How Parents Can Best Manage Student Loans with Erik Kroll, #216
Did you take out a parent PLUS loan or private loan to help your kids pay for college? Are you still struggling to pay off those loans?
According to StudentAid.gov, over 9 million people over 50 have student loan debt. Of those, over 1 million have loan balances north of $100,000.
If you’re nearing retirement, the last thing you want on your plate is student debt. In this episode of Retire with Ryan, Erik Kroll shares the best way to manage student loan repayment.
You will want to hear this episode if you are interested in...
[2:17] The different types of Federal student loans
[5:32] Private loans versus PLUS loans
[8:07] The forgiveness programs available
[9:37] Student loan repayment options
[22:40] How to start the consolidation process
[25:48] What to do if you need help with the process
The different types of Federal student loans
The maximum limit a student can borrow per year in Federal undergraduate loans starts at $5,500 as a freshman and increases to $7,500 once they’re a Junior/Senior. Most colleges charge a lot more than that.
Most parents look to Parent PLUS loans to fund any amount beyond that. Your income doesn’t matter. Your credit score doesn’t matter. There’s no cap on how much you can borrow (up to the cost of your child’s costs minus any aid).
If you have more than one kid, these expenses can add up quickly. Too many parents say, “We’ll just figure it out later” and end up drowning in debt. What do you do?
Know your loan repayment options
What forgiveness or repayment options are available? With the Public Service Loan Forgiveness (PSLF) program, if you work for a non–profit or government employer, and make qualifying payments for 10 years, your loans will be forgiven (keep in mind you must complete the application form every year to stay current).
You can also pay off the loans in a standard 10-year repayment plan, totaling approximately $1,200 a month for every $100,000 borrowed. Depending on your income, you can qualify for an income-driven repayment plan.
The standard length for general forgiveness depends on the payment plan you’re on. Some have 20-year repayment terms and some are 25 years (after which the loans are forgiven)
If you consolidate your parent PLUS loans, you only qualify for the income-contingent repayment (ICR) plan, which is the highest payment of all of the repayment plans. You’ll have to pay 20% of your discretionary income per month (often upward of $1,000 a month).
However, there’s something called the double-consolidation loophole: If a consolidation loan that repays a PLUS loan is only eligible for ICR, you can consolidate the loans into two different groups, and then consolidate those groups into one. That makes the final loan eligible for a different type of repayment plan (IBR, PAYE, SAVE, REPAYE, etc.), making the monthly payment far lower.
How to start the consolidation process
Your loan servicer will provide you with the consolidation applications that Erik recommends be completed via paper. Why? Federal loans offer the process via StudentAid.gov but you can only consolidate one time online in a six-month period. It’s easier to do the first round via paper and the second online.
The application will allow you to select the loans you want to consolidate. On page 3 of the form, you have to select the loans you do not want to consolidate. If you don’t complete the page, the servicer will assume you want to consolidate everything. Erik shares more about the process in this episode.
Resources Mentioned
Subscribe to the Retire with Ryan YouTube Channel
Email Erik at Erik(at)StudentLoansOver50.com
Set up a phone call with Erik at StudentLoansOver50.com