Written by Larry VanQuathem CFP®
There’s been quite a bit of back-and-forth concerning student loan debt forgiveness and relief. Whether you’re a parent planning out the finances to send your children to college or a college grad weighing your repayment options, there’s a few things you’ll need to know about upcoming student loan repayment.
1. 70% of Students Graduate With Debt
A 2015 study from the Institute for College Access and Success (TICAS) found that the majority of graduating college seniors entered the workforce carrying thousands in student loan debt.
Parents may try to give their children a head start on paying for college by establishing college savings accounts. However, the rising cost of college still leaves 70% of students with at least some student loan debt once they graduate according to the TICAS study.
Grants and scholarships may help offset the cost of tuition, but it’s necessary to plan ahead for the increasing cost of attendance.
2. Student Loan Debt Reached High of $35,051 in 2015
How much debt are students graduating with? Mark Kantrowitz, the senior vice president and publisher of Edvisors.com shared that the average amount of student loan debt was $35,051 in 2015. The most recent data from College Board’s Trends in College Pricing and Student Aid 2022 found that the average student loan debt was down to $29,100.
3. Federal Direct Student Loans Still the Best Option
The protections and interest rates of a Federal Direct Student Loan continue to make it the top option for students who need to finance their college education. Qualifying for a Federal Direct Student Loan is simple and requires students to complete the federal application for student aid or FAFSA and enroll in college courses for at least half time.
Regardless of income or credit score, students receive the same interest rate on their loans which is currently 5.50% for undergraduate borrowers. Once a student graduates, there are multiple income-based repayment plans including the Saving on A Valuable Education (SAVE) plan and the Pay As You Earn (PAYE) plan.
There’s also an option for public service student loan forgiveness, which is specifically for those who work in public service for the government or a non-profit organization. Students under this program would need to work full-time for an eligible employer and make 120 qualifying monthly payments under an accepted repayment plan to qualify for forgiveness of their remaining Direct Loan balance.
4. Federal Loan Limits
Although federal loans are the best choice for student loans, there are limits to how much students can borrow to fund their education. The borrowing limits for each year are as listed in the chart below.
| Dependant Students | Independent Students | |
| First-year | $5,500 | $9,500 |
| Second year | $6,500 | $10,500 |
| Third year and beyond | $7,500 | $12,500 |
| Graduate or Professional Student Annual Loan Limit | N/A | $20,500 |
| Total Limit | $31,000 | $57,500 for undergraduates$138,500 for graduate or professional students. |
Once you reach the aggregate borrowing limit, you’re not eligible to take out any other federal loans unless you repay a portion of your loans to bring it under the limit.
5. Parent PLUS Loans
Financial aid and federal loans don’t cover all college costs. Parent PLUS loans are designed to help parents borrow to pay for the costs that aren’t covered by a child’s financial aid package including room & board, tuition, and other college expenses. Parents can borrow up to the total uncovered cost for their student.
If financial troubles arise, a Parent PLUS Loan could exacerbate matters since they’re very rarely dismissed in bankruptcy. However, the advantages far outweigh the downsides since there are several protections in place for parents under these loans:
- If a parent passes away and still owes money, the debt is forgiven.
- If a parent is “totally and permanently disabled” the debt will be forgiven however it will appear as income for tax purposes.
- If the student dies, the parent can have the loan discharged and it will appear as income on their tax return.
6. Current Interest Rates
Although the Federal Reserve has chosen to raise interest rates to decrease inflation, student loans have remained relatively stable. Undergraduates who qualify for Direct Subsidized Loans or Direct Unsubsidized Loans receive interest rates of 5.50% for loans disbursed between July 1st, 2023, and July 1st, 2024.
Graduates and professionals get a higher interest rate on Direct Unsubsidized Loans at 7.05% during the same disbursement dates. Lastly, Direct PLUS loans for parents and Graduate or professional students have an interest rate of 8.05%.
7. Student Loan Payment Pause
During the pandemic, the President issued a student loan payment pause as part of emergency relief efforts. This pause on student loan payments also stopped interest from accumulating on these loans.
In a bid to approve legislation aimed at helping student borrowers, the pause was extended until June 30th of 2023. However, without any new legislation or litigation, student loan payments are scheduled to resume 60 days after June 30th, 2023, which is in October of this year. After this period of 0% interest rates, your loan will reset to the previous interest rate you had on the loan.
If your student loan payments weren’t manageable before the pause, you might consider applying for an income-driven repayment (IDR) plan which can make your payments more affordable, depending on your income and family size.
Automatic payments for these loans might not resume on their own. You’ll need to contact your student loan servicer to confirm payment details and restart payments. You’ll also want to update your contact information through studentaid.gov to ensure communications regarding your student loans make it to the right place.
Make a Plan to Handle College Costs
Planning for student loan repayment is a complex aspect of your finances that deserves professional attention. Whether you’re planning for a child to enter college or you’re ramping up for resuming student loan payments, ABLE Financial Group is here to help. To learn more about our team and the ways we can help guide you, call 480.494.2210 or email larry@ablefinancialgroup.com today.
About Larry
Larry Van Quathem is an Arizona native who grew up in the financial services industry, as his father, Bob, became a Financial Consultant for Merrill Lynch when Larry was just seven years old. After earning a Bachelor of Science in Finance from the University of Arizona in 1993, Larry followed in his father’s footsteps just two years later. They worked together for more than a decade before Bob retired in 2009, and after gaining 20 years of experience at Merrill Lynch, Larry joined ABLE Financial Group in 2015. He saw it as a great opportunity to increase the quality of service for his clients and to have more control over how that service is delivered.
As a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional, Larry excels at listening to each client’s personal goals and then offering various approaches to help achieve those goals using a written plan of action. He creates a personalized service model for every client, enabling him to serve as a financial coach for his clients and make sure they are taking appropriate action to help reach their investment objectives and life goals.
Larry also likes to spend his time getting involved in the community, and he is currently serving on the Board of Governors for the Boys and Girls Club of Scottsdale. In the past, he has served on the Board of Delta Sigma Pi Leadership Foundation, the Board of Directors for the Association for Supportive Child Care and he is a past active member of the Scottsdale 20-30 club. Professionally, Larry has been a member of the Central Arizona Estate Planning Council since 2010. Larry lives in Phoenix with his son Jake. When he is not busy servicing his clients, he enjoys golf and playing with his French Bulldogs Rocky and Birdie.
