Student Debt Refinancing and Consolidation Blog and Resources

Guest Post by Ryan Inman    Public Service Loan Forgiveness is a federal program that forgives the student loan debt of borrowers that meet its requirements. The program started in 2007, and because this is a 10-year program the first round of applications started in late 2017. After the first wave of applications was processed, the staggering low approval rates made national news. As of February 2020, 1,730 of the 140,102 borrowers who applied had their loans forgiven. The current approval rate of 1.2 percent is not much higher than it was three years ago. In order to receive Public Service Loan Forgiveness, student loan borrowers must meet three rules for 120 payments: Right type of student loan Right repayment plan Right employment Many doctors with student loans from medical school see Public Service Loan Forgiveness as a way to help them pay off their high six figure debt, while pursuing a career they love. Most accept lower paying jobs in hospitals and academia, and have an income-driven payment that doesn’t cover the interest that accrues on their student loans every month. For doctors, having a Public Service Loan Forgiveness application denied puts them in a worse situation than when they graduated because their loans have grown, sometimes by more than $100,000, due to having a payment that didn't keep up with their interest charges.  Low approval rates were attributed to borrowers who submitted inaccurate applications, borrowers who were on the wrong repayment plan, and borrowers who had the wrong types of loans. Key Takeaway: Understand the loan requirements 14% of applications were denied due to having the wrong type of student loan. 23% of applicants didn’t file their paperwork properly or submitted multiple applications. 59% of applications for Public Service Loan Forgiveness were denied because the borrower hadn’t earned the full 120 qualifying payments needed. What types of student loan qualify for Public Service Loan Forgiveness? As of February 2020, 14 percent of applications were denied due to having the wrong type of student loan. When the PSLF program was enacted in 2007, only 21 percent of outstanding loans were direct loans. Because a large portion of borrowers had Federal Family Education Loans when this program was rolled out, many did not know that they were not making qualifying payments towards the program. Borrowers could consolidate their FFEL loans into a Direct Consolidation Loan to qualify for PSLF, but consolidating resets the 120 qualifying payment count required for the student loan forgiveness program. Many people were not aware of this workaround until they tried to apply. Had they consolidated years ago, they could be well on their way to qualifying for Public Service Loan Forgiveness. How do errors affect the application process? By June 2019 over 90,000 unique borrowers submitted applications for the PSLF program, but over 111,000 applications were submitted. As of February 2020, 23 percent of applicants didn’t file their paperwork properly or submitted multiple applications. Over 140,000 unique borrowers submitted applications, but over 178,000 applications were submitted. For every borrower that applied for forgiveness, there was an average of 1.3 applications submitted by February 2020, up from 1.2 in June 2019. This increasing rate of applications to borrowers tells us that more borrowers are needing to submit multiple applications due to errors or missing information in their previous applications. In February 2020, 59 percent of applications for Public Service Loan Forgiveness were denied because the borrower hadn’t earned the full 120 qualifying payments needed. What types of repayment plan qualify for Public Service Loan Forgiveness? To meet the final requirement to be approved for Public Service Loan Forgiveness, borrowers needed to be on an income-based repayment plan for all 120 payments. Many borrowers were not aware of this requirement due to a lack of guidance or misinformation from their loan servicer. Borrowers on the Graduated Repayment Plan, Extended Repayment Plan, a Consolidation Standard Repayment Plan, or a Consolidation Graduated Repayment Plan were not eligible for Public Service Loan Forgiveness under the original rules. Congress passed a temporary policy to set aside a separate fund and application process, to help borrowers who discovered they were on the wrong repayment plan. Temporary Expanded Public Service Loan Forgiveness, TEPSLF, set aside $350 million in 2018 for borrowers denied Public Service Loan Forgiveness due to being on the wrong repayment plan. As of February 2020, $55 million of the $350 million Congress set aside was used. The funds are finite, are on a first-come, first-served basis, and will eventually run out. However, for borrowers who were not on one of the four income-based repayment plans, this expansion could help them qualify for forgiveness if they were denied under the Public Service Loan Forgiveness application. Current statistics of applications Public Service Loan Forgiveness applications as of February 2020: Total applications — 178,642 Unique borrowers applying — 140,102  Pending applications — 12,338 Approved applications — 2,828 Approved applications by employment type Government — 75% Non-Profit — 25% Reasons for denied applications Qualifying payments were not met — 59% Missing information — 23% No eligible loans — 14% Applications with loans discharged — 1,730 Total balance discharged — $108,126,451 Temporary Expanded Public Service Loan Forgiveness applications as of February 2020:  Total applications — 27,791  Approved applications — 1,500  Reasons for denied applications Did not meet 120 payment requirement — 46% Borrower had not made a payment in the last 12 months — 19% Repayment plans of approved applications Income-Driven Repayment Plans — 64% Graduated Repayment Plan — 17% Fixed Payment, Extended Term — 14% Standard Repayment — 4% Other — 1% Applications with loans discharged — 1,297 Total balance discharged — $55,425,848 of $350,000,000 Limit What should you expect going forward? By submitting the employment certification form annually, borrowers can ensure their qualifying payment is tracked in real time. If this is submitted every year, borrowers can catch errors within a year, instead of 10 years later. As of February 2020, over 2.8 million employment certification forms had been submitted. Roughly 44 percent of the submissions were denied; however, only 10 percent of applications were denied because of something other than missing information on the application. There’s $118 billion of student loans with approved employment certification forms, for just over 1.2 million borrowers. Many factors led to an extremely low approval rate for PSLF program applicants in the first years of applications. However, the approval rate is trending upwards giving hope to borrowers still working towards the loan forgiveness program. For now, borrowers pursuing Public Service Loan Forgiveness should confirm their loan type qualifies for forgiveness, continue to monitor their progress through annual employment certification, as well as an annual review of their repayment plan to ensure they are still on track. For borrowers denied forgiveness on both the Public Service Loan Forgiveness and the Temporary Expanded Public Service Loan Forgiveness, another 10 years of payments on an income-driven repayment plan might actually cost them more than refinancing their loans into private student loans or just paying them off. Unfortunately, this is the reality of many borrowers who thought they were on track for the forgiveness program. Ryan Inman is the host of the Financial Residency podcast and President of Physician Wealth Services, a fee-only financial planning firm that works exclusively with physicians across the country. He helps physicians create a life they love by helping them gain control of their money, the same way you make a patient feel better about their health.

For the month of May, Best Company Finance (@BestCoFinance) has been posting tips and tricks on avoiding, leveraging, and managing student debt on our Twitter account, including advice for the FAFSA, scholarships, private loans, and loan payoff. In case you missed it, here are some expert highlights and hints you can use to pay for college. Plan ahead—way ahead It’s never too early to start thinking about college, and our experts agree. With college costs so high, prospective students have to be creative and unconventional.To cut costs, consider concurrent enrollment in high school: “Find out if you can take college classes while still in high school. Many high schools have established partnerships with local colleges to allow students to take college-level courses. These are generally offered at no charge, or at a discounted rate, as part of the high school curriculum.”Freedom Debt Relief Get a clear picture of what degree you’re aiming for: “The ‘average’ for public college is four and a half years to graduate. Because more than 50 percent of college freshmen change majors, it’s also important to talk about career selection before college begins.”Patti Black, Bridgeworth, LLC If you’re still young or know someone who is, suggest searching for and planning for scholarships ahead of the game: “There are many scholarships open to elementary and secondary school students, not just high school seniors. Plus, half the scholarships have deadlines in the fall, so if you wait to search for scholarships and to apply, you'll miss half the deadlines.”Mark Kantrowitz, SavingForCollege.com “If you are fortunate to have the foresight, think about getting involved in student clubs, sports, extracurricular activities, and community service as early as possible.” Sylvia Wu, Keeping Up with the Changs“The strategy with scholarships that's worked best for my students is casting a wide net . . . the most lucrative scholarships are usually the most competitive. Receiving a few scholarships, each for $1,000, is the same as one for $5,000. But it's much easier to qualify for the five scholarships that are less competitive.”Dennis Shirshikov, FitSmallBusiness.com Hunt for the best deals, and try before you buy: “The best way to minimize the need to spend excessive amounts of assets or debt on college is proper college selection.”Jim Anderson, Making College Worth It Apply for the FAFSA and the CSS All prospective students should file for the FAFSA — even if they doubt they’ll be offered funding: “Make sure you complete your FAFSA because there might be scholarships or grants available which do not consider financial circumstance as a qualifying criterion. As a result, if you don’t file your FAFSA because you don’t think you’ll qualify, you might miss out on money.”Riley Adams, YoungandtheInvested.com“Even if you don't qualify for need-based financial aid, the FAFSA is the key to getting federal student loans.”Robert Farrington, TheCollegeInvestor.com Know what files the FAFSA will pull to qualify you for eligibility; it pulls financial records from one year prior to the October 1 opening date. For example, for the 2020–2021 FAFSA, filers who apply October 1, 2019, and on, will report their income for 2018: “Families really need to understand how FAFSA works before sophomore year of high school. Reason: so families don't mess up their chance at getting the most grant money because they unknowingly increased their income or assets for the FAFSA calculation.”Jim Anderson, Making College Worth It Don’t forget the CSS Profile: “Some schools and states require you to fill out the CSS Profile as well as the FAFSA. Don't leave money on the table and make sure to fill out both.“Lindsey Conger, Moonprep.com Crowdfund your education . . . sort of Many family members, friends, and institutions can help you reduce college costs: “Look into tuition reimbursement programs offered by local employers. For instance, a high school student who is interested in a career in broadcast journalism may be able to take an entry-level position at a local station, which will help pay for college courses. Go local. Room and board costs can be significant. Living at home, even if for a couple of years, and attending a local school, can save big. Or, consider living off campus to share rent and utility costs with roommates. Check into family discounts. If you have a relative who works at a college . . . it’s possible you might qualify for a family discount. Consider the service. While not for everyone, military service is an option for some teens. If they are willing to give several years of service to one of the military branches, college classes will be covered.”Freedom Debt Relief“There are scholarships everywhere, based on everything from your gender, ethnicity, religion, professional associations, and much more. Your parents' employer might even have a scholarship program available to you. So do your homework and leave no stone unturned.”David Bakke, MoneyCrashers.com Plan your payback Be smart about what loans you take out. Federal loans have fixed rates, more deferment options, and consolidation plans: “When it comes to loans, they should be a last resort. And if you need to borrow, always borrow federal loans before looking at private student loans.”Robert Farrington, TheCollegeInvestor.com Ask for help so you don’t end up paying more than you need to: “When you graduate college, meet with a Financial Adviser to review your student loan repayment plan. They will advise you if it is best to consolidate your loans, [look into] refinance options, or if you qualify for a loan forgiveness program based on your career path.”Jacqueline Devereux, SproutCents Take advantage of any bonus income to wipe out debt: “Throw all windfalls into your loans. Got a raise? Birthday money from Grandma? Extra cash from a side gig? Put it towards your loans.”Holly Peterson, Elite Retirement Strategies Consider your post-college education plans: “If you intend to collect more debt in graduate school, it is crucial you choose a lower cost school in undergrad. If you go on to become a doctor or lawyer, you may be eligible for special mortgage loans that take [into] consideration your extensive educational debt and high current/future earnings.”Chelsea Mariah Stellmach, KaiZenith Admissions Continually reassess your payment plan: “Consider loan consolidation — carefully. Consolidation can lock in a low fixed rate, extend the repayment period significantly and lower the payment — sometimes cutting it in half. While it can help if you’re truly cash-strapped, remember it’s important to pay off the debt as quickly as possible. If for any reason you cannot pay your student loan bill, immediately contact your lender. A lender would rather work with you to figure out some alternative payment plan than risk a defaulted loan. . . Damage from defaulting can prevent borrowers from buying a home or car or getting a job, apartment, or insurance for years to come.”Freedom Debt Relief  College can be a gateway to opportunity, but only if you keep your finances in check. Think outside the box and search for more expert advice to keep yourself financially healthy while preparing for your future.