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Michelle Singletary: The class of 2017 still has more to learn about student loans


WASHINGTON — 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 last 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 but also 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 that is servicing their federal student loans.

Forty-three percent didn’t know 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 such 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 on income-based plans have much lower default rates than those enrolled in other types of payment arrangements. The CFPB said 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 Department of Education estimates that more than 8 million federal student loan borrowers have gone 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 co-signers’ 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 who, 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 student 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.”

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her email address is michelle.singletary@washpost.com. Follow her on Twitter at SingletaryM or Facebook at facebook.com/MichelleSingletary.



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