“What if I didn’t Graduate from Morehouse College in 2019?”

Unless you’ve been living under a rock these past few weeks, then you’ve seen the incredible act of generosity that Robert F. Smith extended to the Morehouse College graduating class of 2019.  If you don’t have time to watch this clip, then the long and short of the story is that during his commencement speech, Smith pledged to pay off the student loan debt of the ENTIRE 2019 graduating class! It is estimated that the value of this act of generosity is nearly $40 Million for just under 400 students.  Yes, that’s right.  Roughly $100,000 of student loan debt PER GRADUATE!  So, while it is truly inspiring what Robert Smith has done in this scenario, it also begs the question of how we got to this level of spending and debt burden in the first place.  If you were not fortunate to be one of these 400 students, but are saddled with the after effects of taking out student loans, what are some options that you have?

Option 1: Do Nothing and accept the “standard” repayment plan

If you graduate with either FFEL (Federal Family Education Loans) or Direct Federal loans and don’t nominate a specific repayment plan to be a part of, then your loan servicer will automatically enroll you into the standard repayment plan.  While the standard plan will generally be the plan that saves you the most interest over the life of your loan, it can also be a crippling monthly amount to pay if your starting income isn’t very high.  Monthly payments under the standard plan have to be at least $50 per month and are put on a 10-year repayment plan.

Option 2: File for Deferment or Forbearance

Under certain circumstances, an individual can receive deferment or forbearance on their student loans which allows them to temporarily stop making payments OR greatly reduce their monthly payments which can help to avoid defaulting on their loans.  Each individual needs to work with their loan servicer to see if they are eligible for these options and also weigh up the pros and cons of doing so.  If a student is going to pursue further graduate education, then in-school deferment will be a good option for them.  Additionally, if someone is struggling to find work after graduating, then forbearance based on financial difficulties is one route to explore.  It should be known that with forbearance, even though you are not required to make payments on your loans, the interest continues to accrue for both unsubsidized AND subsidized loans which can be a big surprise once you are ready to end the forbearance period.

Option 3: Take control and get on an income driven repayment plan

For many individuals, an income driven repayment plan is a great option to make on-time payments for their student loans which are based on their income rather than the size of their student loan debt.  Any time someone’s student loan debt amount is higher than their starting salary then the income driven plan is a good option to explore.  Additionally, if someone is going to be aiming for the Public Service Loan Forgiveness (PSLF) option, then it is actually a requirement that they are on an income driven plan anyways. 

Of course, there is always the option to bury your head in the sand and pretend your student loans don’t exist, but that is where Van Gelder Financial can help.  With a Certified Student Loan Professional (CSLP) on our team, we are geared to help individuals work through their goals and options and develop a plan tailored to them.  Reach out today and schedule a call with us to learn more!

May 31st, 2019

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