Monthly Archives: March 2017

Student Loan Repayment Plans Might Be Costlier Than Expected

It’s hard to argue against making student loan payments more affordable.

Millions of people who struggle to pay their loans have found relief by signing up for student loan repayment plans that allow them to reduce their monthly bill based on a percentage of their income.

The program is now getting new scrutiny after a Government Accountability Office report found that the cost of the program was more than double the amount the Department of Education had budgeted. As a result, taxpayers are now on the hook to forgive at least $108 billion in student loans, the GAO estimates.

Many borrowers are also paying more than they expected. The appeal of these plans is that they cap your monthly payment to 10 percent of your income. If you haven’t paid the loan off after 20 to 25 years (depending on when you took it out and the kind of loan you have) the remaining balance is canceled.

But there’s a downside. Even though you reduce the amount that you pay, interest continues to accrue on the balance. That means you could end up owing more than if you were on the standard 10-year student loan repayment plan. And if the loan is forgiven, you’ll owe income taxes on that balance.

There are exceptions. If you’re in a public service loan forgiveness program and make 10 years of qualifying payments, you won’t owe taxes. And if you’re insolvent at the end of a 20- or 25-year forgiveness period, the tax bill may be waived.

Choose Carefully

If you’re in a student loan repayment plan like this now or think you’ll need one, here’s what you should know to ensure it doesn’t cost you more than you expected.

There are five income-driven student loan repayment plans. The one you choose can have a big impact on how much you end up paying in total. If you can qualify (you have to prove financial need), the optimal plans for lowering your monthly payment are the Pay As Your Earn (PAYE) and Revise Pay As You Earn (REPAYE) plans.

Most recent borrowers who demonstrate financial need can use PAYE. This plan limits your payments to 10 percent of your discretionary income, caps your payments, and has a 20-year forgiveness period. The REPAYE plan is even more generous because it’s available to all direct federal loan borrowers regardless of when they took out their loans. You don’t have to prove financial hardship. It also reduces payments to 10 percent of your discretionary income, and there’s no cap on payments. As your income rises, so do your payments.

Not all loans are eligible. Income-based student loan repayment plans are available only to people who borrowed directly from the federal government. Before 2010, private banks made loans that were guaranteed by the federal government—Federal Family Education Loans. Those borrowers can qualify for income-based repayment, but they can access the other income-driven plans only if they consolidate their loans. If you have a Parent PLUS loan, you can do income-contingent repayment, which caps your payments at 20 percent of income. But there’s no limit to how much your monthly payments can grow. Private loans aren’t covered, though you can ask your lender whether you can work something out.

There’s lots of paperwork. Qualification depends on your income, and you have to be certified every year. Fill out a student loan repayment plan request with the DOE’s Office of Federal Student Aid and submit it to your loan servicer. He or she will review the paperwork and let you know whether you qualify. Once you are enrolled in a student loan repayment plan, you need to submit new paperwork to your servicer every year to show your expected income.

You must make steady payments. You have to make regular payments for the loan to be eligible for forgiveness. They don’t have to be consecutive, but if you stop paying—say for a deferment for grad school or a forbearance—you’ll need to resume the number of payments until they equal 20 (240 payments) or 25 years (300 payments).

Don’t Leave Payments on Autopilot

If you are struggling to pay your loans, getting into an income-based program is the smart thing to do, says Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project. But once you get back on track, don’t leave your payments on autopilot. There’s no penalty for prepaying, so step up your payments as your income grows.

Use the DOE’s repayment estimator to see what you’ll owe over time based on the student loan repayment plan you choose. Also check our interactive tool, which shows you how different payments options affect the amount you owe.

And lastly, stay on top of your paperwork. To take advantage of the forgiveness option, you’ll need documentation to show that you’ve made all of your qualifying payments. If you work in public service (teaching, or working at a nonprofit or for the government, for example) and are seeking debt cancellation through the public service loan forgiveness program, you need to file forms with your servicer showing you work for an eligible employer. We recommend doing it once per year.

Don’t depend on your student loan servicer to be on top of things. The DOE and the Consumer Financial Protection Bureau have been cracking down on servicing problems, an issue that Consumers Union, the policy and mobilization arm of Consumer Reports, has been trying to resolve, too.

Consumer Reports and other student loan advocates are also pushing to simplify the programs by creating one universal income-driven repayment plan.

“Now that the various plans are better known to the public, people are finally using these in higher numbers, and in the short term, this can be a good thing because it will prevent borrowers from falling behind on payments,” says Suzanne Martindale, staff attorney at Consumer Reports who specializes in student debt issues. “But this is a Band-Aid solution. Policymakers have created an expensive and complex loan system that fails to address the larger goal of reducing the cost of education so that all students have greater opportunities to contribute to our society and economy.”

Income-based plans aren’t likely to go away. The Obama administration has been pushing to expand the program. And in October, president-elect Donald Trump proposed a similar plan, capping monthly payments at 12.5 percent of the borrower’s income instead of 10 percent, and forgiving balances left after 15 years of payments instead of 20 to 25 years.

Income-based repayment plans “are an incredibly valuable resource for people who are having difficulty paying,” says Yu.

SOURCE: Consumer Reports,


Scammers Top 10 List

From the classics to the innovative, this top ten list includes the most popular scams and fraud schemes of the year with some new additions to look out for in the coming months!

#10 Sweepstakes Scam: You’ve won a contest! Or the lottery! Or the Publishers Clearinghouse Sweepstakes! All you have to do to claim your prize is to pay some fees or taxes in advance so they can release your prize… This is not a new scam, but it is a perennial problem.

#9 Romance Scam: Romance scammers contact their victims through online dating websites or sometimes Facebook. They will quickly request to communicate outside of the avenue in which you met, either through personal email or text messaging. These scammers will start by asking for a small favor in order to gauge whether the victim will be likely to help in the inevitable emergency that will occur in the future and require a much larger sum of money that they will request be sent by Western Union or Money Gram.

#8 Robocall Scam: The notorious “Rachel from Cardholder Services” made a resurgence in 2016. This scam claims to be able to lower your credit card interest rates and takes personal information – including your credit card number – and then charges fees to your card. Robocalls will always give you the option to be removed from their call list by pressing a certain number. Hang up and do dot press anything! This will only confirm that there is a live person on the other end of the phone and they will keep calling back.

#7 Government Call Scam: Scammers will call claiming to be a representative from some government agency (the IRS, Medicare, etc.). They will then either inform you that you owe their agency money and request immediate payment or they need you to verify some sensitive information over the phone that they will then use to do further damage.

#6 Emergency Scam: This one is sometimes called the “grandparent scam” because it often preys on older consumers. You get a call or email from your grandchild or other relative who was injured, robbed or arrested while traveling overseas and needs money ASAP. Do not send money!!

#5 Can You Hear Me Scam: You get a call from someone who immediately asks “Can you hear me?” Their goal is to get you to answer “Yes.” These phone calls are recorded and edited to make it sound like you authorized a major purchase.

#5 Medical Alert Scam: Another one that preys on older folks. You get a call or a visit from a company claiming a concerned family member ordered you a medical alert device in case you have an emergency. They take your credit card or banking information but you never receive anything.

#4 Door-to-Door Scam: These scams vary but often include one of the following situations. Your safest course of action to avoid getting caught up in one of these scams is to not open your door to strangers.

  • Magazine sales include groups of travelling sales people who hit whole neighborhoods hard and fast offering magazine subscriptions that never get delivered.
  • Utility scams happen when fraudulent utility companies hire and train door-to-door sale representatives to come to your home and convince you they can save you money on your electricity or gas bill. They will either try to gain access to your account information to switch your service without permission, or offer low-low rates for the first couple of months then hit you with a steep price hike.
  • Alarm system scammers enter your home under the guise of upgrading your current alarm system, then negotiate you into a long term service agreement (2-5 years) that is very costly to break.

 #3 “Are You Calling Yourself?” Scam: Scammers can make a call look like it’s coming from anywhere. The latest trick puts your number in the Caller ID, which piques your curiosity and gets you to pick up the phone or return the call… and then they’ve snagged you in whatever scam they are running.

#2 Tech Support Scam: You get a call or a pop-up on your computer claiming to be from Microsoft (or Norton, or Apple) about a problem on your computer. They say if you give “tech support” access to your hard drive, they can fix it. Instead, they install malware on your computer and start stealing your personal information.

And the top Scam of the Year, because it’s just so terrifying, is:

#1 Arrest Scam: You receive an ominous phone call from someone claiming to be a police officer or government agent (often the IRS). They are coming to arrest you for overdue taxes or for skipping out on jury duty… but you can avoid it by sending them money via a prepaid debit card or wire transfer. Another variation on this is that you’ll be arrested for an overdue payday loan. Whatever the “violation,” it’s scary to be threatened with arrest, and many people pay out of fear.

These are the scams that have been proven to be successful year after year, because scammers are professionals who have tried and true techniques to swindle you for big bucks. They do things like build relationships and connections and play on your emotions to get you to make hasty decisions, and they often go through extensive measures to make themselves appear credible. Remember, they are actual pros at what they do.

Avoiding the scam rules to live by:

  • Don’t be pressured into making fast decisions.
  • Take time to research the organization. Check them out on, search online, etc.
  • Never provide your personal information (address, date-of-birth, banking information, ID numbers) to people you do not know.
  • If you are unsure about a call or email that claims to be from your bank, utility company, etc., call the business from the number on your bill or the back of your credit card.
  • Never send money by wire transfer or prepaid debit card to someone you don’t know or haven’t met in person.
  • Never send money for an emergency situation unless you’ve been able to verify the emergency.