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How to answer borrowers' questions about loan repayment

Are you ready to answer your student loan borrowers' questions if they can't get through to their loan servicer? With uncertainty surrounding both the economy and the status of extensions on student loan payment deferral, servicers may not be able to keep up with the calls and emails. That leaves schools as borrowers' best option.

Before you begin a borrower outreach program on your school’s behalf, it can be helpful to re-acquaint yourself with the different types of student loan repayment plans and tools available to borrowers.

Repayment plans

Grace period: When a borrower reduces enrollment to less-than-half time, graduates, or leaves school, they have a six-month grace period before they must begin repaying their loan or loans.

Standard Repayment Plan: This plan is what most borrowers begin after their initial grace period ends. The Standard Repayment Plan is a ten-year period of fixed payments, during which borrowers will pay off the principal and interest in its entirety.

Borrowers who follow this plan and make timely payments will pay less over time than those who follow other options. According to the Department of Education, this plan may not be the wisest choice for borrowers who intend to seek Public Service Loan Forgiveness (PSLF).

Borrowers may also be eligible to enroll in other plans that provide for a lower monthly payment or longer repayment period. These plans extend the duration of the loans and therefore increase the amount of interest paid over time.

Graduated Repayment Plan: This plan begins with a two-year period of lower monthly payments, then increases the payment amount every two years for ten years. This plan is not typically eligible for PSLF.

Extended Repayment Plan: Borrowers with balances more than $30,000 are eligible for this plan. It extends the repayment duration to 25 years. Payments may be at a fixed amount or begin lower and gradually increase over the life of the loan. Although monthly payments will be lower than they would in a Standard Repayment Plan, the extended duration means that borrowers will ultimately pay a larger amount. This play is not typically eligible for PSLF.

Revised Pay as You Earn Plan (REPAYE): This is another good option for those seeking PSLF. Borrowers pay 10% of their discretionary income each month and qualify for forgiveness if they have not repaid the loan in full after 20 years (25 if the loans are for graduate school). Borrowers must re-certify their income and family size each year. Borrowers should know that they must pay taxes on the amount of loan that is forgiven.

Income-Driven Repayment (IDR) Plans: Borrowers must have a high debt-to-income ratio in order to qualify for these plans. Payments are calculated at either 10% or 15% of the borrower’s discretionary income, depending on when their first loan was acquired. Like the REPAYE plan, borrowers must re-certify their income and family size each year. Any remaining balance after 20 or 25 years will be forgiven, and taxes may be owed on that amount.

Borrower Support

Sometimes borrowers need to suspend or postpone payments, and there are programs that can offer temporary relief.

Borrowers should explore as many options as possible to avoid delinquency and default, which will have a negative impact on their future ability to secure lending.

To qualify for these deferment or forbearance, borrowers must be either enrolled at least half-time in school, unemployed, serving in the military, disabled, or experiencing economic hardship.

Deferment: In deferment, borrowers pause their payment and interest for up to a year at a time with a maximum of three years.

Forbearance: Loans in forbearance, generally speaking, still accrue interest. A borrower can choose forbearance during economic difficulty, called a discretionary forbearance. Alternatively, loan servicers may place a borrower in mandatory forbearance while they process alternative payment plan applications. Servicers can also retroactively apply forbearance to a borrower’s account to bring it current so the borrower can enroll in an IDR. Borrowers in forbearance may postpone payments for up to a year at a time with a maximum of three years. Because interest continues to accrue during forbearance, borrowers should continue to make interest payments if possible.

Those in the business of working with borrowers should stay current on repayment options, as well as ways to help borrowers who may be at risk of delinquency.

If you have questions about how to incorporate CDR management software to help your school minimize default and maximize efficient borrower outreach, PTI can help. Call (657) 232-4353 or email for a free consultation.


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