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Student Loan Repayment Pitfalls - Don't fall in...

Usually, I do not resend articles written by other outlets, but in this case I am, because I think it is so important and I get asked about student loan payback plans a lot.

If you, or your child, have student loans, please read 6 Tips for Avoiding the Worst Student Loan Repayment Traps by Ron Lieber, in the New York Times, January 20, 2017.

My general advice on student loan payback plans, which this article only touches on, is to get on Studentloans.gov and click the "use the repayment estimator." Once you are at the Repayment Estimator, go through EVERY student loan repayment program with your eligible loans and make a table with the name of the repayment program down the side of the table and across the top have a column for each of the following information types:

  • First Payment
  • Last Payment
  • Total Paid
  • Forgiveness
  • Period of Repayment

Fill in all the data list above for your loans and compare each program. You want to optimize the following TWO items:

  1. monthly payment; AND
  2. total paid

Don't worry about forgiveness not being on my list of two items to optimize. If you are eligible for forgiveness, it will be reflected in a much reduced "total paid." The reason I ask you to "optimize" both monthly payment and total paid, is that when you are just out of school or maybe you've just started a family, monthly payment matters A LOT, but at the same time, you do not want to pay tons in interest over the life of your loan, which may be up to 20 years. Try to find a payment plan that allows you the lowest monthly payment you can manage while also giving you the lowest total payback possible. That's optimizing.

There may be plans with lower monthly payments, but over the life of your loan you end up paying thousands more in interest because you paid so little each month. That's not optimizing. Each case is different and you might be in a period of life where monthly payment is all that matters. I get that, but, in general, try to optimize both total paid AND monthly payment.

We live in uncertain times and all these program might change or go away altogether. It's worth the ONE HOUR it will take you to fill in this table and make sure you are on the right repayment plan before that repayment is potentially eliminated. You may still be able to be grandfathered in if you enroll before any changes are made.

Student loans are not to be messed with. These things stay with you even if you were to go through bankruptcy. Yep! They never go away until they are paid or forgiven (if you are on a forgiveness plan). Speaking of forgiveness. Do not assume you are eligible for a forgiveness plan and if you are eligible, do not assume you are enrolled. You have to enroll in the plan and make sure they count all the years for which you are eligible.

Student loans, like many other great benefits offered by our government, have to be monitored, checked and generally stayed-on-top-of throughout the time you have them. Email me if you have questions or would like my template for the table i discussed above.

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