Since the student loan repayment pause has concluded, the burden of debt for millions of Americans has recently resurfaced. Attempting to pay off student loan debt is something that can stress anyone out, but it has historically affected Black women at higher rates than others. As of 2023, black women have 43% more undergraduate debt than white women, and those with graduate student debt have 99% more than white women graduates.
This fact can be systematically stifling to African-American women looking to earn higher wages and accumulate wealth. To shed light on this issue, we talked to Dr. Sonia Lewis, CEO of The Student Loan Dr. LLC, about how we can move smarter regarding student loan debt and avoid the traps that could get you stuck in the hole.
Looking at Your Payment Plan
When you initially get those letters from Sallie Mae, you might think your default payment is the best or only option for you, but that is not always true. If you do not manually pick a repayment plan that suits your lifestyle, you will be automatically placed in the Standard Repayment Plan. The Standard Repayment Plan is designed to ensure you pay off all your student debt in 10 years, but the disadvantage of this is it typically results in larger monthly payments, which might only be attainable for some.
Aside from the fixed Standard Repayment Plan, there are a few income-based payment plan options that provide more affordable payments like the Pay As You Earn (PAYE) Repayment Plan, Income-Based Repayment (IBR) Plan, and Income-Contingent Repayment (ICR) Plan. However, Dr. Lewis recommends the most recent addition underneath the Biden Administration, the Saving on a Valuable Education (SAVE) Plan, formerly the REPAYE plan.
“Some people were automatically moved to the SAVE plan, some people weren’t. [Borrowers in the SAVE plan] could be paying about 5% repayment, and no monthly interest would accrue,” Dr. Lewis says. She explains that this is a significant difference from the older plans in which repayment ranges from 10% to 15% and interest does accrue.
Anyone with federal loans except the Parent PLUS loan is eligible for this plan, and Dr. Lewis highly encourages borrowers to enroll.
“With the new rules, even if you’re married, you’re now eligible for that plan. You just have to indicate that you do not have access to your spouse’s income. That’s a big deal for a lot of people.”
Knowing the Type of Loans You Have
Another thing that could have you paying out more than necessary and potentially missing out on a chance of forgiveness is not knowing what loans you have.
If you are a borrower with an older loan such as the Federal Family Education Loan Program (FFELP) loan, you may not be eligible for some of the relief that comes with the new initiatives by the Biden administration.
As of April 2024, borrowers in the FFELP program will no longer be eligible for loan forgiveness or see the benefits of newer plans, such as the SAVE plan.
“That’s a big deal. 9 million people are going to be impacted by that.” Dr Lewis says. “Nobody’s calling you. No text messages are going out about it. So we’re trying to push and tell people to check your account and see what loans you have so that we can help them.”
Consolidating instead of Refinancing
When attempting to get student loan debts in order, some people choose the option of refinancing their loans in hopes of receiving lower interest rates and making payments easier and more accommodating to their finances, however, Dr. Lewis advises against this.
Refinancing seems like an attractive option due to lower interest rates, but it can only be done through a private lender, which makes your loan ineligible for government programs when you need them the most.
“It can keep you vulnerable in the sense that when the pandemic hit, we saw a lot of people get their loans placed into an administrative forbearance…The challenge is when you have a private loan, none of that happened for people, they still had to pay through the pandemic.”
Instead of refinancing, she suggests borrowers consolidate their loans to reap the benefits of being backed by the government.
Consolidation is merging your loans into a new government program, combining them into one single loan. Your interest rate will be fixed, the weighted average of all the interest rates on your current federal loans rounded up to the nearest 1/8%.
“We want to make sure people are not leaving the federal loan space unless they really understand and they want to,” Dr Lewis says.
Not Paying at All?
The Biden-Harris Administration has successfully forgiven billions of dollars in student debt, but not everybody has gotten a piece of the pie. With the effects of inflation on the economy, some people who have not received forgiveness, especially Gen Z graduates, have started a movement of simply not repaying student loans at all.
Dr. Lewis loves the idea of this movement and expresses support. However, she does have concerns and advice to offer those on the movement.
“My only concern is that as of October 2024, it is going to impact your credit. So if the movement starts today, I think it can be effective. But when October 2024 rolls around, we have to see how many people are still a part of the movement because their credits are going to take a severe plunge.”
She also informs BAUCE that to do this right, the heat should not be directed primarily toward the Biden administration but toward their Senators.
“I think we just need to make sure that we are reaching out to those that are representing us in Congress and not targeted towards the Biden Administration. But yeah, I say we start today.”
Regardless if you are with the movement or not, Dr. Lewis wants to emphasize how important it is for all borrowers to understand programs such as the Public Service Loan Forgiveness Program to potentially relieve debt without any consequences.
“Just stay tuned to see what happens with the Biden loan forgiveness program. They are revamping it as we speak.”
Dr. Sonia Lewis, AKA The Student Loan Doctor, has over 9 years of practical higher education and financial aid experience. Stay up to date on her latest insights on student loan repayment by following her on Instagram, LinkedIn, or visiting her website.
