College loans won't disappear with debt relief plans

Susan Tompor | USA TODAY

Got student loan troubles? Don't create bigger headaches by falling for one of those "Obama Wants to Forgive Your Student Loans" tweets, emails or online ads.

Sure, the ads might be tempting, especially when you're short on cash for rent and food but still owe $400 a month toward student loans. Experts warn that more often than not, though, you're looking at costly fees from some debt settlement companies.

"The rule of thumb is if an email has the word 'Obama' in it, it's a scam," said Chris Dlugozima, community educator for the GreenPath Debt Solutions office in White Plains, N.Y.

Student loan debt is a hot topic, much like mortgage troubles were a few years ago. And the spammers know that people might have heard President Obama's name associated with student loan relief.

In March, Obama proposed a Student Aid Bill of Rights. His memo directs the Department of Education and other agencies to research options that could make repaying student loans more manageable. Nothing is final on that yet.

But here's what you need to know now:

No. 1: Student loan debt relief outfits charge fees for many services that borrowers could obtain on their own for free.

Do you need to be paying $20 or $30 a month or more to sign up for a repayment plan that you can obtain for free on your federal student loans?

Mark Kantrowitz, senior vice president and publisher for Edvisors.com, said terms in online ads, such as "Obama student loan forgiveness," exploit the desperation of borrowers.

Many students aren't aware of what they're able to do on their own right now for free.

"Consolidating federal education loans is not rocket science," Kantrowitz said. "It takes just a few minutes."

Borrowers can consolidate the federal loans for free at StudentLoans.gov.

Kantrowitz noted that borrowers should also realize they can consolidate their federal student loans into the Direct Loan program at StudentLoans.gov, even if their loans are held by a private lender in the old Federal Family Education Loan Program.

Many college graduates want to consolidate to make things more streamlined and replace anywhere from six to up to a dozen federal student loans with one single loan.

Since federal education loans have fixed rates, one doesn't need to consolidate to lock in a rate, Kantrowitz said.

No. 2: Figure out what you owe and who you owe.

The Consumer Financial Protection Bureau noted in prepared remarks for a field hearing on student loans today that it is launching a public inquiry into student loan servicing practices. Loans can move from one servicer to another and transfers can create headaches.

Many times students do not know what loans they have or the type. Go to the National Student Loan Data System website to track all your federal student loans at www.nslds.ed.gov.

Gerri Detweiler, director of consumer education at Credit.com, said you want to know whether loans are federal or private student loans because some generous repayment options exist for federal student loans. When it comes to private student loans, repayment options are at the discretion of the lender.

What you do not want to do is consolidate private student loans with federal student loans because you'd lose the generous repayment options of those federal loans. Also, federal student loans are usually less expensive than private, so it won't save money to consolidate them into a private student loan.

You can also obtain a free credit report at www.annualcreditreport.com to see what student loans are listed on your report.

Christine Milne, 23, said she's kept track of her loans through her school, Lawrence Technology University and her loan servicer. She graduated in 2014 with a degree in civil engineering and she's happy that she kept her borrowing down by working at Buddy's Pizza through college.

She makes about $45,000 a year as a construction technician at an engineering company in Southgate and has about $27,000 in student loans. She pays about $270 a month toward her student loans.

"Everything goes toward my apartment, my car and my loans but overall I'm doing OK," Milne said.

No. 3: If your budget is tight, review current repayment options.

If you owe $40,000 in student loans but you're making $20,000 a year, you could benefit from looking into income-based repayment plans.

It's possible to get some monthly payments down to around $103 with an income-based repayment plan instead of $365 a month under the standard 10-year repayment plan for some borrowers. That's based on a borrower with $35,000 in student loans at 4.66% and a $25,000 annual income, according to Kantrowitz.

When it comes to federal student loans, some income-based payment plans would limit your monthly payment to 15% of your discretionary income.

Discretionary income is defined as the amount by which the adjusted gross income exceeds 150% of the poverty line. The poverty line is based on the family's size and the state of residence.

The pay-as-you-earn repayment plan is 10%, so the monthly payments are one-third lower for borrowers underpay-as-you-earn repayment, sometimes called PAYER.

Income-based repayment plans forgive remaining debt after 25 years in repayment; PAYER after 20 years.

One can compare options with a repayment estimator at StudentLoans.gov.

You'd be able to use the calculator to estimate initial monthly payments, repayment plan eligibility, repayment plan cost comparisons, and total interest paid. To use the repayment estimator, you need your Federal Student Aid ID.

"One of the more generous real loan forgiveness programs is Public Service Loan Forgiveness, which is available to federal student loan borrowers who work full-time in a public service job," Kantrowitz said.

He noted that public service includes military, police, fire, EMT, public school teachers, social workers, public librarians and others.

The borrower also must make 10 years or 120 payments in the Direct Loan program, while working full time in public service to qualify.

Those who are struggling to repay their debt would be better served by studying what's really available. The most common myth is that $45,000 of federal student loan debt will be canceled after 20 years in repayment provided that the borrower has repaid at least 10% of the balance. Not true, Kantrowitz said.

None of the real loan forgiveness options are called "Obama Student Loan Forgiveness," Kantrowitz said.

Contact Susan Tompor: 313-222-8876 or stompor@freepress.com



