Tag Archives: Loan Forgiveness

Financial Aid February: Choosing a Loan Repayment Plan

28 Feb

All information on repayment plans is from this article by David Evans, Ph.D.
Additional info added by Casey Doten, Purdue Financial Aid Administrator

There are two main types of repayment plans you can choose from: traditional and income-driven. For borrowers that will qualify for Public Service Loan Forgiveness (PSLF), income-driven plans may be the better option. Income-driven plans will require an annual verification of income. This fact sheet describes each of the repayment plans as well as pros and cons of each. For more information about each of the repayment plans visit the Federal Student Aid website.

Traditional Plansstudent-loan-repayment-plans

Standard Repayment Plan

The Standard Repayment plan consist of equal monthly payments over a 10-year period of time. This repayment plan is good for those who can handle making their monthly payments and make enough money to afford them. This payment plan is best for those who have minimal other debts and start working right out of school.

The Pros: You’ll pay off your loan faster compared to other plans, and pay less interest as a result.

The Cons: Your monthly payments will be higher than those made through other plans.

Graduated Repayment Plan

The Graduated and Extended Repayment plans could be an option for you if your income is low when you graduate but will increase quickly. Under a graduated plan, payments start out low and increase during the repayment period, usually every two years. This is a good plan if you can’t afford your current payments but know you will make more money in the years to come.

The Pros: Your loan is still paid off within 10 years.

The Cons: You’ll pay more interest over the lifetime of your loan compared to the Standard Plan.

Extended Repayment Plan

An Extended Repayment Plan is an option if your loan amount is more than $30,000 and you want to stretch your repayment to 25 years.

The Pros: Smaller monthly payments (since they’re spread out over as many as 25 years) and more time to pay off your loan.

The Cons: You’ll be saddled with payments for a longer period of time as well as pay more interest.

Income-Driven Plans

If you qualify for an Income-Driven plan, these are often the most attractive options if you’re willing to recertify your payment each year (it’s not very difficult). However, some of these are contingent on when you took out loans! If you’re interested in student loan forgiveness*, you’ll need to be enrolled in any one of these plans.

Income Based Repayment Plan

If you’re not making enough money to cover all of your monthly expenses the Income Based Repayment (IBR) Plan would be a good option. There are two separate calculations for IBR which are dependent upon when you took out your student loans.

The Pros: The IBR plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income** if you were a new borrower on or after July 1, 2014. Otherwise it will be 15%. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: You will have to pay income taxes on any forgiven debt unless you qualify for PSLF (this is true for all loan forgiveness).

Income Contingent Repayment Plan

If you have a federal Direct Loan (other than a PLUS loan), you could opt for the Income Contingent Repayment (ICR) Plan. Your payments could be as low $5 or even $0.

The Pros: Your monthly payment will be the lesser of 20% of your discretionary income or on a repayment plan with a fixed payment over 12 years. You can have your remaining loan balance forgiven after 25 years of regular payments.

The Cons: You’ll pay more over the lifetime of your loan than you would with a 10-year plan, your payment could be lower than the monthly accrued interest and your loan principal will grow. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Income Sensitive Repayment (ISR) Plan

The Income Sensitive Repayment (ISR) Plan is only available for those with Federal Family Education Loan (FFEL) Program. Payments are based on your annual income, family size, and total loan amount. You would pay the loan off in fifteen years.

The Pros: Each lender has their own calculation, but generally it is between 4% and 25% of your monthly gross income, although your payment must be greater than or equal to the interest that accrues.

The Cons: It’s only available for up to five years. After that time, you must switch to another repayment plan. You must reapply annually, and there’s no guarantee that you’ll have continued enrollment in the plan.

Pay as You Earn Repayment Plan

The Pay as You Earn Repayment (PAYE) Plan is another option for those not able to afford their current monthly payments.

The Pros: The PAYE plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 years.

The Cons: PAYE is only eligible to those who were new borrowers on or after October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Revised Pay as You Earn Repayment Plan

The Revised Pay as You Earn Repayment (REPAYE) Plan is very similar to PAYE. This plan was created to allow more borrowers the opportunity to have their payments lowered to 10% of discretionary income.

The Pros: Not dependent upon when you took out your student loan, the payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: If you are married, your spouse’s income will be considered whether taxes are filed jointly or separately. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Summary

Federal student loans offer various ways for repayment. If you are in a situation (like so many others who have taken out student loans) that is not ideal for standard repayment of your loan, consider these options. There is a lot to consider when you are trying to decide which repayment plan to choose. Using the Federal Student Loan Repayment Estimator can help you make your decision by showing you what your payments would be under each of the plans described above.

*A note about loan forgiveness: There are two different kinds of loan forgiveness, Public Service Loan Forgiveness (PSLF) and loan forgiveness from your income-driven repayment plan ending. While both plans require you to be enrolled in an income-driven plan to reap the benefits there are some key differences:
-PSLF requires being employed at a qualifying employer in public service (non-profits, government, etc.) for 10 years/ 120 qualifying payments before forgiveness takes place. Standard forgiveness is after 20 or 25 years depending on your repayment plan.

-Any loan amounts forgiven under PSLF are tax-free, but not under standard forgiveness! So if you still have a balance on your loans after 20 (or 25) years, you will owe taxes on it as if it is income. While it’s still better than paying the amount back, it’s important to know it will have ramifications.

**Discretionary income = Your income – 150% of the poverty level in your state for your family size

4 Loan Forgiveness Programs for Teachers

25 Jan

1. Public Service Loan Forgiveness (PSLF) Program Forgives the remaining balance on your Federal Direct Loans after 120 qualifying payments (10 years). View complete program details at StudentAid.gov/publicservice. Here are some highlights: This program has the broadest employment qualification requirements of the federal programs listed—it doesn’t require that you teach at a low-income a public…

via 4 Loan Forgiveness Programs for Teachers — ED.gov Blog

Choosing a Federal Student Loan Repayment Plan

14 Dec

All information on repayment plans is from this article by David Evans, Ph.D.
Additional info added by Casey Doten, Purdue Financial Aid Administrator

There are two main types of repayment plans you can choose from: traditional and income-driven. For borrowers that will qualify for Public Service Loan Forgiveness (PSLF), income-driven plans may be the better option. Income-driven plans will require an annual verification of income. This fact sheet describes each of the repayment plans as well as pros and cons of each. For more information about each of the repayment plans visit the Federal Student Aid website.

Traditional Plansstudent-loan-repayment-plans

Standard Repayment Plan

The Standard Repayment plan consist of equal monthly payments over a 10-year period of time. This repayment plan is good for those who can handle making their monthly payments and make enough money to afford them. This payment plan is best for those who have minimal other debts and start working right out of school.

The Pros: You’ll pay off your loan faster compared to other plans, and pay less interest as a result.

The Cons: Your monthly payments will be higher than those made through other plans.

Graduated Repayment Plan

The Graduated and Extended Repayment plans could be an option for you if your income is low when you graduate but will increase quickly. Under a graduated plan, payments start out low and increase during the repayment period, usually every two years. This is a good plan if you can’t afford your current payments but know you will make more money in the years to come.

The Pros: Your loan is still paid off within 10 years.

The Cons: You’ll pay more interest over the lifetime of your loan compared to the Standard Plan.

Extended Repayment Plan

An Extended Repayment Plan is an option if your loan amount is more than $30,000 and you want to stretch your repayment to 25 years.

The Pros: Smaller monthly payments (since they’re spread out over as many as 25 years) and more time to pay off your loan.

The Cons: You’ll be saddled with payments for a longer period of time as well as pay more interest.

Income-Driven Plans

If you qualify for an Income-Driven plan, these are often the most attractive options if you’re willing to recertify your payment each year (it’s not very difficult). However, some of these are contingent on when you took out loans! If you’re interested in student loan forgiveness*, you’ll need to be enrolled in any one of these plans.

Income Based Repayment Plan

If you’re not making enough money to cover all of your monthly expenses the Income Based Repayment (IBR) Plan would be a good option. There are two separate calculations for IBR which are dependent upon when you took out your student loans.

The Pros: The IBR plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income** if you were a new borrower on or after July 1, 2014. Otherwise it will be 15%. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: You will have to pay income taxes on any forgiven debt unless you qualify for PSLF (this is true for all loan forgiveness).

Income Contingent Repayment Plan

If you have a federal Direct Loan (other than a PLUS loan), you could opt for the Income Contingent Repayment (ICR) Plan. Your payments could be as low $5 or even $0.

The Pros: Your monthly payment will be the lesser of 20% of your discretionary income or on a repayment plan with a fixed payment over 12 years. You can have your remaining loan balance forgiven after 25 years of regular payments.

The Cons: You’ll pay more over the lifetime of your loan than you would with a 10-year plan, your payment could be lower than the monthly accrued interest and your loan principal will grow. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Income Sensitive Repayment (ISR) Plan

The Income Sensitive Repayment (ISR) Plan is only available for those with Federal Family Education Loan (FFEL) Program. Payments are based on your annual income, family size, and total loan amount. You would pay the loan off in fifteen years.

The Pros: Each lender has their own calculation, but generally it is between 4% and 25% of your monthly gross income, although your payment must be greater than or equal to the interest that accrues.

The Cons: It’s only available for up to five years. After that time, you must switch to another repayment plan. You must reapply annually, and there’s no guarantee that you’ll have continued enrollment in the plan.

Pay as You Earn Repayment Plan

The Pay as You Earn Repayment (PAYE) Plan is another option for those not able to afford their current monthly payments.

The Pros: The PAYE plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 years.

The Cons: PAYE is only eligible to those who were new borrowers on or after October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Revised Pay as You Earn Repayment Plan

The Revised Pay as You Earn Repayment (REPAYE) Plan is very similar to PAYE. This plan was created to allow more borrowers the opportunity to have their payments lowered to 10% of discretionary income.

The Pros: Not dependent upon when you took out your student loan, the payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: If you are married, your spouse’s income will be considered whether taxes are filed jointly or separately. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Summary

Federal student loans offer various ways for repayment. If you are in a situation (like so many others who have taken out student loans) that is not ideal for standard repayment of your loan, consider these options. There is a lot to consider when you are trying to decide which repayment plan to choose. Using the Federal Student Loan Repayment Estimator can help you make your decision by showing you what your payments would be under each of the plans described above.

*A note about loan forgiveness: There are two different kinds of loan forgiveness, Public Service Loan Forgiveness (PSLF) and loan forgiveness from your income-driven repayment plan ending. While both plans require you to be enrolled in an income-driven plan to reap the benefits there are some key differences:
-PSLF requires being employed at a qualifying employer in public service (non-profits, government, etc.) for 10 years/ 120 qualifying payments before forgiveness takes place. Standard forgiveness is after 20 or 25 years depending on your repayment plan.

-Any loan amounts forgiven under PSLF are tax-free, but not under standard forgiveness! So if you still have a balance on your loans after 20 (or 25) years, you will owe taxes on it as if it is income. While it’s still better than paying the amount back, it’s important to know it will have ramifications.

**Discretionary income = Your income – 150% of the poverty level in your state for your family size

Entering Loan Repayment? Tips for Recent Grads

16 Nov

repay-banner

Whether you’re a recent graduate whose loans are just entering repayment or you have been making payments for several years, there is a very real chance that educational loan payments may be causing you a financial hardship. For recent graduates, there is a lot of info covered in federal exit counseling and it would be easy to have missed some of it.

Loan Servicer Navient has put together a list of their Top 10 Things to do Before You Make Your 1st Loan Payment. The key to successfully repaying your loans with any Loan Servicer is understanding your responsibilities as a borrower and the wide range of tools available to help you throughout repayment. Your Loan Servicer doesn’t want you to default and you definitely don’t want to default on your loans either!

While there isn’t much that can be done about the amount you owe since you’ve already borrowed it, you can still choose from several different options for repayment.  The Institute for College Access and Success created a Top 10 Tips for recent graduates, a handy reference for borrowers.

Unless you chose otherwise, you’re probably enrolled in the Standard Repayment Plan which spreads your payments evenly over 10 years. This is both the default plan as well as the most aggressive repayment option available. However, there are several other options a borrower can choose which can limit the repayment per month to 10% of  discretionary income and reduce payments to as little as zero dollars per month (depending on income). For more information, check out Acacia Squire’s piece in NPR about her experiences and what options may be available to you.

 

 

25% Fed Student Loan Borrowers Qualify for Loan Forgiveness — Do You?

21 Jul

From WiseBread New Graduate Help Center: Reyna Gobel, Student Loans Expert

young people cheering

Photo By WiseBread

There is a federal program that, after 10 years of on-time payments, forgives the rest of borrowers’ student loan debt. That’s right — you can have any balance remaining on your student loan debt, and poof! It’ll be gone. Moreover, the Consumer Financial Protection Bureau estimates that one in four federal student borrowers qualify for this program — but many don’t know about or don’t take advantage of the plan.

The plan is called Public Service Loan Forgiveness (PSLF). Yes, it requires that you work a public service job — but many more jobs qualify for this program than you might expect. Read on to learn if you qualify, and, if so, how to take advantage of the program and potentially have your student loan debt forgiven.

How the Plan Works

The PSLF program was created to encourage recent college grads to enter the public service sector. In order to qualify, you must meet the following requirements:

  • Work full-time at a qualifying public service job
  • Work in public service for 10 years (but not necessarily 10 consecutive years or 10 years at the same public service job)
  • Make your loan payments on time and in full every month while employed full time in a public service position
  • Choose a qualifying repayment plan, which includes Income-Based Repayment Plan, Pay As You Earn, Income-Contingent Repayment Plan, 10-Year Standard Repayment Plan, or any other repayment plan where your monthly payment equals or exceeds what you would pay under a 10-Year Standard Repayment Plan.

In exchange, the federal government will forgive the rest of participants’ student loan debt after 10 years of service.

Even better, this plan works in conjunction with the various repayment programs where payments may be adjusted based on the borrower’s income and the student-debt-to-income ratio, such as Pay as You Earn. One common misconception is that you have to be earning very little to use these plans and PSLF, but there is no income cap. To see if you qualify, login to StudentLoans.gov and use their repayment estimator.

You also have to have federal direct loans (Stafford, PLUS, or Consolidation). Federal loans that do not qualify include FFEL and Perkins loans.

However, if you consolidate FFEL or Perkins loans into a Direct Consolidation Loan, that loan does qualify.

Qualifying Jobs

Here is the most important thing to know about jobs that qualify for PSLF — it’s not what you do for work that matters, it’s who you work for. So, basically, you can do almost any job you can imagine, and as long as you do it for a qualifying organization. And, moreover, many more organizations qualify for PSLF than you might imagine.

There are three main employer categories that qualify for PSLF: government agencies, organizations, and entities; 501(c)3 organizations; and other jobs that are public service, but don’t fall into the two previous categories. I’ve included more about each area below.

Government

This includes jobs in all federal, state, local, and tribal government positions and agencies (except elected members of the U.S. Congress). At the state and local levels alone, there are 18 million government positions in the United States. This includes federal agencies ranging from FEMA to the IRS to the Department of Health and Human Services to the National Endowment for the Arts. To get a full sense of how much this category covers, take a look at this massive official list of federal agencies.

501(c)3 Organizations

501(c)3 is the federal designation for an officially recognized nonprofit — and there are over one million of them — most charities and nonprofits are covered under the 501(c)3 umbrella. If you want to get an idea of what’s in your area, browse around a site like Great Nonprofits, which can give you information on different organizations based on your area of interest.

Other Public Service Organizations

These organizations might not be official 501(c)3 groups, but they provide services to the public. The Federal Office of Student Loans defines these organizations as:

…emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly.

A Small Sampling of Jobs That Qualify

To give you an idea of just how many kinds of jobs qualify for PSLF, here are just a few. This list is far from all-inclusive, but it gives you an idea of the wide variety of positions that can lead to loan forgiveness:

  • Teachers
  • College professors
  • Doctors or lawyers working for any organization in one of the categories listed above
  • Employees at any level of federal, state, local, or tribal government
  • Members of the Peace Corps or AmeriCorps
  • Military personnel
  • Law enforcement
  • Any kind of creative working at a qualifying organization, including designers, writers, and performers
  • Emergency services personnel
  • Public health workers
  • Public librarians
  • Any type of engineer or technician working for a qualifying organization
  • Support staff employed by any qualifying organization

Even President Obama would qualify, if he still had unpaid student loans and fit the other criteria.

How to Find Public Service Jobs

Many nonprofits post jobs on traditional job-search sites, such as Craigslist. In addition, here are some sites that cater specifically to non-profits:

As for government jobs, do an Internet search for your state, county, or city name with the word “jobs” to find the official site for your area, or visit the federal government’s jobs site.

If you’re not sure if the organization you’re interested in working at qualifies, the best way to find out is to fill out the employer certification form or call the public service loan forgiveness servicer and ask — more on that below!

How to Utilize the PSLF Program

Think PSLF is right for you? Here’s how to get started.

1. Make Sure You Have the Right Type of Loans

Only federal direct loans qualify for PSLF. But if you have FFEL or Perkins loans and you consolidate them into a direct consolidation loan, that loan does qualify.

2. Fill Out the PSLF Application Form With Your Employer

Fill out the Employment Certification for Public Service Loan Forgiveness form. Do it as soon as you start working with your employer to get your paper trail started. If you aren’t sure if your employer will qualify, call the public service loan servicer at 855-265-4038 to find out if your new employer will help you earn public service loan forgiveness.

3. Work Full-Time

Only full-time employment qualifies for PSLF. In this case, full-time is described as at least 30 hours a week. If you work a job that has you work full-time for most of the year and then take a few months off — like teaching — that still counts for a full year in terms of PSLF.

4. Make On-Time, Complete Payments

You only qualify for PSLF if you make full, on-time payments every month. But PSLF works with the various income-aware repayment plans, so if you feel like your loans are too expensive, check with your loan servicer to see if you qualify for another payment option with a lower monthly cost.

5. Fill Out the Employer Certification Form Again If You Get a New Job

Remember, you don’t have to stay in the same job or with the same employer for the full 10 years — in fact, your qualifying public service work doesn’t even need to be completed 10 years in a row. If you work in public service for five years, at a for-profit company for two years, and at another public service job for five years after that, you could qualify to have your loans forgiven after 12 years. So whenever you start a new job, fill out the employer certification form again to help keep track.

Are you planning to use PSLF?

 

Reyna Gobel is a writer, author, public speaker, and student loans expert.  Her financial advice appears on Wise Bread’s New Graduates Help Center, in her video course How to Repay Federal Student Loans, in CollegeWeekLive newsletters and keynotes speeches, and in her audiobook How Smart Students Pay for School, now in its second edition. Be sure to check out her website for more helpful information on repaying your student loans.

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