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Do you have clients that are struggling to pay back their student loans?

They’re not alone. According to the Consumer Financial Protection Bureau, nearly 25% of the more than 41 million people with student loans have trouble paying back their college debt. Student loans are the second largest form of consumer debt in the United States, after mortgages. The total amount of outstanding educational loans has exploded in the past decade, going from $600 billion in 2007 to $1.4 trillion today. In 2016, the average graduate left school with over $37,000 in student loan debt.

The good news is now there are some student loan repayment plans that can help families manage their student loans better. Yes, there is the Standard Repayment Plan that covers Direct Subsidized and Unsubsidized loans, Subsidized and Unsubsidized Federal (FFEL) Stafford loans, and all Parent Loans For Undergraduate Students (PLUS). The loans have fixed payments (minimum $50/month) up to 10 years. And while the majority of student loan borrowers use the Standard Repayment Plan, there are 6 other repayment plans that can ease the burden for your clients, both students and parents, that find themselves cash-strapped and having trouble making payments. Here are the features and benefits of those 6 repayment plans:

Graduated Repayment Plan

Eligible loans are:

• Direct Subsidized and Unsubsidized loans
• Subsidized and Unsubsidized Federal (FFEL) Stafford loans
• All PLUS loans

Monthly Payment and Time Frame

• Payments are lower at first and then increase, usually every two years
• Up to 20 years

Other Features

• Student will pay more for the loan over time than under the 10-year standard plan

Extended Repayment Plan

Eligible loans are:

• Direct Subsidized and Unsubsidized loans
• Subsidized and Unsubsidized Federal (FFEL) Stafford loans
• All PLUS loans

Monthly Payment and Time Frame

• Payments may be fixed or graduated
• Up to 25 years

Other Features

• Student’s monthly payments would be lower than the 10-year standard plan
• Student must have more than $30,000 in outstanding loans
• Student will pay more for your loan interest over time than under the 10-year standard plan

Income Contingent Repayment Plan

Eligible loans are:

• Direct Subsidized and Unsubsidized loans
• Direct PLUS loans made to students
• Direct Consolidation loans

Monthly Payment and Time Frame

• Payments are calculated each year and are based on your adjusted gross income, family size, and the total amount of your Direct loans
• Payments change as income changes
• Up to 25 years

Other Features

• Students will pay more for your loan over time than under the 10-year standard plan
• If student does not repay loan after making the equivalent of 25 years of qualifying monthly payments, then the unpaid portion will be forgiven
• Students may have to pay income tax on the amount that is forgiven

Income-Sensitive Repayment Plan

Eligible loans are:

• Federal FFEL Subsidized and Unsubsidized Stafford loans
• FFEL PLUS loans
• FFEL Consolidation loans

Monthly Payment and Time Frame

• Monthly payment is based on annual income
• Payments change as income changes
• Up to 10 years

Other Features

• If you need to make lower payments on your FFEL Program loans, this plan may be for you.

Income-Based Repayment (IBR) Plan

Eligible loans are:

• Direct Subsidized and Unsubsidized loans
• Subsidized and Unsubsidized Federal (FFEL) Stafford loans
• All PLUS loans made to students
• Consolidation loans (Direct or FFEL) that do not include Direct or FFEL PLUS loans made to parents

Monthly Payment and Time Frame

• The student’s maximum monthly payments will be 15 percent of discretionary income or the difference between adjusted gross income and 150 percent of the poverty guideline for the family size and state of residence (other conditions apply)
• Payments change as your income changes.
• Up to 25 years

Other Features

• The student must have a partial financial hardship
• Monthly payments will be lower than payments under the 10-year standard plan
• The student will pay more for the loan over time than under the 10-year standard plan
• If student has not repaid the loan in full after making the equivalent of 25 years of qualifying monthly payments, any outstanding balance on the loan will be forgiven
• The student may have to pay income tax on any amount that is forgiven

Pay As You Earn Repayment Plan

The PAYE Plan enables Direct loan borrowers to cap their monthly student loan payment amount at 10 percent of monthly discretionary income, without regard to when the borrower first obtained the loans. PAYE Plan was made available to borrowers starting on December 17, 2015.

Eligible loans are:

• Direct Subsidized and Unsubsidized loans
• Direct PLUS loans made to students
• Direct Consolidation loans that do not include (Direct or FFEL) PLUS loans made to parents

Monthly Payment and Time Frame

• Maximum monthly payments will be 10 percent of discretionary income, the difference between adjusted gross income and 150 percent of the poverty guideline for your client’s family size and state of residence
• Payments change as your income changes
• Loan periods are up to 20 years for undergraduate loans, and 25 years for graduate student loans

Other Features:

• Monthly student loan payments are capped at 10 percent of monthly discretionary income, to any student, without regard to when the borrower first obtained the loans.
• Unlike with the IBR plans, PAYE Plan borrowers don’t have to show that their income is low compared to their federal student loan debt to enter PAYE. In simple terms, that means that the amount of your client’s debt and income level won’t keep them from qualifying.
• If your client’s payment doesn’t cover all of the interest, PAYE pays more of the remaining interest than PAYE or IBR. This can help prevent the loan balance from ballooning and limit the total cost of the loans.
• PAYE forgives remaining debt after 20 years for those who borrowed only for undergraduate study and 25 years for those who borrowed for graduate study, and
  Income tax will be due on any amount that is forgiven.

When Clients Have Trouble Making Payments

If your clients are having trouble making payments on loans, they should contact their loan servicer as soon as possible. The loan servicer’s staff will work with each student, or parent, to determine the best repayment option. This includes:

• Changing repayment plans
• Deferment (if certain requirements are met), which allows students to temporarily stop making payments on their loan.
• Forbearance (if a student does not meet the eligibility requirements for a deferment, but is temporarily unable to make loan payments), which allows a student to temporarily stop making payments, temporarily make smaller payments, or extend the time for making payments on loans.

When students stop making payments and do not get a deferment or forbearance, the loan could go into default, which has serious consequences.

A loan becomes "delinquent" if the monthly payment is not received by the due date. When a student fails to make a payment, he or she will get a reminder that the payment is late. If the account remains delinquent, the student will be sent warning notices reminding them of the consequences of default, and their obligation to repay the loan.

When students are delinquent on loan payments, they should contact their loan servicer immediately to find out how to bring the account current. Late fees may be added, and any delinquency will be reported to one or more national consumer reporting agencies (credit bureaus), but that is much better than remaining delinquent on payments and going into default.

The Consequences of Default Can Be Devastating

For student loans authorized under Section 435(i)Title IV of the Higher Education Act, default occurs on a Federal Family Education Loan (FFEL) program loan after a default has persisted for 270 days in the case of a loan repayable in monthly installments (330 days in the case of a loan repayable in less frequent installments). The rule is effective for loans for which the first date of delinquency occurred on, or after, October 7, 1998.

During the delinquency period, the loan holder must exercise "due diligence" in attempting to collect the loan; that is, the loan holder must make repeated efforts to locate and contact the student or parent about repayment. If the loan holder’s efforts are unsuccessful, steps will be taken to place the loan in default and to turn the loan over to the guaranty agency in the student’s state. The loan holder may "accelerate" a defaulted loan, which means that the entire balance of the loan (principal and interest) becomes due in a single payment.

Once the loan is assigned to a guaranty agency or the U.S. Department of Education for collection, the following steps may be taken to recover the outstanding balance due:

If the student or parent defaults on their loan:

• The Department of Education will require the student/parent to immediately repay the entire unpaid amount of the loan.
• The Department of Education may sue the student/parent; take all or part of their federal and state tax refunds, and other federal or state payments; and/or garnish the student/parent’s wages so that their employer is required to send 15% of his or her salary to pay off the loan.
• The Department of Education will require the student/parent to pay reasonable collection fees and costs, plus any court costs and attorney fees.
• The Department of Education will report the student/parent’s default to a national consumer reporting agency (credit bureaus).
• The student/parent “may” be denied a professional license.
• The student/parent may not receive any additional Title IV federal student aid until he or she has made payments of an approved amount for at least six consecutive months.

If you have clients with student (Stafford) or parent (PLUS) loans, please send them the link to this article. They need to know their rights to change repayment plans and the devastating consequences of defaulting on their loans.