Mastering student loan repayment: exploring options, IDR plans, and loan forgiveness

As we usher in October, a seismic shift is underway for tens of millions of Americans who have enjoyed a reprieve from their student loan payments for years. The time has come to dust off those repayment plans. While, for most borrowers, the inaugural payment will arrive this October, it’s worth noting that not everyone’s due date aligns perfectly. Borrowers can expect to receive a bill, complete with the all-important payment amount and due date, at least 21 days in advance. Graduates who tossed their caps in the spring, on the other hand, have a bit more breathing room as they bask in the grace period, which typically spans six months after graduation.

Repayment Challenges

Managing and repaying student loans can present obstacles for many women pursuing or having completed their MBA. One of the primary hurdles is the staggering debt load associated with MBA programs, which often translates into substantial monthly loan obligations. Moreover, while they may hold promising potential, MBA graduates might not immediately secure high-paying positions, leading to difficulties in covering living expenses alongside their hefty loan repayments. Career shifts, a common ambition among MBA holders, can also complicate matters, as transitioning to new industries or roles may involve lower initial incomes or even brief periods of unemployment. This complex financial landscape can hinder the pursuit of other life goals, such as saving for retirement, homeownership, or starting a family when a significant chunk of earnings is allocated towards loan payments. Additionally, the mental stress stemming from student loan burdens can adversely impact well-being and overall quality of life, underscoring the need for comprehensive and effective repayment strategies tailored to MBA graduates’ unique circumstances.

Enter Rhonda Riggins-Farrell, a dedicated Ellevest certified financial planning professional with over 15 years of experience in empowering individuals from diverse socioeconomic backgrounds to live their best financial lives. She’s driven by the unwavering belief that financial wellness is attainable for everyone, regardless of where they stand on their financial journey. MBAchic has enlisted her expertise to navigate the sometimes complex and overwhelming terrain of financial freedom and student loan repayment. While MBA students have a plethora of student loan repayment options at their disposal, Rhonda is here to shed light on the strategies that truly make a difference.

Federal Loan Repayment Options

Although the basic student loan repayment options are the same for all borrowers, MBA students can certainly leverage several options for repaying their student loans. The specific repayment options available may depend on the type of loan (federal or private) and the individual financial situation of each student. Here’s a helpful guiding overview of common student loan repayment options Riggins-Farrell outlines for borrowers who are ready to dive into their debt: 

1. Standard Repayment Plan: The basic repayment plan for loans from the William D. Ford Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program. Payments are a fixed amount that ensures loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).

2. Graduated Repayment Plan: If a borrower’s income is currently low, but is expected to increase steadily over time, this plan may be the best fit. Payments are lower at first and then increase, usually every two years, and are for an amount that will ensure loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).

3. Income-Driven Repayment Plans (IDR): An income-driven repayment plan sets monthly student loan payment at an amount that is intended to be affordable based on income and family size. Four income-driven repayment plans are offered:

• Income-Based Repayment (IBR): Caps payments at a percentage of discretionary income (typically 10% or 15%).
• Income-Contingent Repayment Plan (ICR): Payments are the lesser of 20% of discretionary income or what a borrower would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to income.
• Pay As You Earn (PAYE): Generally caps payments at 10% of discretionary income, but never more than the 10-year Standard Repayment Plan amount.
• Saving on a Valuable Education Plan (SAVE) – formerly the REPAYE Plan: The SAVE Plan calculates your monthly payment amount based on income and family size. The SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers. Under the SAVE Plan, making even periodic or partial payments lowers the amount of interest that accrues each month.

4. Public Service Loan Forgiveness (PSLF): PSLF is a program for people who work in public service in federal, state, tribal, or local government, or for a non-profit organization. The program forgives the remaining balance on Direct Loans after a borrower has made the equivalent of 120 qualifying monthly payments under an accepted repayment plan, and while working full-time for an eligible employer.

5. Extended Repayment Plan: Payments may be fixed or graduated, and will ensure that loans are paid off within 25 years.

6. Consolidation: A Direct Consolidation Loan allows borrowers to combine multiple federal student loans into one loan with a single monthly payment.

In addition to these key strategies, Riggins-Farrell suggests that women exploring MBA programs should also consider the following valuable approaches to tackle their student loan challenges:

Employer Assistance: It’s worth investigating whether potential employers offer student loan assistance as part of their benefits package. Many companies are recognizing the importance of helping employees manage their student loan debt, and women borrowers should inquire about such programs to potentially reduce their student loan burden. Read more on employer assistance here. 

Financial Planning: For women, who often find themselves juggling multiple financial priorities, creating a comprehensive financial plan is crucial. This plan should take into account not only student loan repayment but also other financial goals such as saving for retirement and emergencies.

Scholarships and Grants: Before turning to loans, women pursuing an MBA should thoroughly explore scholarship and grant opportunities specifically designed for women in business or STEM fields. Reducing reliance on loans from the outset can lead to a more manageable debt load after graduation. More on scholarships and grant money, here. 

Networking and Mentorship: Building a strong professional network and seeking mentorship can significantly accelerate women’s career growth, potentially increasing their earning potential and making student loan repayment more manageable. (Learn more about joining MBAchic’s powerful mentorship program, here). 

Leveraging IDR Plans

“Women borrowers, who often face unique financial challenges like income fluctuations or career interruptions like for family caregiving, may find income-driven repayment plans helpful,” Riggins-Farrell suggests, “since the plans adjust payments based on income, making them more manageable during periods of lower earnings.”

So how can MBA candidates and graduates leverage income-driven repayment plans to better manage their student loan debt? As it turns out, while these plans can be a valuable tool for MBAs, there are also potential drawbacks to consider before making any major repayment decisions. Below, Riggins-Farrell helps outline how to effectively leverage IDR plans and assess the drawbacks, too. 

Affordable Payments: One of the primary benefits of IDR plans is that monthly payments are based on individual income and family size. This means that payments can be more manageable, especially during times when income is lower, such as immediately after graduation or during a career transition.

Loan Forgiveness: Under IDR plans, any remaining balance on loans can be forgiven after a specific number of qualifying payments. 

Married Borrowers: IDR plans consider the combined income and student loan debt of married borrowers filing jointly. This can be advantageous if one spouse has significantly lower income or higher loan debt, as it can lead to lower monthly payments.

Interest Subsidy: Some IDR plans, such as SAVE, offer interest subsidies. If a monthly payment doesn’t cover the accruing interest on a loan, the government may pay a portion of the interest for a certain period, helping to prevent interest capitalization.

IDR Drawbacks

Extended Repayment Period: While IDR plans can reduce monthly payments, they typically extend the repayment period to 20 or 25 years. As a result, a borrower may end up paying more in interest over the life of the loan compared to a standard 10-year repayment plan.

Recertification: To remain in an IDR plan, a borrower must annually recertify individual income and family size with the loan servicer. Failing to do so can lead to higher monthly payments based on the standard repayment plan.

Interest Accrual: While some IDR plans offer interest subsidies, others do not. If payments don’t cover the accruing interest, it can lead to negative amortization, where the loan balance increases over time.

Impact on Credit: Late payments or missed recertifications can negatively affect credit score.

Loan Forgiveness Programs

When it comes to women pursuing advanced degrees such as an MBA, it’s crucial to leave no stone unturned in the quest for financial support. This includes diligently exploring a myriad of resources like scholarships, grants, and loan forgiveness programs. By doing so, they can substantially alleviate the financial strain associated with higher education, allowing them to fully seize their educational prospects while also mastering the art of managing student loans. But, let’s delve deeper into the realm of loan forgiveness: what role does it play in the complex landscape of student loan repayment? Are there specific programs or avenues tailored to the needs of women pursuing advanced degrees, like an MBA?

“Loan forgiveness programs are a significant part of the student loan repayment landscape and can provide substantial relief for borrowers, including women pursuing advanced degrees like an MBA,” Riggins-Farrell says. “These programs offer the opportunity to have a portion or all of your student loans forgiven under certain conditions.” Read on for key loan forgiveness and programs highlights relevant to women pursuing advanced degrees:

Public Service Loan Forgiveness (PSLF): PSLF is a federal program that forgives the remaining balance on eligible Direct Loans after the borrower makes 120 qualifying payments (equivalent to 10 years) while working full-time for a qualifying employer in the public or non-profit sector. 

“This program can be particularly relevant for women pursuing advanced degrees who plan to work in public service, as it offers a pathway to loan forgiveness after a decade of service,” says Riggins-Farrell. 

Teacher Loan Forgiveness: This federal program forgives up to $17,500 in Direct or Stafford loans for teachers who teach full time for five complete and consecutive academic years in a low-income school or educational service agency, and meet other qualifications. 

“While not specific to MBA graduates, it can be relevant for women with education degrees pursuing an MBA or those who enter the teaching profession after their MBA,” Riggins-Farrell adds. 

Income-Driven Repayment (IDR) Forgiveness: If you repay your loans under an IDR plan, any remaining balance on your student loans will be forgiven after you make a certain number of payments over 20 or 25 years. 

“While these plans are not specific to gender,” Riggins-Farrell points out, “they can benefit women, especially if they have lower incomes or face career interruptions due to family responsibilities.”

Navigating the complexities of student loan repayment demands careful thought, preparation, and strategic planning. No universal blueprint is available to download and instruct us along. Instead, each person’s journey is shaped by unforeseen life events and decisions. As much as we want absolute control, embracing the multitude of approaches to debt repayment and comprehending the diverse tactics tailored to individual circumstances empowers borrowers. With this knowledge, move forward confidently, realize personal dreams, achieve significant professional milestones, and seamlessly integrate repayment into daily life. No longer burdened by the weight of looming debt, you can gain the freedom to shape your future on your own terms.

Photo from Kenny Eliason