It’s tax time! Around this time of year, we not only think about our taxes, but we also think about our overall financial health. This week we’re sharing financial resources as well asking experts in budgeting, student loans, and more how nonprofit employees can make the most of their paychecks. Be sure to read all of the posts in this series.
by Heather Jarvis
Whether you are just graduating from college or grad school, or have been working for a while, there are various options you can explore to get a better handle on your student loans. Here are few ways to get started:
Take advantage of Public Service Loan Forgiveness and other available loan repayment assistance programs
Public Service Loan Forgiveness is designed to encourage individuals to enter and continue full-time public service employment. To qualify a borrower must: Make the right kind of payments, on the right kind of loans, while working the right kind of job, make those payments 120 times, and prove it.
- The Right Kind of Job. Qualifying public service employment under Public Service Loan Forgiveness is full-time paid work in the government, a 501(c)(3) nonprofit, and a few additional nonprofit positions. “Full-time” is an annual average of at least 30 hours per week, unless your employer requires a greater number of hours for full-time status.
- The Right Kind of Loans. Only Federal Direct Loans are eligible for Public Service Loan Forgiveness. If you started borrowing student loans (like Stafford loans and GradPLUS loans) before July 2010, you might have borrowed federal student loans from a bank or private lender through the FFEL program (Federal Family Education Loans). If so, you must consolidate FFEL loans into Federal Direct Loans for those loans to be eligible for Public Service Loan Forgiveness. Private student loans are never eligible for Public Service Loan Forgiveness.
- The Right Kind of Payments. Qualifying monthly payments include only those made under an income-driven repayment plan or a payment of at least the amount due under a standard ten-year repayment schedule. Qualifying payments do not need to be consecutive but be careful to get the payments in on time, because late payments don’t count toward forgiveness.
Other loan repayment assistance programs are available through schools, employers, and in a number of states. Find out which might be available to help you. Lists of programs are available through askheatherjarvis.com and studentaid.ed.gov.
Know your repayment options
Choosing a repayment plan can be confusing, so take some time to fully understand the trade-offs between the different options. The Department of Education provides information and calculators regarding the various repayment options online at studentaid.ed.gov/repay-loans. Remember, you can always change repayment plans if you have a change in your circumstances. Also, if you see a sudden drop in income, you can request that your payment amount be calculated or recalculated based on your new income.
- Standard Repayment
Standard repayment (for a loan that isn’t consolidated) means that you’ll pay equal monthly payments over a ten-year period. Monthly payments will be high, but because you’ll pay off your loan quickly, you will pay less interest. If you need low monthly payments, consider the income-driven repayment options.
- Income-Driven Repayment Options
If your debt is relatively high as compared to your income, the income-driven repayment plans provide significant advantages. Monthly payments are established as a percentage of income so that when you don’t earn a lot, your payments are low. But the income-driven options have the disadvantage of requiring annual income verification and other paperwork, and because monthly payments are low, interest charges will be correspondingly high.
- More Repayment Options
Under a Graduated Repayment Plan, payments start out low and increase during the repayment period, typically every two years. Graduated repayment can work if you have relatively quick increases in earnings, but compare the benefits of income-driven repayment options before choosing graduated repayment.
Extended repayment plans are also available if you owe more than $30,000, but you will pay more interest because the repayment period is longer. Again, if what you need is a low monthly payment, compare the benefits of the income driven options before choosing extended repayment.
Evaluate whether or not to consolidate
Because only Federal Direct Loans are eligible for Public Service Loan Forgiveness, some grads will need to consolidate to get older federal loans into Federal Direct so that the loans are eligible for Public Service Loan Forgiveness. Be careful deciding whether to consolidate Perkins loans, because they have their own cancellation provisions that would be lost upon consolidation. Borrowers typically choose to consolidate towards the end of their grace period.
BEWARE of consolidating federal loans into a private consolidation loan. If you consolidate federal loans into a private loan, you would lose rights and protections like deferment, forbearance, cancellation, income driven repayment, and Public Service Loan Forgiveness. Unfortunately, you cannot consolidate private student loans into a Direct Consolidation loan.
Have other questions or want to explore your options? Visit Ask Heather Jarvis.
Heather Jarvis (firstname.lastname@example.org) is an attorney providing educational resources and training for student loan borrowers and is the founder of askheatherjarvis.com.