Student Loan Refi’s
College loans refinancing is complex due to the combination of federal and private loan programs. Flexible loan repayments are available today only for the federal student loans, so be careful if considering adding any private student loans to the mix.
If you don’t do your research and shop wisely you could find at worst, the loans can compound too rapidly and get out of control leading to defaults or even worse bankruptcy.
Refinancing multiple student loans can be appealing if the new loan has a longer repayment period, which can significantly reduce the minimum payment and make it more affordable.
Federal Debt Programs
Income-Based Repayment – loans payments are capped at 15 % of discretionary income and can be even less for individuals below 150 % of the federal poverty level.
Pay as You Earn – capped at 10 % of discretionary income; balance after 20 years is forgiven.
Revised Pay as You Earn – similar to “Pay as You earn”; however negatively amortizing interest charges accrue at only 50 % of the unpaid interest and only capitalized if the student leaves the loan program.
Like other loans that are forgiven, student loans can trigger taxable income to the borrower if the program is one of the three mentioned above. However, the Public Student Loan Forgiveness program can apply to any of the federal loan programs turning the situation from taxable event to a non-taxable event; in addition, the forgiveness period can be shortened to as little as 10 years.
This program is only available to those individuals who work full-time in the public sector.
Bottom line – stay away from private student loans, keep your debt load as minimal as possible otherwise you could find yourself deep in debt with many years into the future paying off your student loads.
Financial Quote – “The first rule of personal finance is that it’s not personal and it’s not financial. It’s about your ability to make ten changes and not get too depressed over it.” James Altucher
Daniel Iuculano, AAMS CMFC
Accredited Asset Management Specialist
Chartered Mutual Fund Counselor