Et cetera : What You Should Consider When Repaying Student Loans

By MARCIA ROGERS
Iowa Student Loan Board Member

(February 23, 2021) - As potential student loan changes are discussed by the Biden administration, you may have several questions about how your own student loan payments may be affected.

At Iowa Student Loan, we have put together some information to consider when repaying student loan debt. These items are for informational purposes only; any action you take should be an individual decision based on your own situation.

The first thing you must do is understand what types of loans you have, as each carries its own considerations.

Federally Held Student Loans
About these loans: Some federal student loans are owned by the U.S. government, including federal Direct Loans, from the William D. Ford Federal Direct Loan Program. Servicing is performed by a U.S. Department of Education designated servicer, such as Nelnet or FedLoan Servicing.

Current considerations: The federal government has suspended required payments and lowered the interest rate to 0.00% on all federally held student loans through September 2021 in response to COVID-19.

Repayment strategies: If you are disciplined at saving and have federal Direct Loans, you may want to set aside the payments you would normally make toward those loans until October 2021, and then work with your servicer to pay down the principal balance with that money before resuming regular payments. This allows for some flexibility if federal student loan forgiveness under discussion by lawmakers becomes reality.

Privately Held Federal Loans
About these loans: Older federal loans like Federal Family Education Loan Program, or FFELP, loans offer many of the same repayment and assistance benefits as Direct Loans, but they are owned by private lenders. The federal student loans serviced by Iowa Student Loan's servicing unit, Aspire Servicing Center, are FFELP loans.

Current considerations: Privately held federal student loans are not included in the package that waives required payments and reduces the interest rate to 0.00%. Loan servicers and owners may, however, offer assistance to borrowers affected by COVID-19. Iowa Student Loan, for example, offers relief upon request.

Repayment strategies: If you are able, making payments at this time keeps you on track to repay your loans in their remaining term. Although outstanding interest may not be capitalized when payments are suspended due to COVID-19, interest still accrues daily based on the principal balance. This means you may accrue more interest if you suspend payments that would normally pay down part of the principal balance. Once payments resume, they will need to pay down all the accrued interest before being applied to principal.

Another option is to consolidate these loans into a new Direct Loan, allowing you to take advantage of the 0.00% interest rate while it lasts. However, when the 0.00% interest rate is no longer available, your new federal consolidation loan will adjust to the weighted average interest rate of the loans that were consolidated.

Private Student Loans
About these loans: Private student loans that were originally provided by a bank, credit union, college or university, nonprofit student loan provider or other lender are typically serviced by private entities as well.

Current considerations: Like FFLEP Loans, the owners and servicers of these loans may provide some assistance for borrowers affected by COVID-19. Understand what your loan owner and servicer offer; if needed, contact them to discuss your options.

Repayment strategies: If you have higher-rate private student loans, you may want to consider refinancing into a new lower rate loan now available. Iowa Student Loan, for example, recently lowered its Reset Refinance Loan rates to its lowest to date. Annual percentage rates for a fixed-rate Reset Loan range from 2.55% to 6.42%; this includes the discount for automatic payments. You can pre-qualify online in 60 seconds to see your rate before applying. Pre-qualification does not carry a commitment to refinance and does not affect your credit score. Start online at www.IowaStudentLoan.org.