

In this instance, I’d suggest building up a large emergency fund. For starters, having an emergency fund isn’t just a luxury — it is a necessity.

This exercise can provide valuable insight into the down payment question. You might look back after a few months and see that saving isn’t going well, and it is better to focus on your debt. You might also discover that you are doing well saving, and a down payment is a reasonable goal.

If your emergency fund grows beyond what is necessary, you can either use the money for the down payment on your mortgage or knock out a huge chunk of student debt.

There isn’t a substitute for personal experience, and spending several months saving can provide valuable insight. Plus, that emergency fund could come in handy.

Tips and Other Items to Consider

• You don’t need a 20% down payment. The conventional wisdom used to be that you needed a 20% down payment because it avoided PMI. For a student loan borrower, this is an especially difficult goal. Setting aside 3-5% may be sufficient for your needs.
• Don’t forget other debts. If you have credit card debt charging 20%, that is item number one on your to-do list.
• Make sure home ownership is right for you. Some people prefer to rent. Others have to move often for work. Buying a house and selling it a year later is usually a costly mistake.
• Use this time to learn. While you are getting your finances in order, take the opportunity to learn. Talk to mortgage lenders. Find a buyer’s agent and start looking at homes.

Most importantly, take a detailed look at your student loans and figure out how to optimize them for the mortgage application process.

The post Should I Save for a Home Down Payment or Pay Off Student Loans? appeared first on The Student Loan Sherpa.

How important is payment allocation? If two borrowers had identical loans, identical payment amounts, and made payments at the same time, the borrower with improperly allocated payments could easily spend thousands more than the borrower with a smart allocation strategy.

Today we will look at payment allocation from two perspectives:

1. Making sure payments count towards principal and not interest, and
2. Identifying opportunities to eliminate problematic debt first.

A clever allocation strategy doesn’t necessarily mean spending more money each month. Instead, it just ensures that your debt gets eliminated as quickly as possible.

The Standard Rules for Payment Processing

When you make the minimum monthly payment on your student loan, there are no allocation decisions to make.

Whether your loans are federal or private, minimum payments get allocated the same way.

First, a portion of the payment is used to pay off any outstanding late fees on your loan account. Second, the payment is used to pay off interest that accrued the previous month. Finally, the remaining funds lower your principal balance.

The key takeaway is that borrowers can’t call their lender and ask that 100% of next month’s payment be applied to the principal balance.

Paying Extra is Smart

For borrowers early in the repayment process, a monthly payment could be almost entirely interest.

This is the lender’s preference. Lenders make money on interest and fees. When the principal balance is lowered, the borrower is just repaying the money they borrowed. If a borrower pays large amounts of interest and hardly touches the principal balance, the loan could linger for decades, with the borrower paying far more than originally borrowed.

I’ve seen cases where a borrower took out $60,000 of student loans, paid a total of $80,000, and had a balance of $50,000. Factoring in loan balance growth during school and other deferments, the numbers can quickly get crazy.

Paying the tiniest bit extra can make a difference. For borrowers early in repayment, paying $10 extra can be like making a double payment.

Sherpa Tip: Paying extra isn’t always the best idea. Sometimes, building up an emergency fund or saving for retirement is the better choice.

Similarly, if you are on your way to federal student loan forgiveness, paying extra could mean that less debt gets forgiven.

Allocating Payments Toward Principal Instead of Interest

Extra payments are almost always made with the goal of paying off the loan faster.

In many cases, lenders and servicers will take the extra funds and immediately lower the principal balance on the loan. This is typically the desired approach.

However, some lenders put the loan in a “paid ahead” status. Instead of immediately crediting the borrower, the lender uses the extra payment to count towards future payments. In other cases, the lender will use the additional amount to lower the minimum payment due for future payments.

It is relatively simple to avoid these issues. If you pay $100 extra, your principal balance should drop by an extra $100. If it doesn’t, call your lender and ask for an adjustment.

Once you get things squared away with your lender or servicer, no additional effort is required. That said, it is always a good idea to occasionally check your statements and balance history to ensure things are handled correctly.

Further Reading: More tips on getting payments to count towards principal instead of interest.

Payment Allocation Choices

Most borrowers have more than one student loan. For some borrowers, it means multiple loans with the same lender. For others, it means multiple lenders. Many of us have multiple loans with multiple lenders to manage.

If you are going to pay extra, the critical detail is that you pick one loan to attack.

Many borrowers opt for the loan with the highest interest rate. Others select the loan with the smallest balance. Some choose to pay off loans with a cosigner first.

Of the many repayment strategies available, most borrowers will benefit from attacking their high-interest private loans first.

There isn’t a right or wrong order to paying off your student loans.

Sherpa Tip: Even if you pay extra each month, it doesn’t hurt to ask for lower monthly payments on your student loans.

Lowering the minimum monthly payment on a low-interest loan frees up more cash each month to attack the high-interest loan.

Target One Loan at a Time

Allocating extra payments toward a single loan is the ideal path to eliminating debt.

To be clear, you must make minimum payments on all your loans. However, extra payments all get directed toward a single loan.

I often see borrowers who pay a little bit extra on all of their loans. It isn’t a bad strategy. This approach is certainly better than just paying the minimum on all of the loans. However, it isn’t the best strategy.

By targeting a single loan, it gets eliminated faster. That means it falls off your credit report faster and opens up your budget faster. At that point, you can move on to the second loan.

I call paying a little extra on all loans the responsible borrower mistake. It can easily be a $1,000 error.

Reallocating Previous Payments

If your lender processes your extra payment incorrectly, you can usually fix things with a quick phone call.

Things are far more complicated if you want to change years worth of payments. However, it is still possible.

For example, some federal borrowers who made payments during the Covid-19 payment pause have received emails offering the opportunity to reallocate their payments. This is an excellent opportunity to make sure the payments get applied using your ideal strategy.

Additionally, borrowers who made payments during the pause can also request a refund on payments made. Borrowers can take that check and make a new payment toward a single loan. Going this extra step essentially reallocates things if your servicer isn’t willing to help.

There Isn’t a “Best” Allocation Strategy

A borrower concerned about interest spending will first want to pay off the loan with the highest interest rate.

Someone who wants to buy a house may find that eliminating the loan with the smallest balance is the best approach.

Other borrowers may want to use one of the many different strategies available for loan repayment order.

Because there isn’t a definitive best repayment order, there isn’t an ideal allocation strategy. As a result, borrowers shouldn’t assume that their loan servicers will handle things according to their wishes.

Once you settle on the strategy that meets your needs, ensure your lenders and servicers follow your instructions.

The post Student Loan Payment Allocation Guide appeared first on The Student Loan Sherpa.

In fact, recent policy changes have made it much easier to find a lawyer to help with your student loan issues.

The Historic Difficulty of Finding a Student Loan Lawyer

Until this year, finding a student loan attorney was often a massive struggle.

A primary reason for this problem is the fact that “student loan law” isn’t a discrete area of practice like criminal law or estate law.

Your student loan issue might require the services of a contract law specialist. You may need someone with expertise in consumer law. In the majority of cases, a bankruptcy attorney is needed.

Sadly, most bankruptcy attorneys refused to help with student loans. Between the way the law was written and the way the courts interpreted the law, a bankruptcy discharge was nearly impossible. Many attorneys considered pursuing this route a waste of their time and the client’s money.

Further Reading: Bankruptcy law with student loans moved slowly, but until last year, there was a cruel history that consistently made things worse for borrowers.

A Seismic Shift for Lawyers and Borrowers

In late 2023, the Department of Justice revised the internal policy for managing student loans in bankruptcy.

As a result of these significant changes, federal student loan borrowers have a much better shot of getting their student loans discharged in bankruptcy.

Bankruptcy attorneys have taken note, and now a far greater percentage are willing to take on student loan cases.

Critically, it means that if you call an attorney asking for student loan help, you are less likely to be shown the door. That attorney may take your case, or they may refer you to another attorney who can help.

Understanding Your Student Loan Issue

You don’t need a law degree to find the right lawyer. It is ok to call someone and learn that you called the wrong person.

Many lawyers are highly specialized, so it’s not unusual to call a handful before you find the right fit.

That said, a few different student loan circumstances may make one type of attorney a better starting point.

If a friend or family member isn’t holding up their end of things? Is your ex supposed to make student loan payments on a shared loan? Is your child not making payments on a loan you cosigned for?

These situations often require the help of a local attorney with a specialty in family law or contracts.

Did a bank or lender mislead you or lie? If you suspect fraud or illegal activity, an attorney specializing in consumer law is probably the best bet.

Is your loan unaffordable? If you are bombarded with collection calls or your wages are garnished, a bankruptcy attorney is probably the best bet. They can help you get your finances under control, sometimes without even filing for bankruptcy.

How to Find the Right Attorney

Some student loan issues deal with federal law. However, state laws often enter the equation.

For this reason, it is critical that you find someone local. Not only will it make communicating and meeting easier, but a local attorney should also have the state law expertise you need.

You can start by running a simple Google search for bankruptcy attorneys in your area or your state. Call or email them and explain that you need help with your student loans. If they can’t help, ask for a referral.

Sherpa Tip: If you have called local bankruptcy attorneys in the past and been rejected, don’t be afraid to call again.

The DOJ policy changes have caused a lot of bankruptcy attorneys to start helping student loan borrowers.

Getting Help with Your Search

In many states, the local or state bar association has a free attorney referral service. People who need legal representation can call the number.

The American Bar Association has a detailed directory of attorney referral services.

Because things are changing quickly with bankruptcy attorneys, it’s possible that you still might struggle to find someone able to help in your area. If that happens, feel free to send me an email. I may be able to direct you to someone in your state who handles student loans in bankruptcy.

The post How to Find a Student Loan Attorney or Bankruptcy Lawyer appeared first on The Student Loan Sherpa.