Good and bad news on stu­dent loans in new poll

The Washington Post Sunday - - BUSINESS - Michelle Sin­gle­tary

Af­ter all their hard work, the col­lege class of 2017 is fi­nally en­joy­ing the real world and all its “perks,” in­clud­ing hav­ing to pay back their stu­dent loans.

The Fed­eral Re­serve Bank of New York’s lat­est re­port on house­hold debt and credit found that out­stand­ing stu­dent loan bal­ances in­creased in the past year by $83 bil­lion, to $1.34 tril­lion.

The Stu­dent Loan Re­port, a news site that cov­ers is­sues re­lated to ed­u­ca­tion debt, con­ducted an online poll of 400 stu­dent loan bor­row­ers from this year’s grad­u­at­ing class. The find­ings were en­cour­ag­ing and con­cern­ing.

Turns out nearly 80 per­cent of bor­row­ers knew their stu­dent loan bal­ance within $500. Most also could state their monthly loan pay­ment within $20.

But the an­swers to other ques­tions sug­gest an in­com­plete un­der­stand­ing both of their bor­row­ing sit­u­a­tions and of re­pay­ment plans that could give these bud­ding pro­fes­sion­als some fi­nan­cial re­lief.

When fed­eral stu­dent loan bor­row­ers were asked when their first pay­ment is due, only a lit­tle more than half knew the grace pe­riod was six months af­ter grad­u­a­tion. Why is this im­por­tant? Bor­row­ers shouldn’t wait un­til the first due date to make sure they can han­dle the monthly pay­ments. A good first step is to con­tact the com­pany ser­vic­ing their loan to dis­cuss all their re­pay­ment op­tions and to make sure their email and mail­ing

ad­dresses are up to date. More than a third of grad­u­ates do not know the name of the com­pany ser­vic­ing their fed­eral stu­dent loans.

Forty-three per­cent didn’t know that their fed­eral loans had a fixed in­ter­est rate.

Sixty-five per­cent couldn’t say how many years it would take un­der the stan­dard plan to pay off their loans. It’s 10 years. This is key be­cause the pay­ments un­der the stan­dard op­tion might be too high for their bud­get. If this is the case, they should con­sider an in­come-based re­pay­ment plan.

The poll also found that 40 per­cent of bor­row­ers did not have a good grasp of in­come driven plans of­fered for fed­eral loans. There are four op­tions:

• In­come-based re­pay­ment plan (IBR).

• Pay-as-you-earn re­pay­ment plan (PAYE).

• Re­vised pay-as-you-earn re­pay­ment plan (REPAYE).

• In­come-con­tin­gent re­pay­ment plan (ICR).

You can learn about the dif­fer­ences in the plans by go­ing to Stu­den­tLoans.gov.

A re­port last month from the Con­sumer Fi­nan­cial Pro­tec­tion Bureau found that bor­row­ers in in­come-based plans have much lower de­fault rates than those en­rolled in other types of pay­ment ar­range­ments. The CFPB said that 9 in 10 of the high­est-risk bor­row­ers were not en­rolled in af­ford­able fed­eral re­pay­ment plans that al­low them to pay based on how much they earn. Ac­cord­ing to the re­port, the Ed­u­ca­tion De­part­ment es­ti­mates that more than 8 mil­lion fed­eral stu­dent loan bor­row­ers went at least 12 months with­out mak­ing a re­quired monthly pay­ment.

Here’s a sober­ing find­ing for co-sign­ers: 20 per­cent of bor­row­ers did not un­der­stand that their pay­ment history could neg­a­tively im­pact their cosign­ers’ credit. Late pay­ments do show up on the credit history of a co-signer.

The New York Fed re­ported that 11 per­cent of stu­dent loans were at least 90 days delin­quent or in de­fault.

The ma­jor­ity of bor­row­ers in the Stu­dent Loan Re­port sur­vey thought they have to pay a sur­charge to con­sol­i­date their fed­eral loans. There is no ap­pli­ca­tion fee to merge mul­ti­ple fed­eral ed­u­ca­tion loans into one. This is es­sen­tial to know be­cause there are pri­vate com­pa­nies that, for a fee, of­fer to help peo­ple ap­ply for a di­rect con­sol­i­da­tion loan.

There’s no need to pay for this fairly easy process.

Bor­row­ers can ap­ply online for a di­rect con­sol­i­da­tion loan through Stu­den­tLoans.gov.

If you have ques­tions, con­tact the Loan Con­sol­i­da­tion In­for­ma­tion Call Cen­ter at 800-557-7392.

Nearly 28 per­cent of poll par­tic­i­pants thought their loans could be dis­charged in bank­ruptcy. The bar you have to jump to get your stu­dent loans erased is pretty high: You must prove that they are an un­due hard­ship.

The sur­vey found that 27 per­cent of 2017 grad­u­ates be­lieve the Ed­u­ca­tion De­part­ment will for­give all, or part of, their loan bal­ance.

“Only a very small por­tion of bor­row­ers will qual­ify for loan for­give­ness,” said Drew Cloud, the Stu­dent Loan Re­port’s founder. “And there could be a se­ri­ous prob­lem brew­ing if bor­row­ers are bud­get­ing with the as­sump­tion that their stu­dent loans will be for­given.”

Fi­nally, here’s some­thing that didn’t sur­prise me: Nearly 55 per­cent of bor­row­ers re­gret the amount of debt they took out.

“It is not like the class of 2017 is com­pletely in the dark when it comes to their stu­dent loans,” Cloud said.

“How­ever, there is def­i­nitely room for im­prove­ment.”

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