{"id":9700,"date":"2020-01-28T13:43:49","date_gmt":"2020-01-28T18:43:49","guid":{"rendered":"https:\/\/www.afcpe.org\/?p=9700"},"modified":"2020-01-29T09:52:11","modified_gmt":"2020-01-29T14:52:11","slug":"student-loan-essentials","status":"publish","type":"post","link":"https:\/\/www.afcpe.org\/news-and-publications\/blog\/student-loan-essentials\/","title":{"rendered":"Student Loan Essentials"},"content":{"rendered":"

Student loans have become an important part of the advisor\/client relationship. Most clients, and most advisors, however, find student loans confusing and difficult to manage. This post will walk you through the essentials that all advisors need to understand about student loans.\u00a0<\/span><\/p>\n

Types of Loans<\/strong><\/p>\n

Student loans fall into one of two buckets: federal and private loans.<\/span><\/p>\n

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\nFederal loans make-up about 92% of all student loan debt, while private loans account for the other 8%.<\/span><\/p>\n

Federal loans are issued by the federal government and are regulated by federal law. These loans can be found on the National Student Loan Data System, or NSLDS, at <\/span>https:\/\/nslds.ed.gov\/nslds\/nslds_SA\/<\/span><\/a>.<\/span><\/p>\n

Private student loans are issued by banks and other lending institutions with repayment terms determined by the lender. These loans can be found on a borrower\u2019s credit report.<\/span><\/p>\n

Federal loans can be further broken down into four types of loans: Direct; FFEL; Parent Plus, and Perkins. FFEL loans were discontinued in 2010 and Perkins loans were discontinued in 2018, but advisors will see these types of loans on their client\u2019s information.\u00a0<\/span><\/p>\n

Repayment Plans<\/b><\/p>\n

There are two broad categories of repayment plans: Balance-driven plans and Income-driven plans.<\/span><\/p>\n

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Balance-driven plans include fixed and graduated repayment plans. Clients can have a fixed payment for 10 or 25-years or a graduated plan that starts with a low payment that steps up every two years.<\/span><\/p>\n

To help understand the various repayment types better, let\u2019s consider a case study of Karen, who is single with no dependents. Karen has $50,000 in student loan debt at 6.2% interest. Her AGI is $40,000.<\/span><\/p>\n

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Income-driven plans include Pay As You Earn (PAYE), Income-Based Repayment (IBR), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR). Under income-driven plans the payment is determined by the client\u2019s AGI, their household size, and their discretionary income.<\/p>\n

For most of the plans discretionary income is calculated by taking the client\u2019s AGI and subtracting 150% of the poverty level for their family size. To continue using Karen\u2019s example we will use her AGI or $40,000 and poverty level of $12,490.<\/span><\/p>\n

The calculation looks like this:<\/span><\/p>\n