Student Loan Repayment
Do you remember a few years ago when you received the exciting news that you were accepted into law school?After doing all the hard work as an undergraduate to earn a solid GPA, dealing with the LSAT, and refining your application essay, it was a great relief to know that you were on the path to receiving your J.D.Then, you looked at the cost and panicked! You were probably reassured, "Oh, don't worry! You'll get loans to pay for it.That's just how it works."
You signed the promissory notes and proceeded to go to class, buy casebooks for over $100 a piece, accept unpaid internships or externships to gain experience over the summer months, take out more loans to study for the bar, and then take and finally pass the bar.
In the background, interest accrued, and here you are, receiving statements from the various lending institutions that made your dream possible, reminding you of your obligation to start paying back. If the prospect of monthly payments for the next 30 years makes you a little queasy and anxious, you're not alone. Not only are you in good company with nearly every law school graduate, but the ONLD is on your side and has located and compiled a collection of resources with useful information about your Options.Loan repayment plans, loan forgiveness, deferment, and helpful links for news on the changing landscape of student-loan repayment programs are all here for you.
- Assess Your Situation
- Get to Know Your Loans and Your Repayment Options
- Loan Repayment Programs (Specific to Federal Loans)
- Public Service Programs
- Loan Consolidation
- Tax Implications of Your Loan Repayment Option
- Deferring Your Loan Payments
- When Loan Repayment Does Not Go As Planned
- Loan Default and Rehabilitation
- Is Bankruptcy Ever an Option?
- Other Helpful Web Resources
Assess Your Situation
The first step in money management is knowing your obligations. Agreeing to loan terms at the beginning of the school year was something most of us did out of necessity
- Pull a transcript of all of your federal student loans at http://nslds.ed.gov. You can access this info using the same PIN you used for FASFA. If you don't have your FASFA PIN readily available, this site will prompt you with a reminder to retrieve it.
- Use online calculators to assess what different repayment plans will cost you over time: http://www.finaid.org/calculators/loanpayments.phtml.
Get to Know Your Loans and Your Repayment Options
Most borrowers have a mix of private and federal loans. There are numerous ways in which private loans differ from federally insured loans.*
The information on this website is focused primarily on federal loans. You should talk with a financial advisor or tax professional, or both, about your specific circumstances and repayment options.
|
ISSUES |
PRIVATE |
FEDERAL |
|---|---|---|
|
Parties |
Co-signers possible |
Only co-signing available is through parents |
|
Statute of Limitations |
Yes, contractual |
None |
|
Interest |
High / Often variable |
Generally lower and fixed |
|
Formal work-outs |
Not usually |
Yes, IBR, ICR, etc. |
|
Wage garnishment |
Must get judgment |
Can take 15% by Administrative Order |
|
Social Security offset |
No |
Yes, 15% |
|
IRS refund intercept |
No |
Yes |
|
Discharge on Death |
No |
Yes |
|
Default curable |
No, not technically |
Yes |
|
Credit re-habilitation |
Not usually |
Yes |
|
Consolidation |
No |
Yes for most federal loans |
*Originally published for the 27th Annual Northwest Bankruptcy Institute (2014). Reprinted with permission.
Loan Repayment Programs (Specific to Federal Loans)
You have a choice of repayment plans. This is an important decision because it will determine how much you pay per month, how quickly you pay off your loans, what if any portion will be forgiven, and how much in total interest you will pay over the life of the loan. You will need to determine which repayment plans are available for your loan(s) and identify which plan is best for your situation and goals.
There are several different repayment plans available for federal loans. Many variables come into play when selecting a plan: particularly the amount you want (and can afford) to pay per month and the amount of interest you want to pay over the life of the loan(s). The repayment plans include:
Payments Not Based on Your Income
Standard Repayment Plan
- This is likely the default repayment plan.
- Payments are fixed (meaning you will pay the same minimum amount each month) for up to ten years.
- Under this plan, you will likely pay more per month, but less in interest over the life of the loan.
Graduated Repayment Plan
- Payments are graduated (meaning that your minimum payments will increase over time) for up to ten years.
- Under this plan, you payment will start low and increase every two years.
- The payment will not be less than the interest that accrues, and will not be larger than three times any prior payment.
Extended Repayment Plan
- Payments can be fixed or graduated for up to 25 years.
- Generally, you will pay less per month under this plan than you would under the Graduated or Standard Repayment Plans, but you will likely pay more in interest over the life of the loan.
Payments Based on Your Income
If you are seeking public service loan forgiveness, you should select an income-driven repayment plan.
Generally, these plans are based on a percentage of your discretionary income. Discretionary income and the applicable percentage can vary based on the type of income-driven repayment plan you select and when your loans originated. These plans reference poverty guidelines, which are available at www.aspe.hhs.gov/poverty.
Significantly, under these income-driven repayment plans, any remaining loan balance is forgiven if unpaid at the end of the repayment period. Attorneys qualifying for federal Public Service Loan Forgiveness may be eligible for forgiveness sooner.
Income-Based Repayment (IBR) Plan
- Montly payments are generally set at 10 to 15 percent of your discretionary income (depending on when your loans originated), and never more than the payment under the Standard Repayment Plan.
- Payments are made over 20 or 25 years depending on when your loans originated.
- Discretionary Income is the difference between your income and 150 percent of the poverty guideline for your family size and state of residence.
Pay-As-You-Earn Plan
- Payments are generally set at 10 percent of your discretionary income, and never more than the payment under the Standard Repayment Plan.
- Payments are generally over 20 years.
- Discretionary Income is the difference between your income and 150 percent of the poverty guideline for your family size and state of residence.
Income-Contingent Repayment (ICR) Plan
- Payments are set at the lesser of 20 percent of your discretionary income or a payment plan with a fixed payment over twelve years adjusted for your income.
- Payments are generally over 25 years.
- Discretionary Income is the difference between your income and 100 percent of the poverty guideline for your family size and state of residence.
Because these repayment plans are based on your income, your payment amount will change if your income or family size changes.
Income Sensitive Repayment Plan
- Available for loans serviced by lenders in the Federal Family Education Loan Program (FFEL) (e.g., Stafford Loans, FFEL Plus loans). Direct Loans are not eligible.
- The payment is based on a percentage (between 4 percent and 25 percent) of your gross monthly income.
- Payments are made over ten years.
Contact your loan servicer to discuss changing your repayment plan, as well as any consequences of the change. In some circumstances, you may not be able to reverse certain changes. Eligibility for some plans may depend on the age of the loan.
To compare the different plans for your loans, visit:
https://studentaid.ed.gov/repay-loans/understand/plans
To estimate what you will pay under the different plans, visit:
https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action
William Penn, Director of Public Interest Law at Lewis & Clark Law School, provided this article outlining the different repayment plans available and identifying the basic qualifications for each.
William Penn presented a seminar for the ONLD regarding Navigating Student Loan Repayment Options.
View Navigating Student Loan Repayment Options
(Use your PLF log in to access video and materials of the seminar.)
Public Service Programs
All three Oregon law schools offer a Loan Repayment Assistance Program (LRAP) for their recent graduates. If you attended law school out of state, check with your law school to see if they offer their own LRAP. You may also be eligible for the Oregon State Bar's LRAP program or for the Public Service Loan Forgiveness (PSLF) program (see below).
In general, LRAP programs are structured as a forgivable loan. The institution makes a loan which must be repaid but that can be forgiven for qualifying work over a specified number of years. If you leave public interest work, you may need to repay all or some portion of the LRAP loan. Many programs allow recipients to reapply in successive years. The specifics vary from program to program. Details of the Oregon law school LRAP programs and current deadlines are provided below for convenience, but are subject to change at any time. You should consult with the sponsoring institution to confirm program requirements, parameters, and deadlines.
Website: http://law.uoregon.edu/lrap/
Eligibility: any University of Oregon School of Law graduate from December 2010 forward; adjusted gross income cannot exceed $55,000
Amount: up to $5,000 per year for up to three years; must reapply annually
Application: October deadline; selected by committee of faculty, staff, students, and alumni; factors include income, debt obligations, prior public-interest activities, stated public-interest career objectives
Employment Specifics: Must work in a qualified public-interest job (as defined in program materials); includes work for IRC ?501(c)(3), (4), or (5) organizations; federal, state, tribal, or local government work; legal aid work; or judicial law clerk position (subject to some special rules). After three years of qualifying public-service work, 100 percent of the loan assistance will be applied to the loan balance.
Website: http://law.lclark.edu/programs/loan_repayment_assistance/
Eligibility: Any Lewis & Clark Law School graduate; must apply within first three years of graduation; annual salary of less than $45,000.
Amount: The Lewis & Clark Law School LRAP strives to meet actual loan servicing need. Awards are based primarily on the amount graduates are or would be required to pay under IBR or PAYE; although special circumstances may result in a higher award.
Application: Mid-June deadline; administered by the Public Interest Loan Counsel
Employment Specifics: Must work in law-related public-interest job, includes work for IRC ?501(c)(3), (4), or (5) organizations; federal, state, local, or tribal governmental units that focus on providing legal aid, legal services, or criminal justice services to under-represented people or causes. Judicial law clerks are not considered to be engaged in public-interest work.
Website: http://www.osbar.org/lrap
Eligibility: must be licensed to practice law in Oregon; need not be an Oregon resident or graduate from an Oregon law school; must have an annual income of less than $60,000
Amount: forgivable loan of up to $5,000 per year for up to three years
Application: April deadline
Employment Specifics: Must be a practicing attorney within the State of Oregon engaged in qualified employment with civil legal aid organizations, other private nonprofit organizations providing direct legal representation of low-income individuals; or as public defenders or deputy district attorneys. Judicial clerks are not eligible. If recipient terminates qualified employment, recipient will be required to repay loans for any amounts not previously forgiven.
If you work full-time in a qualifying public-service position, you may qualify for forgiveness on eligible non-defaulted federal direct loans once you have made 120 qualifying payments.
Public-service position includes any full-time job with a governmental entity or 501(c)(3) nonprofit.
Full-time is the greater of 30 hours per week or what the employer considers full-time.
Multiple part-time public-service jobs can be considered full-time work if the total hours worked averages 30 or more per week.
Graduates may move in and out of public-service jobs, in and out of the workforce, and between public and private sectors.
If the graduate performs their 120 months of public-service work directly after graduation without break, his or her loans can be forgiven in ten years. This forgiveness of public service work is not taxable.
For information on Public Service Loan Forgiveness, please see the following:
https://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service
http://www.ibrinfo.org/what.vp.html#pslf
Student-loan expert Heather Jarvis has compiled a thorough and comprehensive guide about the Public Service Loan Forgiveness program. Though focused on employers, it provides a lot of helpful information for borrowers: http://askheatherjarvis.com/uploads/images/March%202013%20PSLF%20Emp%20Guide.pdf
Loan Consolidation
Loan consolidation allows you to combine multiple federal education loans into one loan. The result is a single monthly payment instead of multiple payments, but its important to consider the trade-offs and whether its the right step for your circumstance.
Educate yourself about the pros and cons:
http://www.finaid.org/loans/whyconsolidate.phtml
A special note for married borrowers: while it is true that refinancing and consolidating student loans from federal loans to private loans results in the loss of the benefits of federal loans for all borrowers, consolidating your student-loan debt with your spouses student-loan debt has unique problems.For example, divorce or the death of one spouse can present challenges if the spouses have consolidated. Although such consolidation is not allowed under all loan programs, some programs may allow you to do so. You should consult with a tax adviser to determine if consolidation is right for you.
If you have been using income-based repayment for several years, and are counting on forgiveness after 25 years, you may want to reconsider consolidation because consolidation restarts the clock on loan forgiveness. The Federal Trade Commission and U.S. Department of education provide additional helpful information: http://www.consumer.ftc.gov/articles/0160-student-loans.
Keep in mind: The only government loan program for consolidation is the Direct Loan Program and applying for the program is FREE. Be wary of companies charging a lot of money for a free government program. Additionally, not all consolidation programs and offers are the same, and, as with anything, if it seems too good to be true, it probably is.
Tax Implications of Your Loan Repayment Option
Forgiveness of student-loan debt is generally a taxable event under IRC ?61(a)(12). This is true for forgiveness of a loan pursuant to an income-based repayment plan. However, if an individuals student loans are forgiven because of the type of profession the individual holds, such as public service, the forgiveness may not constitute a taxable event. Certain other repayment plans or assistance programs also may not give rise to a taxable event.
You should always discuss the potential tax implications of your student loans with your tax adviser. Everyones situation is unique. Additionally, an individuals tax bracket may vary greatly over time. For more information on the tax implications of student-loan debt forgiveness, see http://www.finaid.org/loans/forgivenesstaxability.phtml.
Deferring Your Loan Payments
Deferment is a period during which repayment of theprincipaland interest of your loan is temporarily delayed. In addition to the different types of repayment plans, borrowers may seek deferment or forbearance. Deferment or forbearance may be granted for specific reasons stated in federal regulations, which include poor health, economic hardship, and federal student loan payments that are equal to or greater than 20 percent of monthly gross income, among other reasons.
During a deferment period, no interest accrues on subsidized loans, but interest continues to accrue on unsubsidized loans. The borrower may pay the accruing interest on any unsubsidized loans or have it added to the principal (i.e., capitalized) when the deferment expires. Forbearance postpones or reduces the monthly repayment for a limited, specific period, during which interest on subsidized and unsubsidized loans continues to accrue. If the interest is not paid during the forbearance, it is added to the principal balance when the forbearance period ends.
See the following resources to determine when deferment may be a good option:
https://studentaid.ed.gov/repay-loans/deferment-forbearance
When Loan Repayment Does Not Go As Planned
When you took out your loans, you had every intention of paying them back. But despite your plan, you fell behind in payments. Fortunately, there are ways to get out of default.
Loan Default and Rehabilitation
Federal regulations allow a borrower who defaults on repayment a one-time opportunity to bring loans out of a default status and repair the negative credit information reported to credit bureaus. Loan rehabilitation is available for both FFEL Program and Direct Loan Program loans.
How does it work?
Payment amounts are set at a reasonable rate and borrowers must make nine consecutive on-time payments over a 10-month period.
Entering a loan rehabilitation agreement stops collections activity and legal proceedings, prevents wage garnishment, and may protect a borrower's state and federal tax refunds from IRS offsets.
Completing rehabilitation restores a borrower's loans to good standing (including reestablishing eligibility for deferment, forbearance, alternative repayment options, and Title IV financial aid) and resets loans to the original terms, interest rate, and repayment period. Completion shows positive payment progress on a borrower's credit report, which may repair some of the damage done by default.
Rehabilitation is not the same as consolidation. To learn the difference, visit: http://www.studentloanborrowerassistance.org/wp-content/uploads/2013/05//information-sheet.pdf
For more information regarding loan default and rehabilitation, see the following websites:
http://www.finaid.org/loans/rehabilitation.phtml
https://studentaid.ed.gov/repay-loans/default/get-out#loan-rehab
If you have a problem with a federal student loan that you have been unable to solve on your own, contact the Federal Student Aid Ombudsman Group for help. See https://studentaid.ed.gov/repay-loans/disputes/prepare/contact-ombudsman
Is Bankruptcy Ever an Option?
In certain circumstances, some borrowers have found relief through bankruptcy, though it is very rare. Borrowers should consult a professional to discuss this option. For more information, see http://www.studentloanborrowerassistance.org/bankruptcy/.
Recent decisions have impacted how courts treat bankruptcy and student loans. To learn more, read these two articles by local bankruptcy law practitioners Natalie Scott and Richard Parker:
Misconceptions & Muddied Waters: Are Student Loan Discharge Standards any Clearer?
-- By Natalie Scott, The Scott Law Group nscott@scott-law-group.com
Student Loan Victims Let Them Eat Cake
-- By Richard J. Parker Parker, Butte & Lane, PC rjp@pbl.net
Other Helpful Web Resources
Heather Jarvis Blog (http://askheatherjarvis.com/tools). Heather provides news and updates on potential changes to laws impacting student loans. She provides a forum for discussion, online courses, and other helpful links.
The United States Department of Education (http://studentaid.ed.gov/repay-loans). The federal governments website educates current and future borrowers about financial aid. Its glossary includes terms and phrases frequently used in the student loan context: (https://studentaid.ed.gov/glossary).
Equal Justice Works http://www.equaljusticeworks.org/ed-debt). Equal Justice Works provides a continuum of programs that begin with incoming law school students and extend into later careers in the profession. Free webinars and handbooks are available.
Edvisors (http://www.edvisors.com). Edvisors is a collection of interactive websites that provide information and tools to help students further their education.
Calculators and Calculations. Looking for a better way to keep track of your loan payments or better understand whats ahead? Check out these loan calculators and money management links:
a. SALT(https://www.saltmoney.org)
b. FinAid (http://www.finaid.org/calculators/)
Student Loan Borrowers Assistances Finding a Solution article lays out a plan and provides self-help packets: http://www.studentloanborrowerassistance.org/start-here/find-solution/