Six Student Loan Rights You Need to Know

It’s no surprise that in recent years, more and more students are graduating college with thousands in student debt. In fact, between 2007 and 2012, student loan amounts increased 75 percent, according to a TransUnion study. But what recent grads may not know is that there are many options that can help take the burden off and help you repay federal student loans. Consider the following decisions:

1. Loan forgiveness. If you work in certain public service organizations, such as law enforcement, early childhood education, public health, the military, etc., you may qualify for loan forgiveness of your remaining loans, given the fact that you’ve made 120 payments under the Public Service Loan Forgiveness (PSLF) Program.

Note: Only Direct Loans qualify; FFEL, Perkins Loans and any other student loan programs don’t qualify. Visit www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service for more information.

2. Consolidation. If you’re paying back several federal loans, you may have the option of combining them into one single monthly bill.

“Consolidation can make it easier to repay student loans by streamlining repayment and replacing multiple loans with a single loan,” said financial aid expert Mark Kantrowitz, publisher of Edvisors.com. It can also possibly lower your monthly payment, pending if the minimum monthly payment on your consolidation is lower than the payment for your combined loans.

One caveat: Consolidation may increase the length of repayment, which means more accrued interest. That’s why it’s important to compare your current repayment bill to what the amount would be if you consolidated, to make sure it makes sense for you. Ask yourself if it would increase or decrease your monthly payments, and also how long you’d be repaying your loan. If you do choose to consolidate, visit www.loanconsolidation.ed.gov.

3. Deferring your payments. If you’re in graduate school or the military, you have the right to defer your payments until you’re out. If you’re unemployed when your loans kick in, a hardship deferment can be given. Additionally, if you have a medical issue that forbids you from working, you may have the right to forbearance, which stops or shrinks your monthly payments for up to a year. (However, it’s important to note that interest still accrues during this time.)

4. Altering your payment schedule. While the standard amount of time to repay your loans is 10 years, that doesn’t necessarily mean you’re required to do so in that amount of time. You may have the right to an extended repayment plan, which can increase your repayment to up to 25 years. There are even some ways to tie your monthly payment to a percentage of your income — these are called “Income Based Repayment” and “Pay as You Earn.” And, vice versa, you’re allowed to repay your student loans early as well.

5. Deducting loan interest. You’ll be sent a Form 1098-E from your lender that will list the amount of interest you paid on your student loans in the last year. You can deduct student loan interest up to $2,500, depending on several factors. To calculate how much you can deduct, visit www.irs.gov/publications/p970/ch04.html.

6. Contacting your lender or loan servicer. It may sound obvious, but calling up your student loan point of contact is something many borrowers don’t take advantage of. You can contact them at any time you’d like with any questions you have. They can also help you figure out the type of student repayment plan of action that’s right for you.

“I think a plan is really important,” Douglas Wells, a partner at Albion Financial Group, said. “It doesn’t have to be complicated, but it does have to have an overview of how you’re going to get out of debt, how you’re going to save up the money that you need to pay off this debt and then also to save above and beyond that.”

Find your lender or loan servicer at www.nslds.ed.gov or call 1-800-4-FED-AID. Better yet, stop by today and see how we can help you.