Made Plain S T A N L E Y L O V E T A T E I I I

Transcription

1 Made Plain S T A N L E Y L O V E T A T E I I I

2 Cpyright 2015 Stanley Lve Tate III tateesq.cm Made Plain: A simple guide t repaying yur student lans ISBN 13: ISBN 10: X Licensed under the Creative Cmmns Attributin Nn- Cmmercial Share-Alike 3.0 License. Because as J Cle says n Nte t Self, Yu was inspired by the wrld; allw the wrld t be inspired by yur shit and t use yur shit. Designer: Stanley Lve Tate III Printed in the United States by CharlesMarsh Press First Printing: April 2015 First Editin: April 2015

3 Fr thse with mre mnth than mney

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5 CONTENTS III IV VI VII Disclaimer Why I wrte this bk Reading Tips Intrductin Part I Federal student lans 6 Types f federal student lans 7 Knwing wh yu we 11 Repaying yur lans 19 Stpping payments 32 Getting yur lans frgiven 37 Cancelling yur lans 48 Aviding default 49 Getting ut f default 53 The gvernment s cllectin pwers 67 Settling yur student lan debt 69 Getting a csigner released Part II Private student lans 72 Private vs. federal 74 Identifying yur private student lans 75 Repaying yur private student lans 77 Stpping yur mnthly payments 78 Refinancing yur private student lans MAD E P L A I N I

6 80 Getting yur private student lans frgiven 81 Defaulting n yur private student lans 82 Getting ut f default 83 Settling yur private student lans 84 Getting a csigner released 85 Dealing with yur private student lans Part III Mney tips fr repaying yur student lans 94 Budgeting methds 100 Chsing a debt repayment methd 104 Student lans and yur credit scre 110 Key terms 115 Acknwledgments 116 Bibligraphy II TATE

7 D ISCLAIMER YOU RE NOT MY CLIENT. YET I m an attrney. Yu knw this. I knw this. S let s get clear abut sme things, right nw. Just because yu bught this bk desn t mean I ve smehw becme yur attrney. And just because I wrte this bk desn t mean that I m advertising my services. As yu ll see, I m nt advising yu t d anything and I m nt trying t sell yu anything. I m just prviding infrmatin. That s it. Cnsult an attrney r ther student lan prfessinal fr advice and guidance. I did my best t make sure that the infrmatin I prvided within these pages is accurate. But student lan law (like mst any ther law) is always changing. S if yu ntice that smething s inaccurate, cntact me. I ll fix it in the next editin. Als, yu ll ntice there are links in this bk. If yu fllw thse links (mst links g t Reddit and Yu Tube) yu ll g t a third party website. I can t vuch fr the infrmatin n that site. And I can t guarantee that by ging there yur device wn t end up with a virus r sme ther issue. S if yu want, skip the links entirely. Finally, yu will cme acrss a few cuss wrds. I cunt less than 10 in ver 20 thusand wrds. Nt that many. But still the cussing s there. Why d I cuss? T take advantage fr the right reasns f the little extra creative leeway that cmes with cntrlling the publishing. Besides, smetimes drpping an F bmb just feels right, dn t yu think? MAD E P L A I N I I I

8 W HY I WROTE T H IS B OOK # BOUTTHATACT IO NBOSS Yu. I wrte this bk fr yu. Fr my friends. Fr my clleagues. Fr everyne I knw that has n clue what t d with their student lans despite infrmatin being everywhere like ScarJ at the end f Lucy. Student lan infrmatin is everywhere but it s nt in ne place that s easy t scan, easy t grasp, and with enugh detail t be helpful but nt s much detail that it s burdensme. Trying and failing t find that place is what gt me interested in writing this bk. But befre I decided I wuld write this bk, I read damn never every blg, nline article, bk, e-bk, white paper, law review article, and treatise I culd find n student lans. And here s what my reading revealed: the authrs wh tried t summarize student lan law seemed mre caught up n selling themselves than they did n giving yu enugh infrmatin t help yu develp yur repayment strategy. And the authrs wh did give yu enugh infrmatin, either presented it in a cumbersme manner r gave yu t much damn infrmatin. N ne wants t struggle t find what they need. And few peple care enugh abut student lans t want t learn it n a granular level. I assume that mst f yu are like me and want t knw enugh t find a slutin that makes sense; t find a slutin that lets yu live cmfrtably while repaying student lans quickly. IV TATE

9 Thse tw assumptins led me t put pen t paper. I hpe yu read this bk and find all the infrmatin yu need t develp yur student lan strategy in ne place. I hpe yu find that that place (this bk) presents the infrmatin in a way that s easy t scan and easy t grasp and that it gives yu enugh detail t be helpful but nt s much detail that it s burdensme. I encurage yu t me at tate@tateesq.cm r call me at and tell me if yu believed I did r didn t d what I set ut t d. And if yu want, write a review n Amazn telling thers abut my perfrmance. Whether yur cmments cme in the frm f criticism r acclaim, yur cmments matter. They will make the next editin that much better. Best. MAD E P L A I N V

10 R EADING T IP S BE YOUR OWN GUIDE I designed this bk with the idea that n ne wuld read it cver t cver. Yu re lking fr answers. Yu re nt trying t becme a student lan expert. (If yu are, read Student Lan Law by the Natinal Cnsumer Law Center.) S I designed the bk fr yu t jump t the sectin that best answers yur questins. The bk is divided int three majr sectins: federal student lans, private student lans, and mney. The federal and private student lan sectins discuss repayment, frgiveness, default (and its cnsequences) and frgiveness. The mney sectin discusses 13 tips n paying yur lans, establishing a budget, and understanding hw yur student lans affect yur credit reprt and scre. I hpe yu enjy. I hpe yu get yur answers. As Kbe tld Kanye, Yu re welcme. VI TATE

11 INTRODUCTION ALLOW ME TO R E INTRODUCE MY S ELF Hw abut instead f writing this intrductin I just share Jhn Oliver s 16 plus minute take dwn f student lan debt ( N? Yu demand an intrductin? Cl. Let me be brief. Student lan debt is a prblem. And it s a prblem that s nly getting wrse. In yur search fr student lan help, yu will cme acrss peple r materials prmising t reveal tricks and secrets t getting rid f yur lans quickly. T qute Huey Freeman, That s sme l bullshit. There ain t n magic pill. N buttn. N secret. N nthing that will get rid f yur lans immediately. There are plenty f things yu can d, hwever, t plan an effective strategy t deal with yur lans. And having an effective strategy is the key (fr sme f yu) t paying much less than what yu brrwed. Thse things that help yu plan yur strategy are what I will discuss in the remainder f this bk. S in the wrds f Yung Jeezy, Let s get it. MAD E P L A I N V I I

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13 ==================== PART I FEDERAL STUDENT LOANS ==================== MAD E P L A I N 1

14 C HAPTER 1 T YPES OF FEDERAL STUDENT L OANS There are tw federal student lan prgrams: Direct Lans and Perkins Lans. A few years ag, there was anther federal student lan prgram: the Federal Family Educatinal Lan prgram. Fr ne reasn r anther, Cngress scrapped that prgram. Lans remain utstanding frm that prgram (and ther minr prgrams), hwever. And because they remain utstanding, thse lans remain an issue fr brrwers. Here s a brief breakdwn f the Direct Lan, Perkins Lan, and FFEL Lan prgrams. Direct Lans Cngress created the Direct Lan prgram as part f the Student Lan Refrm Act f Under this prgram, the federal gvernment directly issues lans t the student. The Direct Lan prgram was designed t cut the middlemen private lenders and guaranty agencies frm the lan riginatin prcess. The decisin t cut middlemen frm the lan prcess made s much sense that almst tw decades later Cngress eliminated Federal Family Educatin Lans. By ding that, Cngress made Direct Lans the main surce f federal student lans fr brrwers. Read mre abut hw the gvernment came t be yur student lender at: 2 TATE

15 The Direct Lan Prgram ffers three types f federal student lans: Staffrd lans (which can be subsidized r unsubsidized); PLUS Lans (riginally named Parent Lans fr Undergraduate Students); and Cnslidatin Lans. Direct Staffrd Lans (Subsidized and unsubsidized) The gvernment ffers subsidized Staffrd Lans t undergraduate students wh ve demnstrated financial need. The lan is subsidized because the brrwer desn t pay interest befre repayment begins r during any deferment. Unsubsidized student lans are awarded t any qualifying brrwer, regardless f financial need. The lan is unsubsidized because the brrwer is respnsible fr interest charged during all perids even when the brrwer is in schl, in a grace perid, r in a deferment. Direct PLUS Lan A Parent PLUS Lan allws a parent t brrw a lan t help pay fr the educatin f her child attending an undergraduate schl. Unlike ther federal student lans, the brrwer has t be credit wrthy t get the lan. Get tips n what t d if yu were denied a Parent PLUS Lan because f yur credit at: MAD E P L A I N 3

16 A Graduate PLUS Lan allws yu t brrw enugh mney in federal student lans t cver the full cst f graduate schl, including reasnable living csts, if yu re a graduate r prfessinal degree student. Like Parent PLUS Lans, yu must be credit wrthy t get the lan. If rejected, yu may still get the Graduate PLUS Lan. But yu ll have t find a credit wrthy csigner. Credit wrthiness fr Parent & Graduate PLUS Lans is measured by federal regulatins rather than yur FICO scre. Thse regulatins say that yu must nt have an adverse credit histry t be eligible fr a PLUS Lan. Yu have an adverse credit histry if yu re at least 90 days delinquent n any debt r if yu have a dergatry event n yur reprt in the past five years. A dergatry event can be a: default status; bankruptcy discharge; freclsure; repssessin; tax lien; wage garnishment; r a write-ff f a Title IV debt. Even if yu have an adverse credit histry and can t get a csigner, yu still may get a PLUS Lan. T get the lan, yu ll have t prve t yur lender that extenuating circumstances exist. 4 TATE

17 Direct Cnslidatin lan A Direct Cnslidatin Lan lets yu cmbine yur federal student lans int ne lan. The benefits f cnslidatin include: Escaping default quickly; Having t make just ne mnthly payment t ne servicer; Reducing yur mnthly payment by extending yur payment term (brrwers usually enrll in incme-based-repayment, which has a 25 year repayment term); and Lwering yur interest rate (brrwers with lder lans benefit the mst because thse lans typically have higher interest rates r variable interest rates, r bth.) Visit studentlans.gv t apply fr cnslidatin. Learn mre abut cnslidating yur lans at Jint Cnslidatin Lan Befre 1 July 2006, the Department f Educatin ffered ne ther type f cnslidatin lan: the jint cnslidatin lan. This lan was fr married brrwers wh agreed t cmbine their federal student lan debt and t each be held respnsible fr the new lan. And even if they later divrced, they each remained liable fr the entire lan. As Kanye tld Jay, That shit cray. Jint cnslidatin lans have special rules when it cmes t payment plans, frgiveness, and cancellatin. I highlight thse difference in the apprpriate sectins f this bk. MAD E P L A I N 5

18 Perkins Lan Unlike Direct Lans, Perkins Lans are riginated and serviced by schls nt the gvernment. (Perkins Lans are backed by the federal gvernment.) Because the schl is the lender, all payments and requests fr a lwer payment amunt, deferment, frbearance, frgiveness, and cancellatin must be made t the schl. Federal Family Educatin Lan Cngress created the FFEL prgram as part f the Higher Educatin Act f Under the prgram, private lenders as ppsed t the federal gvernment laned mney t students. The federal gvernment guaranteed thse lans. S if a brrwer ever failed t repay his FFEL lan the gvernment wuld buy the lan t try and cllect it. There used t be fur different types f FFEL Lans: Subsidized Federal Staffrd Lans; Unsubsidized Federal Staffrd Lans; FFEL PLUS lans; and FFEL Cnslidatin Lans. FFEL lans stpped being issued in Nw all federal student lans are issued under the Direct Lan Prgram. Curius abut the FFEL prgram s creatin? Read mre at: 6 TATE

19 CHAPTER 2 K NO W ING WHO YOU OWE It s crazy hw many f my clients had n clue wh they wed their student lans. They didn t knw if their lans were federal r private r if their lans were with Navient r FedLan Servicing. They just knew that they wed a lt f mney. Because they didn t knw wh they wed, befre we culd develp their repayment strategy we had t get that infrmatin. The easiest way t d that is t access the Natinal Student Lan Data System. That System has infrmatin n all yur federal student lans. Yu access the system by using yur persnal identificatin number. That PIN is the same ne yu used t e-sign yur FAFSA paperwrk. (If yu can t remember that PIN, visit pin.ed.gv.) Once yu re in the System, yu ll be able t tell: When yu first brrwed the lan; Whse yur current servicer; Whse yur current lender; Whse yur current guaranty agency; (Yu ll have a guaranty agency if yu have a Federal Family Educatin Lan;) Hw much yu we in principal and interest; What s yur interest rate and whether that rate is fixed r variable; and The status f yur payment. (Are yu current, late, r in default? Or are yu in deferment r frbearance?) MAD E P L A I N 7

20 Yu might ntice that ne cmpany, say Great Lakes Higher Educatin, has mre than ne rle with yur student lan. There s nthing inherently wrng with that cmpany handling multiple rles. It just might make it cnfusing fr yu t keep track f wh is ding what with yur lans. Once yu have yur federal student lan infrmatin, stre it all in ne place. I stre mine n a Ggle Dcs spreadsheet. A few f my clients are mre ld schl than Blue (Yu re my by Blue!) and prefer t use pen and paper. Whether yu prefer Sheets r pen a paper, chse a tl, use the tl, and track yur lans. It makes repayment much easier. 8 TATE

21 CHAPTER 3 R EPAYING YOUR LOANS Talk all the nise yu want abut yur federal student lans but they re much better than yur private student lans. Unlike yur favrite Sallie, the gvernment makes it easy sme say, t damn easy t pay them back fr financing yur educatin. Yu have fur majr repayment ptins t chse frm: Standard Repayment; Pay As Yu Earn; Incme-Based-Repayment; and Incme-Cntingent-Repayment. When yur six mnth grace perid ends, yu re autmatically enrlled in the Standard Repayment plan. If yu want t be enrlled in ne f the incme-driven-repayment plans that is, the PAYE, IBR, and ICR plans submit the IDR plan applicatin designating which f the three yu want t be enrlled in t each f yur student lan servicers. Depending n yur servicer, yu can submit yur IDR applicatin nline, by mail, r by fax. T get an estimate f yur mnthly payment under each f the plans, use the Department f Educatin s repayment estimatr at: repaymentestimatr.actin. Let s break dwn the fur plans s yu understand hw each wrks. MAD E P L A I N 9

22 Standard Repayment The Standard Repayment plan, which is available fr all yur federal student lans, is the cheapest and fastest way t repay yur federal student lans. It s the cheapest because yu ll pay less in interest cmpared t the IDR plans. And it s the fastest because yu ll finish repaying yur lans within 10 years. (The IDR plans all take at least 20 years t cmplete.) Thse are the benefits f the Standard plan. There s a majr drawback thugh: yur mnthly payment will be higher under the Standard plan than it wuld under any ther. Pay As Yu Earn In 2011, President Obama caused the PAYE plan t be launched. The PAYE plan, which lasts fr 2 years, prmises t help student lan brrwers deal with their debt by capping brrwers mnthly payments at 10% f their discretinary incme. And n matter what a brrwer s incme is, the amunt she wuld pay under the PAYE plan will never be greater than what her payment wuld be under the Standard Repayment plan. That capped mnthly payment amunt is just ne f the PAYE plan s benefits. Other benefits include: nt capitalizing yur interest if yu have a partial financial hardship and capping yur capitalized interest at 10% if yu have n partial financial hardship; granting yu a partial interest subsidy fr yur first three years f repayment; 10 TATE

23 allwing yur payments t be eligible fr the Public Service Lan Frgiveness prgram; and frgiving any remaining balance after yu ve made 20 years f payments. There are at least three drawbacks t the PAYE plan. First, yu ll pay mre interest than yu wuld under the Standard Plan. That s because yu ll be repaying the lan fr 20 years rather than the Standard Repayment plan s 10 years. Secnd, yu must reapply each year fr the PAYE plan. Third, any balance frgiven after 20 years may be treated as taxable incme. There are fur eligibility requirements fr the PAYE plan. 1. Yu must have the right lan; 2. Yu must have gtten yur first lan after 30 September 2007; 3. Yu must have gtten a lan disbursement after 30 September 2011; and 4. Yu must have a partial financial hardship. Yu have the right lan if yur lan isn t in default and is smething ther than: A PLUS Lan made t a parent; A Directin Cnslidatin Lan that includes a Parent PLUS lans; and An Uncnslidated FFEL and Federal Perkins Lan. Yu meet the secnd and third requirements if (a) yu brrwed a student lan fr the first time during the schl year and (b) yu were still in schl during the schl year. MAD E P L A I N 11

24 And yu have a partial financial hardship if yur annual lan repayment under the Standard plan is greater than the annual repayment yu d make under the PAYE plan. Typically, higher incme brrwers have difficulty meeting this hardship standard unless they have high student lan balances. Use the incme driven repayment applicatin t apply fr the PAYE plan. Send the applicatin and prf f yur incme (typically yur tax return) t each student lan servicer that has lans yu can pay under the PAYE plan. On 9 June 2014, the President issued a memrandum directing the Department f Educatin expand the PAYE plan t additinal Direct Lan brrwers. The memrandum isn t clear which additinal brrwers will be affected. Whatever changes there will be are expected t ccur befre the end f Incme-Based-Repayment In 2009, the gvernment began ffering the IBR plan. When riginally launched, that plan capped all brrwer s payments under the plan at 15% f their discretinary incme and frgave the balance that remained after a brrwer made 25 years f payments. That plan was later strengthened by capping new brrwers payments at 10% and cutting their time fr frgiveness frm 25 years t 20 years f payments. (Yu re a new brrwer if yu gt yur first lan disbursement as f 1 July 2014.) Besides capping the payment amunt and frgiving the balance at 20 r 25 years, the IBR plan als benefits yu by limiting the capitalizatin f yur interest fr the first three years f repayment. 12 TATE

25 The drawbacks f the IBR plan are the same as they are fr the PAYE plan: yu ll pay mre in interest; yu ll have t apply each year; and yu ll likely pay taxes n the amunt frgiven. Yu re eligible fr the IBR plan if yu have (a) a partial financial hardship and (b) a Direct Lan r FFEL Lan. Tw fllw up pints t thse requirements. First, as is true with the PAYE plan, yu have a partial financial hardship if yur payment under the Standard plan wuld be greater than yur payment under the IBR plan. Secnd, a lan that s in default and a Direct Cnslidatin Lan that repaid a Parent PLUS Lan aren t eligible fr repayment under the IBR plan. Brrwers wh attended graduate schl benefit the mst under the IBR plan. That s because a graduate student can rack up a high federal student lan balance and then repay his student lans under the IBR plan and make lw payments fr several years and have his balance frgiven. The IBR plan has been criticized fr its ecnmic implicatins. Seemingly in respnse t that criticism, the Department f Educatin s fiscal year 2015 budget prpsal suggested refrm t student lan repayment, including the IBR plan. (The student lan refrm prpsal starts at page S-13 f the prpsal.) Despite the Department s prpsed refrm effrts, sme still argue mre needs t be dne. What des all that mean fr yu if yu re already in repayment? I m nt sure. Student lan gurus Bill Penn and Heather Jarvis believe thse already in repayment and thse in schl will cntinue t use existing repayment plans under the same r similar terms. MAD E P L A I N 13

26 Incme-Cntingent-Repayment Of the incme-driven-repayment plans, the ICR plan is the ldest. Launched in the early 90 s, the ICR plan, which requires repayment fr 25 years, was designed t benefit lw incme brrwers and brrwers wanting t pursue public service careers. Under the ICR plan, mnthly payments are capped at 20% f yur discretinary incme. The benefits f the ICR plan are that: Yu dn t have t have a partial financial hardship t qualify fr the plan; Yur capitalized interest is capped at 10% f the lan amunt; Yur remaining lan balance is frgiven after yu ve made 25 years f payments; and Unlike the PAYE and IBR plans, yur Direct Cnslidatin Lan that repaid a Parent PLUS Lan r a Perkins Lan (r bth), and yur Graduate PLUS Lan qualify fr repayment under the ICR plan. The drawbacks f the ICR plan are the same as they are fr the PAYE and the IBR plan: yu ll pay mre in interest; yu ll have t apply each year; and yu ll likely pay taxes n the amunt that s frgiven. And in additin t thse three, there s a furth: there s n interest subsidy fr the first three years f repayment under the plan. Repayment plan extras Calculating payment under PAYE and IBR. Under the PAYE and IBR plans yur payment is calculated by taking 15% (r by 10% fr PAYE and sme IBR plan brrwers) f yur discretinary 14 TATE

27 incme. T find yur discretinary incme, subtract 150% f the pverty guideline fr yur family size and lcatin frm yur adjusted grss incme. The remaining amunt is yur annual discretinary incme. Once yu have that amunt, multiply it by 15% (r if yu re a new brrwer, 10%) and then divide that amunt by 12. That final number is yur mnthly payment amunt under the PAYE plan r the IBR plan. Calculating payment under ICR. Under the ICR plan, yur payment is the lesser f 20% f (a) yur discretinary incme (use the same frmula as yu wuld fr the PAYE r IBR plans) r (b) what yu wuld pay n a repayment plan with a fixed payment ver 12 years, adjusted t yur incme. Instead f ding the math yurself, use the Repayment Estimatr at studentlans.gv. Prf f incme under IDR plans. Prvide a cpy f yur tax return frm this year r last as prf f yur incme. Yu may need t prvide alternative prf if yu haven t filed a tax return in the past tw years r if last year s AGI differs significantly frm what yu re earning nw. If yu have t prvide alternative prf, prvide a pay stub r ther prf f yur incme such as (1) a letter frm yur emplyer listing yur incme; (2) a cpy f yur interest r bank statement; (3) a cpy f yur dividend statements; r (4) a letter frm yu explaining the surce f yur incme and giving the name and address f the surce. And if yu have n incme, indicate that n yur applicatin. Yu can have a zer dllar payment. Under the incme driven repayment plans, yur mnthly payment may be zer. A zer dllar payment cunts twards frgiveness under the repayment plans and under the Public Service Lan Frgiveness prgram. MAD E P L A I N 15

28 Yu can have nncnsecutive payments. T qualify fr term frgiveness (that is, frgiveness at 20 r 25 years) under the incme-driven-repayment plans, yur payments dn t have t be cnsecutive. Yu just have t make 20 r 25 years f payment. S if yu take 30 years t make 25 years f payment, s be it. Tax issues after frgiveness. After yu ve made 20 r 25 years f payments under the particular incme driven repayment plan and yu re eligible fr frgiveness, the IRS will treat the frgiven amunt as taxable incme. Yu may have that frgiven amunt excluded frm yur taxable incme depending n yur situatin. Speak with a tax prfessinal t learn mre abut this exclusin Yu have t recertify annually. Under the incme-drivenrepayment plans yu have t recertify yur incme and family size annually. This shuld happen within 35 days f the date yu certified the year befre. Yu re suppsed t get a reminder t recertify within days f yur anniversary date. If yu dn t recertify yur incme, yur mnthly payment will jump t what it wuld be under the Standard plan. And if yu dn t certify yur family size, yur family size will be ne fr that year. Mid-year changes in yur incme. If yu lst yur jb r if yur salary decreased after yu certified yur incme, submit prf f yur jb r salary lss s yur payment can be recalculated. Prf f incme. Since incme-driven-repayment plans are based n yur incme, yu have t prvide prf f what yur incme is. Mst brrwers prvide a cpy f their previus year s tax return, which shws their adjusted grss incme fr that year. If yur AGI desn t reflect what yu re currently making, yu must submit additinal prf f yur incme. Typically, this can 16 TATE

29 be a recent pay stub r a letter frm yur emplyer stating hw much yu earn and hw ften yu re paid. Jint cnslidatin lans. If yu and yur current (r frmer spuse) have a jint cnslidatin lan, yu may repay under the IBR plan if bth f yu have a partial financial hardship. Married cuples payment. Yur spuse s incme will be cnsidered under the incme-driven-repayment plans if yu file taxes jintly. But if yu file separately, nly yur AGI will be cnsidered. And if yu want, yu and yur spuse may repay yur student lan bills tgether. I dn t knw why yu and bae wuld d that. (Side nte: I hate the term bae fr these fur reasns: But yu might. S just knw that yu can make yur payment tgether. If yu ever want t stp paying tgether, resubmit an incme-driven-repayment applicatin requesting that separatin. Same-sex married cuples. If yur spuse is the same sex as yu, yu re cnsidered married fr incme-driven-repayment purpses if yu gt married in a jurisdictin that recgnizes same sex marriages. And that remains true even if yu n lnger live in that jurisdictin. The Department f Educatin calls this the place f celebratin rule. N lnger have a partial financial hardship. Yu may stay in yur PAYE r IBR plan even if yu n lnger have a partial financial hardship r n lnger want t make payments based n yur incme. When that happens, yur payments wn t exceed what yu wuld ve paid under the Standard plan when yu first entered the PAYE r IBR plan. MAD E P L A I N 17

30 Switching plans. If yu re in the PAYE, IBR, r ICR plans, yu may change yur repayment plan t any ther repayment plan. Except if yu re in the IBR plan, yu must first make ne payment under the Standard plan befre switching t anther repayment plan. 18 TATE

31 CHAPTER 4 STOPPING PAYMENTS At sme pint yu will need (r want) a break frm repaying yur student lans. Maybe yu re trying t take that life changing trip t the Far East, r maybe, like sme f my friends, yu re trying t get t Vegas fr the Pacquia-Mayweather fight r whatever s the ht ticket at the time yu re reading this. Or maybe yu have a legitimate reasn such as unemplyment r caring fr an ill family member. (Wh am I kidding, ging YOLO is always a legitimate reasn. Right?) N matter yur reasn, if yu want t take a timeut frm repaying yur federal student lans withut wrrying abut default, request either a deferment r a frbearance. Deferment A deferment under the federal student lan prgram allws yu t stp paying yur lans fr a perid. This is a gd strategy t use if yu re unemplyed r if yu re: Attending schl at least half-time; Participating in a graduate fellwship; Attending a rehabilitatin training prgram; Suffering an ecnmic hardship; r Serving in the military. Because getting deferments fr attending schl, participating in a graduate fellwship, and serving in the military are rather MAD E P L A I N 19

32 straightfrward, let s fcus n the deferments fr an ecnmic hardship and unemplyment. If yu have Direct Lans r FFEL Lans issued t yu befre 1 July 1993 r if yu have Perkins Lans, yu may be eligible fr ther deferments. Speak t yur lan servicer t find ut mre abut yur additinal deferment ptins. Ecnmic hardship The ecnmic hardship deferment is granted ne year at a time fr a maximum f three years. And it applies t yur Direct Lans, FFEL Lans, and Perkins Lans. There are fur ways t qualify fr the ecnmic hardship deferment, the first three are autmatically granted if yu prvide supprt. The three autmatic deferments ccur when: Yu qualified previusly fr an ecnmic hardship deferment under anther federal lan prgram; Yu re receiving federal r state public assistance benefits such as SSI r fd stamps; r Yu re serving as a Peace Crps vlunteer. The furth way t qualify fr the ecnmic hardship deferment requires a little math. Yu qualify if yu re wrking full time and yur mnthly incme desn t exceed the larger f: The federal minimum wage rate; r 150% f the pverty line incme fr yur family size and state. (In 2014, the pverty line fr a family f tw living in the 48 cntiguus states is $15,730. And a 150% f that is $23,595.) 20 TATE

33 Yu re wrking full time if yu re expected t wrk fr at least three cnsecutive mnths at 30 hurs per week. Yu can calculate yur mnthly incme by taking (a) the incme frm yur emplyment and ther surces befre taxes and ther deductins; r (b) ne-twelfth f the amunt yu reprted as adjusted grss incme n yur mst recently filed federal incme tax return. And yur family size includes yu, yur spuse, yur children, yur unbrn child that will be brn during the deferment perid, and anyne else wh gets mre than half their supprt frm yu. Supprt includes mney, husing, fd, clthes, and medical and dental care. The Student Lan Brrwer Assistance has a self-help packet yu can use t request an ecnmic hardship deferment. Get the packet at: Unemplyment hardship Yu can qualify fr an unemplyment deferment fr yur Direct, FFEL, and Perkins Lans in ne f tw ways. The first way is the easiest: just prvide prf that yu re eligible t receive unemplyment benefits. The secnd way t qualify is t shw that within six mnths befre applying fr the deferment yu made six diligent attempts t get full time emplyment. Typically, yu prve yur diligence by (a) certifying that yu re seeking but cannt find full-time emplyment and (b) shwing that yu ve registered with a public r private emplyment agency. The unemplyment deferment typically lasts fr six mnths. Yu can reapply fr anther six mnth deferment at the end f the preceding perid. MAD E P L A I N 21

34 Yu can qualify fr the unemplyment deferment even if yu ve never been an emplyee befre. Benefits & drawbacks f deferment Aside frm stpping repayment f yur student lans, there are at least tw benefits f placing yur lans in deferment. First, interest desn t accrue n subsidized lans during the deferment. The same isn t true f yur unsubsidized lans. Thse cntinue accruing interest. Yu can, hwever, pay just the accruing interest n yur deferred unsubsidized lans. D this if yu can. Yu ll avid having t pay interest n yur interest (that s rughly what capitalizatin causes yu t d) when yur deferment ends. Secnd, if the lan is deferred, it isn t in default, and yu wn t be subject t cllectin attempts r lawsuits. Plus, yu ll remain eligible fr additinal educatin assistance. Except fr pushing yur repayment further int the future, I can t think f any real drawbacks f deferment. But that s nt really a drawback. That s exactly what yu want. Applying fr deferment T apply fr the nn-autmatic deferments, submit a request t yur lan servicer. And if yu have mre than ne servicer, send a request t each ne. Eligibility If yu have Direct Lans, FFEL Lans, r Perkins Lans, r a cmbinatin f all three, and thse lans aren t in default, yu re 22 TATE

35 generally eligible fr deferment. Yu still must meet the requirements fr the deferment yu re requesting. Yur defaulted lans regain their eligibility fr deferment when yu get ut f default. The tw ways t get ut f default are t cnslidate r rehabilitate yur student lans. Deferment extras Parent PLUS Lans. Deferments under Parent PLUS lans are based n the parent brrwer s eligibility nt the student s. S if yu re a Parent PLUS Lan brrwer, yu may defer repaying the PLUS lan if yu re unemplyed r if yu re (1) attending schl at least halftime; (2) studying in an apprved graduate fellwship r rehabilitatin prgram fr the disabled; r (3) experiencing ecnmic hardship (up t three years). Yu als defer repayment f the PLUS Lan while yur child is attending schl at least half time. Resetting deferment time limit. If yu cmbine yur federal student lans int a Direct Cnslidatin Lan, yur time limits fr deferment resets. And that makes senses right? The Direct Cnslidatin Lan is, a new lan. Frbearance Putting yur lans in frbearance accmplishes mstly the same things a deferment des. The majr difference is that frbearance isn t as helpful as deferment because interest cntinues accruing n all lans, subsidized r unsubsidized. Despite that difference, frbearance des what it s suppsed t: temprarily stp repayment f yur lan. MAD E P L A I N 23

36 There are three categries f frbearances: Pr health; Administrative; and Mandatry. Pr Health. Yu can get a frbearance if yu re in pr health r have ther persnal prblems affecting yur ability t make the scheduled payments. A frbearance fr pr health is granted fr up t a year at a time. There are n limits t the number f years that can be granted. Administrative. Yu can get an administrative frbearance fr many reasns, including: A deferment was granted but yur lender later learns that yu didn t qualify fr the deferment; A perid during which payments were verdue befre yur deferment began; A perid necessary t determine yur eligibility fr bankruptcy discharge, clsed schl discharge, r similar discharges; r A perid f delinquency that may remain after deferment r mandatry frbearance and befre the next due date is established. Mandatry Yu can get a mandatry frbearance if: Yu re serving in a medical r dental internship r residency prgram and yu re nt eligible fr the internship deferment frmerly available in the FFEL prgram; 24 TATE

37 Yu re serving in a natinal service psitin fr which yu received a natinal service educatin award under Americrps (the Natinal and Cmmunity Service Trust Act f 1993); r Yu re eligible fr partial repayment f a lan under ne f federal student lan repayment prgrams. Benefits & drawbacks f frbearance The majr benefit f frbearance is its ability t prevent yu frm defaulting n yur student lans by temprarily stpping r reducing yur mnthly payment. And yu want t avid defaulting n yur student lans s yu dn t have t wrry abut being sued r having yur tax refund r Scial Security benefits being taken, r wages garnished. Anther benefit appears when yu re attempting t finance a majr purchase such as a hme. Frbearance (and deferment) benefits yu by temprarily reducing yur mnthly debt t incme rati, which might allw yu t qualify fr better lan terms r t get apprved fr a greater amunt. The drawback is that interest cntinues t accrue n yur lans. But if yu gt mre mnth than mney, des it matter if interest cntinues accruing? Applying fr frbearance Yu typically wn t have t cmplete an applicatin t place yur lans in frbearance. Call yur lan servicer and explain t them yur reasn fr requesting frbearance and they ll grant it ver the phne. When an applicatin is required, cnsider using the general frbearance request frm fr Direct Lans, the Teacher MAD E P L A I N 25

38 Lan Frgiveness frm, r the Mandatry Frbearance request frm prvided by the Department f Educatin. Frbearance extras FFEL Lan and Direct Lan regulatins are similar. The regulatins cntrlling frbearances fr Direct Lans and FFEL are similar but nt the same. The FFEL regulatins distinguish between discretinary and mandatry frbearances. The Direct Lan regulatins dn t. Lw incme FFEL Lan brrwers. If yu have a lw incme and cannt repay yur FFEL lan within the maximum repayment term typically 10 years yu can get a mandatry administrative frbearance fr up t five years. Teachers with FFEL Lans. If yu re a teacher, yu can get a mandatry frbearance while yu re perfrming teaching service that wuld qualify yu fr teacher lan frgiveness. Perkins Lan frbearance. As a Perkins Lan brrwer, yu can place that lan in frbearance if (a) yur ttal federal student lan payment is at least 20% f yur ttal mnthly incme; (b) yu re in pr health r yu have ther acceptable reasns ; r (c) yu re affected by a natinal military mbilizatin r ther natinal emergency. There s typically a three year cap n the length f a Perkins lan frbearance. Applying fr a Direct Cnslidatin Lan r frgiveness. If yu re cnsidering applying fr a cnslidatin lan r lan frgiveness r cancellatin, request an administrative frbearance s yu re nt paying n a lan that may n lnger exist. 26 TATE

39 Jint cnslidatin lans + PLUS lans with a csigner. Yur lender will grant a frbearance nly if yu and yur jint brrwer can t make the scheduled payments. MAD E P L A I N 27

40 C HAPTER 5 C O NSOLIDATING YOUR LOANS Befre getting int if yu shuld cnslidate yur federal student lans, let s start at the beginning: what is federal student lan cnslidatin? Simply put, federal student lan cnslidatin is where yu take multiple lans (almst any federal student lan will d0) and turn them int ne new Direct Cnslidatin Lan. An alternative t cnslidating yur federal student lans int a Direct Cnslidatin Lan is t refinance yur federal student lans int a new private lan. If yu refinance with a private lender, yu typically can cmbine yur federal student lans with yur private student lans. Whether yu shuld cnslidate yur student lans using the federal prgram r whether yu shuld refinance using a private lender depends n yu. Depends n yur gals, yur incme, yur credit scre, and s n and s n. Instead f answering that subjective questin within these pages, allw me t direct yu t writings frm The Huffingtn Pst, the Cnsumer Financial Prtectin Bureau, and Time. These writings may help yur decide if refinancing yur federal student lans with a private lender is right fr yu. Fr nw, let s fcus n better understanding federal student lan cnslidatin. Let s start with the benefits and drawbacks. 28 TATE

41 Benefits and drawbacks f cnslidatin The benefits f cnslidating include: Getting ut f default faster than if yu rehabilitated yur defaulted student lans (cnslidatin happens in abut 90 days; rehabilitatin takes yu abut 270 days); Having a smaller mnthly payment (yu have up t 30 years t repay a Direct Cnslidatin Lan); Having nly ne lender and nly ne mnthly payment; and Refreshing previusly exhausted deferment ptins. There are at least three drawbacks f cnslidatin. First, the interest rates n sme f yur lans may increase. When yu cnslidate, yur new interest rate is the weighted average f the interest rates f all the lans yu re cnslidating. S if yu have lans with an interest rate f 4% and thers with 8%, yur new cnslidatin lan will have an interest rate smewhere in between thse tw percentages. Secnd, if yu cnslidate a Perkins Lan, yu ll lse yur cancellatin rights under that prgram. That s because after yu cnslidate a Perkins Lan with yur ther lans, the resulting lan has its wn frgiveness and cancellatin prvisins. Finally, if yu cnslidate yur Parent PLUS Lan with yur ther federal student lans, the resulting Direct Cnslidatin Lan wn t be eligible fr repayment under the incme-basedrepayment plan. Stated differently, having a Parent PLUS Lan as part f a cnslidatin lan means yu can t repay that lan using the IBR plan. MAD E P L A I N 29

42 Eligibility Yu re eligible fr a Direct Cnslidatin Lan if yu have at least ne utstanding Direct Lan r FFEL Lan. If yu re in default n a federal student lan, yu can get ut f default by cnslidating that lan with ther federal student lans. But if the lan yu ve defaulted n has a garnishment rder assciated with it r it has been reduced t a judgment, yu can t cnslidate that lan until the garnishment rder is lifted r the judgment is remved. If yu re cnslidating a lan that s in default, yu may be charged cllectin csts f up t 18.5% f the utstanding principal and interest f the defaulted lan. Applying fr a Direct Cnslidatin Lan Yu can apply fr a Direct Cnslidatin Lan using a paper applicatin r the website at studentlans.gv. I advise my clients t use the nline prcess because it s simple t use. Plus, it allws yu t input yur incme s yu can prject what yur mnthly payment wuld be n the resulting Direct Cnslidatin Lan. After yu submit the applicatin The cnslidatin prcess takes abut three mnths t cmplete. Until that day cmes, yu re still respnsible fr making payments n yur lans. If yu want t avid repaying yur lans until yur lans are cnslidated, request a deferment r frbearance frm yur lan s servicer. D this fr each lan yu re cnslidating. 30 TATE

43 Cnslidatin extras Be prepared t resubmit yur incme-driven-repayment applicatin. In my experience, I ve rutinely had t resubmit my clients applicatins fr incme-driven-repayment. I dn t knw hw the applicatin get s lst I always fax and mail the applicatin but it des. S be prepared t resubmit yurs. N payments required when cnslidating a defaulted lan. If yu re in default n a federal student lan, yu can get a Direct Cnslidatin Lan by agreeing t repay the cnslidatin lan thrugh an incme-driven-repayment plan. Cnslidate a defaulted Direct Cnslidatin Lan. If yu re in default n yur Direct Cnslidatin Lan, yu can recnslidate it if yu have anther eligible lan that s nt in default. Fr example, if yu re in default n yur Direct Cnslidatin Lan and yu have a FFEL Lan, yu may cnslidate thse tw lans tgether int a new Direct Cnslidatin Lan. Recnslidating a FFEL Lan. Yu may recnslidate a FFEL Lan that s in default if yu want t cnslidate that lan int a Direct Cnslidatin Lan s yu can enrll in the incme based r incme cntingent repayment plans. Cnslidating a jint cnslidatin lan. Neither yu nr the spuse yu jintly cnslidated yur lans with may recnslidate that jint cnslidatin lan. As f nw, yu re stuck with that lan until it s paid ff r yu die. MAD E P L A I N 31

44 C HAPTER 6 GETTING YOUR LOANS FORGIVEN A bunch f prgrams will help yu get rid f yur lans. Recently, SALT an American Student Assistance creatin cbbled tgether an almst exhaustive list f ver 60 ways t get rid f yur student lans. Of that list, let s talk abut three: Public Service Lan Frgiveness, Teacher Lan Frgiveness, and Perkins Lan Cancelatin. Public Service Lan Frgiveness This prgram is the best f the bunch. It frgives yur remaining Direct Lans after yu ve made 120 mnthly payments. Yu ll get the greatest benefit f this prgram if yu have a lw paying jb, yu have a high federal student lan balance, and yu re repaying thrugh an incme-driven-repayment plan. T qualify fr frgiveness, d fur things. 1. Wrk the right jb. Yu must wrk a full time paying jb (usually ver 30 hurs) fr the gvernment, 501(c)(3), and ther select emplyers. The Cnsumer Finance Prtectin Bureau reprts that abut 25% f peple in the United States have a jb that qualifies fr the Public Service Lan Frgiveness Prgram. S dn t assume yur jb desn t qualify. 32 TATE

45 2. Make the right payments. Yu shuld be enrlled in an incmedriven-repayment plan (mst brrwers wh wrk fr a qualifying emplyer enrll in IBR) and make yur payments within 20 days f the date they re due. 3. Make the payments 120 times. Yu must make 120 mnthly payments. The payments dn t have t be in a rw. S say yu take a five year break frm wrking the right jb, when yu return t the right jb yu ll pick back up with the number f payments yu ve already made that cunted twards frgiveness. 4. Certify annually. Althugh nt mandatry, certify yur emplyment annually using the frm prvided by the Department f Educatin. Fur ntes n PSLF. First, if yu have a Parent PLUS lan yu re eligible based n yur wn jb. Yu prbably shuld cnslidate that lan t take full advantage f the frgiveness prgram. That s because yur Parent PLUS Lan desn t qualify fr an incme-driven-repayment plan. But if yu cnslidate that PLUS lan, the resulting lan becmes eligible fr the ICR plan. Secnd, if yu have a FFEL Lan, cnslidate it int a Direct Cnslidatin Lan t take advantage f PSLF. Only lans made under the Direct Lan prgram are eligible fr Public Service Lan Frgiveness. Third, if yu have a jint cnslidatin lan, yu re eligible fr frgiveness. But t frgive the whle lan under the prgram bth yu and the spuse yu cnslidated the lan with have t meet the prgram s requirements. S if yu meet the requirements but yur spuse desn t, yur lan balance will be frgiven but yu re still jintly respnsible fr yur spuse s prtin f the lan. MAD E P L A I N 33

46 Finally, yu can qualify fr the prgram even if yu wrk fr an rganizatin engaged in religius activities, such as a church. Yur full time duties, hwever, must be unrelated t religius instructins r any prselytizing. Check ut the Department f Educatin s infrmatin sheet n the Public Service Lan Frgiveness fr mre answers. Certifying public service wrk Althugh nt required, cmplete an emplyment certificatin frm fr the PSLF prgram. That frm cnfirms yu wrked full time fr a qualifying emplyer during the previus year. Yu and an authrized fficial frm yur emplyer must cmplete the frm. I advise my clients t cmplete it during their pen benefits enrllment perid r at the beginning f their cmpany s fiscal year. Make sure yu keep a cpy f that frm. Yu ll likely have t resubmit it when the time cmes t have yur federal student lans frgiven. Teacher Lan Frgiveness This prgram is fr yu if yu have Staffrd r Direct Lans and yu teach full time fr five cnsecutive years in a designated elementary r secndary schl r educatinal service agency serving lw incme families. The amunt that can be frgiven varies but isn t mre than $17,500 ttal. Yu get the mst frgiven if yu re a highly qualified full time math r science teacher in an eligible secndary schl. Yu can als get the highest amunt if yu re a 34 TATE

47 highly qualified special educatin teacher and meet ther requirements. Yu re highly qualified if the state s certified yu as a teacher r if yu ve passed the state s teacher licensing exam. With limited exceptins, yu must als hld a state license. Visit tateesq.cm fr mre infrmatin n Teacher Lan Frgiveness. Perkins Lan Cancelatin This prgram is fr yu if yu have a Perkins Lan and yu teach full time fr at least ne year. Yu must either: Teach at a lw incme schl; Teach special educatin; Teach math, science, freign languages, r bilingual educatin; r Teach in a field that has a shrtage f qualified teachers in yur state. After yur first year f teaching, 15% f yur utstanding Perkins Lans will be canceled. The secnd year, anther percentage will be canceled. The third year, anther. Then anther in the furth year. And then at the end f the fifth year, yur entire Perkins Lan debt will be canceled. T apply fr Perkins Lan cancellatin, cntact the schl yu gt the lan frm and ask abut the cancellatin prcess. MAD E P L A I N 35

48 Tax issues and student lan frgiveness A few years ag, the Treasury Department issued a letter stating that Teacher Lan Frgiveness and Public Service Lan Frgiveness meet the requirements fr incme exclusin under the Internal Revenue Cde. Thse types f frgiveness prgrams meet the exclusin requirements because frgiveness is tied t yu wrking fr a perid in a qualifying public service psitin. Frgiveness under the incme-driven-repayment plans, hwever, is treated as taxable incme. 36 TATE

49 CHAPTER 7 CANCELLING YOUR LOANS The great thing abut federal student lans is they have built in cancellatin prvisins. S if yu re a parent and yu tk ut a Parent PLUS Lan t help pay fr yur child s educatin, dn t wrry abut the Department f Educatin calling yu fr repayment after yur daughter dies r has been murdered. (That s what happened t the parents f Lauren Tanski. A shrt time after their daughter was murdered, Sallie Mae called lking t cllect n the rughly $60 thusand Lauren wed in private student lans at her death. Read the Tanski s stry here: Fr sme f yu, my inclusin f Lauren s stry may be seen as lw key (high key?) macabre r even distasteful. I get that. But I als get that cllectin attempts frm family members after a brrwer s death happen every day. And what better example than Lauren s f the lengths a private lender will g t cllect? Unlike private student lans, there are several reasns yur student lans can be cancelled, including: Yu becme ttally and permanently disabled; Yu die (r if it s a Parent PLUS Lan, yur parent(s) die); Yur schl clsed while yu were still enrlled; Yur schl falsely certified (using frgery r identity theft) yur eligibility fr federal student lans; and Yur schl failed t pay a refund it wed yu. Of these discharges, the lan discharge fr yur ttal and permanent disability is the ne I see the mst ften. MAD E P L A I N 37

50 Cnsequently, I m ging t g mre in depth with that discharge than I will with the thers. Having said that, I recgnize that sme f yu may want mre infrmatin abut the ther discharges than what I prvided here. T help get yu that infrmatin, I ve included links t my website and ther sites that g int depth greater than I d here. And if that s nt enugh fr yu, me at tate@tateesq.cm and I ll try and get yu the infrmatin yu need. Ttal and permanent disability discharge Yu re eligible fr a ttal and permanent disability discharge if yur dctr certifies that yu can t engage in any substantial gainful activity by reasn f a medically determinable physical r mental impairment that: Can be expected t result in death; Has lasted fr a cntinuus perid f nt less than 60 mnths; r Can be expected t last fr a cntinuus perid f nt less than 60 mnths. What des substantial gainful activity mean Substantial gainful activity means a level f wrk perfrmed fr pay r prfit that invlves significant physical r mental activities r a cmbinatin f bth. Wrked perfrmed fr prfit cvers peple wh are self-emplyed. Substantial gainful activity desn t refer t incme frm surces ther than emplyment. The Department wn t cnsider 38 TATE