You Can Tame Student Debt Without Clinton’s Loan Moratorium Plan

Loans, Student Loans

As part of her higher-education financing reform plan, Hillary Clinton has proposed a three-month timeout on student loan payments to give all federal loan borrowers the chance to review their repayment options. But you don’t have to wait for the outcome of the 2016 U.S. presidential election to deal with your student debt.

The new proposal, according to a post on Clinton’s campaign website Wednesday, is an update to her comprehensive college affordability plan released in August 2015.

In the latest proposal, the Democratic Party’s presumptive presidential nominee says she would use executive action to give borrowers a “three-month moratorium” on their student loan payments. During that time, the Department of Education would help borrowers sign up for income-driven repayment plans, consolidate federal loans, and take “advantage of opportunities to reduce monthly interest payments and fees.”

Clinton also proposes to eliminate tuition at in-state public colleges and universities for families with annual incomes under $125,000.

Right now, however, you can sign up for income-driven plans, consolidate loans or work toward a federal loan forgiveness plan without waiting for a moratorium. You also can secure your own student loan reprieve by requesting a deferment or forbearance.

“Forbearance is, and always has been, available to borrowers,” says Heather Jarvis, a lawyer specializing in student loans. “It’s granted pretty routinely.”

Clinton’s proposed three-month hiatus could give people a newfound opportunity to consider all repayment options or get back on track, says Kevin Fudge, manager of consumer advocacy and government relations at Boston-based student loan nonprofit American Student Assistance.

“For people that are on the margins that have been reluctant to be aggressive in taking charge of student loan repayment, this is almost like ‘come out of the woodwork,’ ” he says.

Robert Kelchen, a professor of higher education at Seton Hall University in New Jersey, says he’s skeptical of Clinton’s proposed moratorium. “As millions of students are behind on their loans, reaching these students would be a massive task that is difficult to do, given available resources and staffing,” Kelchen says.

Student loan repayment options you have

Depending on your financial situation, here are options available for repaying your federal student loans:

1. Income-driven repayment plans cap your monthly payment at a percentage of your income and forgive your remaining loan debt after 20 or 25 years. But they also increase the total amount of interest you pay throughout the life of your loan. Use the Department of Education’s Repayment Estimator to find the best income-driven repayment plan for you.

2. Federal loan forgiveness plans offer full or partial loan forgiveness to borrowers who make on-time payments for a certain amount of time — typically five or 10 years. You may be eligible for a forgiveness plan if you work for the government or a nonprofit, or if you’re a teacher.

3. Deferment or forbearance temporarily postpone your loan payments. Your loans will remain current on your credit report while they’re in deferment or forbearance, but depending on the type of loans you have, they may continue to accrue interest.

4. Federal loan consolidation can be helpful if you want to combine multiple federal student loans into one for convenience or to qualify for certain income-driven plans. But consolidating won’t save you much money because the interest rate on your new loan will be the average of the rates on the loans you combine.

5. Student loan refinancing through a private lender can lower your interest rate and, therefore, save you money. But you can refinance federal student loans only through private companies, which means you would lose out on federal repayment benefits. Clinton’s 2015 plan would change that by allowing borrowers to refinance federal student loans through the federal government.

Clinton’s college-affordability proposal released last year is expected to cost in the range of $350 billion over 10 years, funded by closing tax loopholes and expenditures for top earners.

No details of the latest plan, including when the three-month freeze would start, were revealed. The Democrat’s campaign did not immediately respond to NerdWallet’s request for comment Wednesday.

Donald Trump, the presumptive Republican presidential nominee, has not released a firm proposal on student loan reform, but his campaign has said he believes that loans belong in the hands of private banks rather than the federal government. The Trump campaign did not immediately respond to NerdWallet’s request for comment about his higher-education platform.

Anna Helhoski and Teddy Nykiel are staff writers at NerdWallet, a personal finance website. Email: anna@nerdwallet.com  or teddy@nerdwallet.com. Twitter: @AnnaHelhoski or @teddynykiel.