Are you thinking of Consolidating Student Loans

It seemed like easy money. Jennifer, a university senior, took on thousands of dollars of student-loan debt without giving it much thought–until now. Just weeks from graduation, she is applying for nursing jobs in a tough market and suddenly coming face-to-face with the fact that in six months, she’ll have to start making monthly payments of around $600 on her $40,000 debt.

“All I had to do was sign on to the Sallie Mae Web site, check off a few boxes and wait for the money to be disbursed,” she says. “The thought of repaying it never really hits you until graduation time.”

If only the task of repaying student loans was as easy as taking them out. Instead, it’s a complex process with which millions of college grads must grapple. Two out of every three undergraduates at the graduation stage end up with some form of student debt, according to a 2008 College Board study. The average: $22,700 per graduate–and that doesn’t count the student-loan debt incurred by the half of entering college students who never earn a degree.

With three federal loans and seven private ones, Emily is in a situation familiar to college seniors and recent graduates across the nation. Like her, many consider consolidating their loans as a way to lower their monthly payments and simplify their finances. The theory is that, either by stretching out repayment of the loans or refinancing them at lower interest rates, the borrower can reduce monthly payments. Unfortunately, it’s not a strategy that works for everyone.

One problem for people like Jennifer is that federal loans cannot be consolidated with private ones. Another is that beginning in July 2006, all federal student loans began carrying fixed interest rates. Before then, federal loans were issued with variable rates; by consolidating them, borrowers could often lock in a rate that was lower than what they were paying on each loan separately.

Now there is no financial benefit to consolidating federal loans, other than having a single monthly payment and access to alternative repayment plans.

If you can afford to make the payments on your loans, consolidation isn’t going to help you. If, on the other hand, you are having trouble making your monthly payments or think that you will in the future, consolidation can present several alternatives.

Remember, though, that while practically all repayment plans lower the monthly payments, they also add on several thousand dollars in interest costs by stretching out the life of the loan. If, for example, you stretch out a standard 10-year student loan to 20 years, you can cut monthly payments by 34%, but you will end up paying double the amount of interest over that time.

If some or all of your loans were written before July 2006–say, in your freshman year of college if you are graduating this year–wait until after July 1, 2009 to consolidate. He predicts the interest rate will tumble to a historic low of 2.6% from its current 4.2%. Borrowers who have already consolidated won’t be permitted to do so again at the new rate.

Starting this July, borrowers who have federal student loans can opt for a new income-based repayment plan. This may be a smart option for those entering fields with relatively low salaries, like public service. Under the plan, which is open to anyone with federal loans, the monthly payments are capped at a certain percentage of the borrower’s income.

The rate is defined as the difference between the person’s adjusted gross income (the amount on which you are subject to pay federal taxes) and 150% of the federal poverty level (which comes out to $16,245 for an unmarried person with no children, based on current rates).

For an unmarried individual with no children and an adjusted gross income of $40,000, monthly payments would be capped at $365. An increase in salary would mean an increase in the monthly payment. If the full amount borrowed is still not paid off after 25 years of these payments, the remaining balance is forgiven.

Students who have already started repaying loans can opt for the income-based repayment plan, but there is an important point here: Doing so will restart the clock and give your loan a new term of 25 additional years.

Jennifer, the senior, like many students, had to turn to private loans to cover what federal programs would not. Private loans, unlike federal ones, carry variable interest rates. Consolidating them may save students money.

If, when the borrower took out the loan, he had a limited credit history, as most students do, three or four years of making regular payments on a credit card or an impressive employment history can improve a credit score by 100 points or more. That, in turn, can persuade a lender to reduce the interest charged as a result of a loan consolidation.

Borrowers can get a lower rate now, and their rate may not jump as high in the future.

Another potential benefit of consolidating your private loan is the removal of a co-signer, which can save a parent or relative from a potential liability. This is possible after 24 to 48 months of making regular payments.

If you would like to consolidate your private student loans, you should turn to either Chase, NextStudent, Student Loan Network or Wells Fargo . All offer slightly differing terms, and all have caps on the amount of total debt you can consolidate.

Important questions to ask a consolidator are whether it charges origination fees, if there are prepayment penalties, what the maximum interest rate is and what the life of the loan will be. Read the terms carefully, and if possible, have a friend or relative do the same. If you don’t understand something, ask the lender until you get a straight answer. After all, you’re entering into a contract that can last as long as 30 years.

Steer clear of any lender that charges a prepayment fee. You’ll want the option to pay off the loan early without being penalized for it.

Should You Consolidate Student Loans?

If you have student loans it may be hard to know what the right answer is.

Consolidation is one of those words that invokes an image of simplicity, organization, and perhaps even tranquility. Instead of countless bills, you can simply consolidate and deal with one lender. In the case of student loans, consolidation means you can deal with fewer creditors, and with paying less interest over the life of your loan. 

e words that invokes an image of simplicity, organization, and perhaps even tranquility. Instead of countless bills, you can simply consolidate and Reasons For Consolidating

There are several reasons why you may want to consolidate your student loans. For one, consolidating student loans simplifies your debt repayment process. Instead of lots of lenders to deal with, you can deal with one lender and one debt. Even if you have several federal student loans and several private loans, you could consolidate the federal loans together, and then consolidate the private loans together, leaving you with only two lenders to deal with (you cannot consolidate federal student loans with private student loans).

A second and very common reason to consolidate your student loans is to take advantage of lower interest rates. You can lock in a lower fixed rate, for the life of the loan and not have to worry about rate increases over the years.

A third reason for some people is the desire to lower their monthly payments. Sometimes consolidating your student loans will allow you to get a lower monthly payment (although this may lead to a longer repayment terOf m). 

Reasons to Be Cautious of Consolidating Your Student Loans

For the reasons stated above, you may be tempted to take a lower interest rate in exchange for paying on the loan for many more years than the original loan repayment period. In situations where you do not have employment, or otherwise do not have money, this could be a great option for you so that you don’t find yourself in forbearance in the short-term. However, you would need to look at the long-term implications of extending your loan repayment period.

A crucial question to ask during any consolidation consultation is how much interest you will be paying over the length of the loan repayment period for each of the options they are presenting to you.

You should also be aware that when you consolidate a student loan you often lose any lender benefits from the previous loans. For example, lender benefits you received from your original student loans included a 0.25% interest rate deduction if you scheduled automatic payments, and a 1% interest rate deduction after making 36 on-time and consistent payments. Had you consolidated with a different lender, then these benefits would have gone away.

Finally, safeguard your new interest rate that it is lower than your current interest rate. This is usually the main point of consolidating loans, and one that could greatly help accelerate your debt repayment. If you combine several loans together and one has a high interest rate, it could end up making the interest rate for the consolidation loan higher than necessary — and cost you additional funds. Also, if you happen to lock in a certain interest rate through consolidation and later realize that you could have gotten a lower rate, it will probably be too late.

Interest Rate Strategy in Consolidating Your Loans

After carefully considering the pros and cons, if you are interested in consolidating your student loans there is one more thing to consider: your strategy. The interest rate you will be given is going to be based on all of the interest rates on the loans that you currently have, so be sure to work with the student loan debt consolidator in finding the best formula of debt consolidation.

In other words, if you have four federal student loans with interest rates at around 3%, and one with an interest rate of 6%, then you might not want to consolidate the 6% interest rate loan in with the others as it will increase the rate on the bigger lump of debt. Instead, pay the minimum on the consolidated sum of debt and turn your energy towards eliminating the unconsolidated loan.

Tips to Lower Your Adjusted Gross Income to Get the Most from Income Based Repayment

The income sensitive repayment plans offered by the federal government for public student loans are based around your family size and your Adjusted Gross Income – otherwise known as AGI. This is a very important number and the lower you can whittle it down, the more modest your monthly payments will be. Income Based Repayment (IBR), Income Contingent Repayment (ICR) and Pay As You Earn (PAYE) are all predicated on this all-important number.

To apply for any of these programs, you must submit information on your adjusted gross income, family size and loan information (balance, interest rate, etc). There are then pre-set formulas – usually on a sliding scale – that determine eligibility and how much your monthly payments will be. In many cases, payments offered can be as low as $0! Check out the following info on AGI to get the lowest possible repayment scenario for your loans.

What Is Adjusted Gross Income? The IRS defines AGI as “gross income minus adjustments to income.” That’s not very specific though, is it? Okay let’s try this way. It’s the income you’ve earned plus any distributions made that qualify as income minus certain amounts that are considered adjustments to income rather than deductions. See on the image below the roster of adjustments that are allowed. Click here for a simple AGI calculator offered by CNN Money. Below are listed some ways you can legally decrease your AGI to make your student loan payments more affordable under the income sensitive plans mentioned above.

#1 Increase Contributions to Your Health Spending Accounts These are those nifty little accounts your employer offers each year where you can sock away pre-tax dollars (i.e. money that’s not subject to FICA or income taxes) that can be used to pay out of pocket medical costs, co-pays and some over the counter medicine costs. The new annual cap for 2013 is $2,500. That’s roughly $208 per month.

If you routinely take medication, have Rx or doctor visit co-pays, these can be paid or reimbursed from this account. Contact lenses, eyeglasses, medical and dental copays, coinsurance percentages or fees, band aids, vitamins, over-the-counter medicines, orthodontia and more are all covered. If you’d be spending anyway out of necessity, it’s wiser to use an HSA so that you reap the tax benefit as well as the benefit of having a lower AGI for income-based repayment consideration.

#2 Increase Contributions to Retirement Contributions to 401(k) plans and Traditional IRAs can both be made with pre-tax dollars. This means that you’ll be lowering your AGI by tucking away money for your retirement. If you are eligible for a tax-free forgiveness program such as teacher, nursing, military or other public service loan forgiveness (PSLF), you want to minimize your AGI so you’ll pay in the least amount prior to your forgiveness threshold.

Imping up your retirement contribution not only benefits you in the short-run (particularly if you’re a PSLF candidate) but also in the long-run when you’ve got plenty socked away for retirement. If you don’t qualify for PSLF and are looking toward 20-25 year loan forgiveness, you need to balance out the tax implications of the forgiveness benefit versus how much you’ll accrue in matching funds and interest earned over that same period to weigh the cost-benefit.

#3 Be Mindful of Student Loan Interest Paid This may sound like a circular reference, but the more you pay in student loan interest, the lower your AGI will be and the lower your income-sensitive repayment amount will be. Interest becomes a concern if you are not eligible for tax-free student loan forgiveness and here’s why. If you don’t pay off at least the monthly amount of accrued interest, you will be hit by interest capitalization where interest piles on top of interest to accrue even more interest!

But if you service at least the amount of interest due each month (even if this is in excess of the amount IBR/ICR/PAYE determines you must pay) you won’t be facing a huge tax bill if your forgiveness is taxable and the balance has grown. For instance, if your IBR payment is set at $70 and your loan accrues $150 in interest each month, you’ll have $80 left over that then starts to accrue interest as well. This is a balancing act for those not eligible for PSLF. For those planning on PSLF, pay the low payments, include the interest on your AGI determination and enjoy the lowered payments!

Final Thoughts There’s a cost-benefit to every financial decision you make. If you can afford to pay your loans under the 10 year standard plan, you should do that. Even better, you should apply the debt avalanche mindset and try to pay it off even sooner. But if you’re too broke to pay your loans under the decade plan, adopt an income-sensitive plan and then still pile on any extra monies you have and ask that these funds be applied towards accrued monthly interest and then principal for any additional amounts! This will minimize the tax hit if you have to ride an income sensitive plan all the way out to forgiveness in 20-25 years.

What Is Student Loan Consolidation?

A Student Loan Consolidation allows borrowers to combine all of their federal student loans into one new loan with one lender. Sending two, three, or even four separate payments to different lenders and trying to track their loan balances, interest rates, and due dates can be quite cumbersome.  The consolidated student loan will be much easier to manage and keep track of.  There are many other benefits to the federal Student Loan Consolidation program as well.

The Student Loan Consolidation Process...

1. Determining client's current financial situation.

Eligibility for programs designed to lower student debt is determined by the Department of Education, based on key information – client's current income, their family size and their debt amount.  First all necessary information from the client is gathered. At this stage processing client's application for a Student Loan Consolidation is done directly with the Department of Education via their website at: StudentLoans.gov

It will easily be determined which programs clients qualify for and outline which program options best suits client’s needs.

2. Identify which program maximizes client's savings.

Any individual can qualify for any number of programs available through the department of education.  It’s important to choose the right program, based on client's current financial situation and future plans. Client is given in detail each qualifying program’s advantages and disadvantages so that clients can make an informed decision as to which program is best suited for them. 

Clients are then informed of the appropriate steps needed to move forward.

3. Student Loan Consolidation Application process.

If client chooses to hire a private company for their student loan consolidation service they will handle the application process for them from start to finish.  They will determine, gather and fully prepare all documentation needed to qualify client for the program chosen.  After the application is deemed sufficient, it is then submitted by the private company to the Department of Education on client's behalf. 

The entire Student Loan Consolidation process usually will take anywhere from 21 to 60 days to complete.

Note: Client should be advised that all Student Loan borrowers may also choose to complete the application process on their own without the help of a private company as the programs are available directly through the Department of Education.

Understanding Student Loan Repayment Options

Consolidating a client's Federal Student Loans gives them a few different Student Loan Repayment options. This module is designed to explain how the calculations are made, and also to assist clients on when it may be wise to choose one repayment plan over another. Each have their benefits, and client should allowed to make the final decision as to which option they think will benefit them the most in the short and long term.

The repayment plan options are: Standard Repayment, Graduated Repayment, Extended Fixed Repayment, Extended Graduated Repayment, Pay As You Earn, Income Based Repayment (IBR), Income Contingent Repayment (ICR), and finally Income Sensitive Repayment (ISR).

Standard Repayment Plan

In the standard repayment plan, the payment on the client's loan is calculated like any normal loan payment, based upon the size of the loan and also the term of the loan. The term is always based on the size of the loan. Depending on client's income and family size, the standard repayment plan can be a good option if:

They want to pay off the loan as soon as possible and currently have less than 30 years left on the term.

They do not qualify for an income based repayment plan because of a higher income

Their loan amount is small enough where they can be paying a minimal amount over a short period rather than extending it for an additional X amount of years.

The standard repayment plan allows client to take care of their loans in a timely manner if they are making regular and full payments on them. They will pay less interest on a standard repayment plan than they will under the graduated.

Often times customers that do not qualify into either of the Income Based Repayment plans do not see a benefit of consolidating their loans into a Standard Repayment plan when their current payment can be nearly the same. This often is misguided as one of the major benefits of this consolidation is the flexibility with the repayment plans. If they come under hardship in the future, at any moment they can change their repayment plan into an Income Based Repayment plan. What this does for them is allow them to then have a payment based on their income, which may prevent them from falling into default on their loans. In many cases their payment can roll to zero on their loans. This is not a deferment status, which essentially pauses their term. They would have a zero payment for however long their hardship lasts, and the term continues to move forward. This is where the forgiveness aspect plays a large roll. Once the term is over the loan is completely forgiven. This is a huge benefit to the program that is often overlooked by clients until this benefit is explained to them.

Public Service' Loan Forgiveness: A Flawed White House Aid Plan

In a series of speeches last week (8/20/2014), President Obama promoted policies designed to “make college more affordable and make it easier for folks to pay for their education.” He attracted attention mainly for the novel idea that a federal ratings system might help borrowers decide which schools are really worth the cost. 

But the President also pushed for an expansion of an existing, but not well-known program, known as “pay as you earn,” which ties—and limits—student loan payments to the ability of borrowers to pay. That proposed expansion would also extend the reach of something called the Federal Public Service Loan Forgiveness Program, which makes it possible for college graduates who take jobs in government or non-profit organizations to get big breaks on their student loan payments. While it may be an attractive program on the surface, it should not be expanded. Rather, it should be rethought altogether.

Originally passed in 2007 as part of College Cost Reduction and Access Act, the Public Service Loan Forgiveness program makes it possible—if you take and keep a designated type of job—to make loan repayments for just 10 years, rather than 25, with the remainder of the interest and principal written off. That puts all taxpayers, rather than the borrower, on the hook. The program—which the President is hoping will attract more customers than it has to date—is quite specific about what types of jobs qualify as public service. They include government at any level—including public education—as well as organizations offering everything from child care to services for the elderly and disabled. A job at any tax-exempt organization qualifies—except for labor unions or partisan political groups. The implicit theory here: that such jobs are relatively poorly paid and that taxpayers have an interest in having well-qualified college graduates take them.

Such a collection of good causes make it hard to oppose, but the program does present serious problems. First, it’s become clear, especially since the financial crisis, that, even if government salaries of some types may be lower than their private sector counterparts, public employment offers a combination of job security and retirement benefits that are actually the envy of those in the private economy. At the same time, for those who go on to careers as lobbyists, public employment can also be what The Wall Street Journal has termed “deferred compensation.” What’s more, as the National Commission on Public Service, chaired by Paul Volcker, pointed out as long ago as 1989, there are plenty of barriers to our having an effective government—including outdated civil service rules and poor recruiting strategies—besides sheer salary levels.

But the larger problem with the program—one that includes its provisions for non-profits as well as government—has to do with the concept of government seeking to influence the career choices of college graduates in the belief that some jobs do more than others to serve the public interest. Both the government and the non-profit sectors, after all, ultimately rely on the growth and prosperity of the private economy. As Carl Schramm, former head of the Kauffman Foundation, has long argued, entrepreneurs—from Steve Jobs to Sergei Brin and countless others—provide the hope for economic growth. But private sector employment of any kind is effectively made less attractive by the terms of federal student loan forgiveness program. That is not, to coin a phrase, what made America great.

Even those who are devotees of the non-profit sector—and this column, after all celebrates the virtues of American civil society and what it can do that government cannot—should be skittish about the Obama proposal. The program’s long list of qualified organizations raises the prospect that, at some point, Washington will decide to favor certain non-profits at the expense of others. We are already seeing something like this in the White House Social Innovation Fund, which encourages private philanthropy to invest in ameliorating a specific, and limited, set of social problems. Some, including some in Congress, have raised the possibility that the charitable tax deduction itself should be confined to select types of non-profits.  (I elaborate on this in my forthcoming book Philanthropy Under fire, published by Encounter Books).

Participation to date in the income-based student loan repayment plan which the President proposes to expand and promote has been limited. Indeed, Time Magazine has reported that only  630,000 of  some 37 million student loan borrowers have availed themselves of the  option, despite its  being made more attractive, in 2010,  when the repayment requirement was   reduced  to 10 percent of income  for those who qualify on the basis of earnings and who  make  payments faithfully. Only a fraction of even those fall into the public service loan forgiveness category.

Still, we should be careful in pushing to increase that number.  All sorts of problems arise when government decides how to allocate financial capital—as recent New York Times reporting about the poor record of Department of Agriculture loans reminds us. We should be no more confident of the wisdom of the government when it comes to allocating human capital—that is, the talents of the American people.

Elizabeth Warren: Sallie Mae May Be Hurting Borrowers, Taxpayers

For student loan giant Sallie Mae, it may seem that every passing day brings word of yet another government probe.

On Tuesday, it was Sen. Elizabeth Warren’s turn.

Warren, a Democrat from Massachusetts, wants detailed information on Sallie Mae's practices, including scripts its customer service representatives follow, an accounting of its borrowers with federal student loans in income-based repayment plans, and the number of its delinquent borrowers who have brought their loan payments up to date. The reason for the request, according to a letter Warren sent Tuesday to Jack Remondi, Sallie Mae chief executive, was concern that the company may be hurting borrowers and taxpayers by pushing debtors into repayment plans that increase their burdens and put them at risk of default.

“I am concerned that Sallie Mae too often takes steps that hurt its student borrowers,” Warren wrote.

At least three federal agencies are investigating whether Sallie Mae, the nation’s largest student loan specialist, cheated active-duty members of the military and violated other borrowers’ consumer rights. About a half-dozen states, led by Illinois, recently joined together to probe how the company handles borrowers whose loans it collects payment on and how it treats others who have defaulted on their obligations.

In her letter, Warren told Remondi she worries his company regularly puts distressed borrowers with federal student loans in plans that temporarily delay required payments -- eventually leading to higher payments and increased loan balances -- rather than helping them enroll in federal programs that cap payments based on borrowers’ incomes and offer the possibility their debts will be forgiven.

Warren’s letter follows a September report in The Huffington Post, citing government documents, that revealed the company had enrolled relatively few borrowers into the Income-Based Repayment program, a federal initiative championed by the Obama administration that enables borrowers to make payments based on their monthly incomes and have remaining debts forgiven after years of steady payments. At the time, Sallie Mae owned close to 40 percent of loans made under the since-discontinued Federal Family Education Loan Program that were held by the private sector, but its share of borrowers with FFELP loans who were enrolled in Income-Based Repayment was about half that amount.

“This raises questions about whether Sallie Mae is failing to offer this option to borrowers, or otherwise discouraging them from enrolling in an income-based repayment plan,” Warren wrote, citing data reported by HuffPost.

For many borrowers, tying monthly payment amounts to their incomes would be the “best option,” Warren added. The data suggests the company is putting borrowers in various other types of repayment plans, even when linking payments to incomes would be their “best choice.”

Sallie Mae responded to the HuffPost report in September by sending a statement to the higher education community promising that it was “committed to helping federal loan customers identify the least costly, fastest option to repay their loans, including Income-Based Repayment (IBR) for those eligible.”

Sallie Mae, which by then had already disclosed pending probes by the Department of Justice and Federal Deposit Insurance Corp., later disclosed an additional investigation by the Consumer Financial Protection Bureau. The company has since set aside about $70 million to deal with the Justice Department and FDIC probes.

Several weeks later, the Department of Education told Sallie Mae it intended to renew its lucrative five-year federal contract to service student loans, despite the pending investigations into allegations of significant harm to borrowers.

The Education Department, in response to an earlier demand from Warren, then sent her a letter detailing how it had confidentially determined several times over the past decade that Sallie Mae broke federal rules, harmed borrowers and incorrectly billed the U.S. government -- but never fined the company in response.

Education Secretary Arne Duncan subsequently was criticized for the decision to renew Sallie Mae’s contract. A prominent group of colleges, students, and teachers demanded an Education Department investigation and for the department to suspend its work with the company.

Warren said the Education Department risks becoming a “lapdog” as a result of its lackluster oversight of the companies it pays to handle borrowers. She said she also worries that the department’s procedures may encourage Sallie Mae’s treatment of borrowers with federal student loans.

Education Department representatives did not respond to requests for comment.

“Current federal contracts give loan servicers like Sallie Mae little incentive to keep borrowers from falling behind on their payments or to help borrowers find solutions that are best for them when they do fall behind,” Warren wrote in her letter to Remondi.

Earlier this year, Remondi wrote a letter to Duncan and federal lawmakers explaining that, despite the mounting criticism of the company, the unit that deals with troubled federal borrowers receives three times as many thank-you notes from borrowers in default than verbal complaints. His figures wildly contrasted with other publicly available information that suggest Sallie Mae is among the worst student loan specialists when it comes to the borrower experience.

Skyrocketing student debt burdens -- which now total $1.2 trillion, up 47 percent over the past four years, according to the Federal Reserve -- are holding back the U.S. economy and “threatening the futures of so many young Americans,” Warren said. She said she reckons that the government and the public “should be able to look more closely at the role that servicers and lenders play in keeping students on the path to successful repayment.”

Warren told Remondi she wants Sallie Mae to publicly disclose how many of its borrowers with federal student loans are in income-linked repayment plans and the number of borrowers who have been been placed into forbearance or deferment schemes multiple times. She also wants telephone scripts and guidance given to customer service representatives when they chat with delinquent borrowers and when they counsel borrowers on the benefits and drawbacks of various repayment options.

Warren also demanded to know how many borrowers who have defaulted on federal loans originally serviced by Sallie Mae were now being handled by the company’s default-focused business, Pioneer Credit Recovery, which also has a federal contract. Warren told Remondi the company should disclose the amount of commissions it has received on those loans.

“If Sallie Mae has confidence that its efforts at helping students avoid default are truly in the long-term interest of its distressed borrowers, it should be more transparent about the details of those efforts,” Warren wrote.

Patricia Christel, a Sallie Mae spokeswoman, said, “We are reviewing the request, and the facts confirm we service loans the right way: our customers default 30 percent less than the national average and are significantly less likely to postpone paying their loans by using forbearance.”

Warren may face a tough time getting answers. Sallie Mae and its competitors have resisted disclosing information on their federal student loan portfolios by claiming that the Education Department doesn’t allow it.

The Education Department has faced criticism for its lack of transparency on the $1.1 trillion federal student loan program. The department discloses little data, shares scant amounts with other federal agencies, and buries key information on obscure Education Department websites. Recently, the Education Department stopped disclosing performance information on its student loan servicers, including Sallie Mae.

Tuesday probably should have been a happy day for Sallie Mae. The company, which is planning to split itself into two separate firms -- one focusing solely on its private student loan business -- announced that the firm focusing on federal borrowers will be called Navient. Remondi went on CNBC to tout the change.

When asked what Sallie Mae is doing to help borrowers repay their debts, amid worries that growing student debt bills imperil the economy, Remondi responded by pointing to an initiative that he ranks as among the “most important” the company offers: “Encouraging students and families to pay the interest on their loans while in school.”

Remondi said that by doing so, the typical borrower could save thousands of dollars over the life of the loan.

Sallie Mae’s shares fell 1.5 percent on Tuesday. Investors lately have hammered the company, selling on fears of increasing government scrutiny.

Tipping the Scales on Income-Based Repayment Eligibility

A lot can happen in one year.

A new job, a marriage, a newborn baby, a big promotion -- all these major life events can have a massive effect on borrowers' daily lives, salaries and -- if they are enrolled in an income-based repayment plan -- their student loan payments.

This time of year marks the anniversary of when many college graduates began repaying student loans, right at the end of their six-month grace periods.

Those who enrolled in an income-based plan during that time are engaged in the annual process of submitting their latest financial information to determine future monthly payments, usually capped at 10 percent or 15 percent of discretionary income, depending on the plan available when they entered repayment.

Sometimes, after years of making income-based payments, a spike in salary can boost borrowers beyond the income-to-debt ratio that initially qualifies them for income-based repayment. And when it comes time to resubmit financial information, they may wonder whether they can continue to pay on an income-based plan.

The short answer is: Well, sort of. Here's the inside scoop.

In order to qualify for Income-Based Repayment or Pay As You Earn, a student's debt must be high enough compared to income that the student will pay less under an income-based plan than under a standard 10-year repayment plan.

New graduates, curious to see whether they qualify for income-based repayment, can plug their information into the Department of Education's repayment calculator.

Note that this advice doesn't apply to income-contingent repayment, which is typically a less generous plan and has its own set of guidelines.

A variety of life changes can cause a person's income-to-debt ratio to cross the income-based threshold.

One reason might be a big promotion or a new job, which could make a borrower's salary so high that debt is no longer a substantial portion of income.

A marriage may be culprit if the couple decides to file taxes jointly. "Marriage is the most common reason we see," says John Collins, managing director of GL Advisor, a financial advisory firm for advanced degree professionals with student loan debt.

Graduates may tip the scales while riding the wave of an improving economic climate. Many recent college students graduated into tough economic times, filled with unemployment or underemployment, and are now finding better-paying or full-time jobs and are able to afford the standard 10-year amount.

If a borrower's payments under Income-Based Repayment or Pay As You Earn increase to more than what the borrower would pay under the standard 10-year plan, then the borrower pays the amount that would have been owed under the 10-year plan when repayment first began.

Simply put, the amount owed under the standard 10-year plan acts as a cap on monthly payments.

When income is too high, "the payment amount is no longer calculated as a percentage of income and, at that point, it is a benefit to the borrower," says Heather Jarvis, an attorney specializing in student loans. But keep in mind, says Jarvis, that income-based borrowers aren't forced above the standard 10-year amount but can choose to exceed it if they accelerate repayments to tackle debt faster.

While a change in income may cause monthly payments to no longer be tethered to salary, borrowers are still enrolled in the same income-based plan and can still qualify for loan forgiveness, says Chopra, of the Consumer Financial Protection Bureau.

Someone working toward the 10-year forgiveness benefit of Public Service Loan Forgiveness, for example, can still plan on the federal government forgiving that debt after the requisite 120 on-time payments.

And if a borrower's income dips back down in the future, or the borrower has a child, monthly repayments may sink back down below the 10-year plan payment threshold and the borrower may be eligible to tie payments to income once again.

While making too much won't get someone thrown out of the plan or affect eligibility for loan forgiveness, there are other ways to lose the option to make monthly payments based on income. "If you don't document your income every year, your servicer could boot you out of an income-based payment," says Jarvis. You'd have to submit income documentation -- and meet the income-to-debt requirement again -- to get a payment based on your income again, she says.

So, for borrowers settling into a new job, new marriage or living with a newborn: Congratulations, and relax. Monthly payments are capped at the amount owed under the standard 10-year plan. Just find a minute to get that paperwork in on time.