8 College Repay Plans – and Counting

This was going to be a quick blog post about the new student loan repayment program rolled out by the federal government in January. But the differences between it and the seven plans that preceded it were too confusing to figure out on a tight deadline.

This isn’t just the view of one cranky blog writer. Craig Lemoine, a financial planning professor and student loan expert at the American College of Financial Services, which trains financial planners, also admits to being confused about the repayment options, which keep increasing in number.

If Lemoine were a student, he asked, “How on earth would I know which one to pick?”

His confusion pales in comparison with that of a lovely and loved young member of my family. She’s vague on the details of how her own student loans work. Here’s a rough approximation of our recent telephone conversation:

Me: Are your student loans from a private lender or the federal government?

Family member: I don’t know.

Me: There are repayment programs for recent graduates with low incomes that would reduce your monthly payments.

Family member: Oh yeah, I called, and I think they said that’s what I have. I owe $450 per month. I think they deferred them, but they said I can pay them if I want to.

Me: Send me the paperwork.

The U.S. Department of Education’s newest loan repayment plan is called REPAYE – the Revised Pay as You Earn Plan. It caps monthly payments at 10 percent of the borrower’s after-tax, discretionary income and is for people who are “having trouble affording your monthly payments.” That description also fits the PAYE repayment plan.

The other options on the DOE website are the Standard Repayment Plan, the Graduated Repayment Plan, the Extended Repayment Plan, the Income-based Repayment Plan, the Income-Contingent Repayment Plan, and the Income-Sensitive Repayment Plan.

Lemoine said one of REPAYE’s distinguishing features is that, in contrast to the more restricted repayment options made available in the past, REPAYE applies to virtually all federal student borrowers. Another good thing to know is that individuals can “flip between” the various repayment plans, depending on their circumstances, he said. There is also a repayment plan now for consolidated loans, he said.

Lemoine understands the complexities of figuring out which plan is best for each individual. Yet he still asks this question: “Is there some reason we can’t have one repayment plan?”

This blog plans to write more in coming months about weighing various student loan repayment options. Meanwhile, here are some resources:

• ClearPoint Credit Counseling has an extensive blog post explaining the refinancing options for private student loans financed by Sallie Mae, banks and other financial institutions. The blog’s writer also answers dozens of questions posed by borrowers in extremely difficult situations.
• For federal student loans, the DOE’s main repayment plan website provides links to details about each of the federal government’s eight repayment plans. The DOE’s help line number is 1-800-433-3243.
• There’s no easy way out of student loans, which can’t be discharged in bankruptcy court. The only way to pay back a student loan is the way Melanie Lockert did: one dollar at a time.

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