Student Loan Forgiveness 101

Student Loan Forgiveness 101

by | Mar 19, 2018 | Loan Forgiveness

If you’re planning to take advantage of any type of student loan forgiveness, this post is for you.

Estimated read time 4 min.

What types of student loans can be forgiven?

 

Federal student loans are the only loan types eligible for forgiveness. Private student loans don’t have any federal loan forgiveness options, any company that suggests they can forgive your private student loans is almost certainly a scam.

 

What are the options for student loan forgiveness?

 

Public Service Loan Forgiveness or PSLF: PSLF forgives the amount of student loan debt remaining after 120 payments have been made while employed full-time for a qualifying employer.

 

Teacher Loan Forgiveness: Teacher Loan Forgiveness forgives up to a combined total of $17,500 of student loan debt if you teach full-time for five consecutive years in specific schools that serve low-income families.

 

Income-driven Loan Forgiveness: Income-driven loan forgiveness forgives the amount of student loan debt remaining after 20-25 years of income-driven monthly payments.

 

Is student loan forgiveness taxed?

 

Loan amounts forgiven under income-driven loan forgiveness are taxed as income. Loan amounts forgiven under Teacher Loan Forgiveness and PSLF are not taxable.

 

How do I get student loan forgiveness?

 

Each loan forgiveness program is different and has it’s own eligibility nuances. The best place to start is by reading about the program you’re interested in on the Federal Student Aid (FSA) website. Here are the links to the respective programs.

Public Service Loan Forgiveness (PSLF)

Teacher Loan Forgivness

Income-Driven Loan Forgiveness

 

Here are a few general principles to make sure you remain eligible for student loan forgiveness:

  • Make your monthly payments on time and keep your loans in good standing. Defaulted student loans aren’t eligible for loan forgiveness.
  • Do not refinance any loans you want forgiven. Refinanced loans = private loans. Private loans don’t qualify for student loan forgiveness!
  • Submit your income documentation annually to keep your income-driven repayment plan active. If you don’t submit this information annually you will get switched to a standard repayment plan which will cost you more money.

 

Are you considering loan forgiveness? Are you almost there, or have you already had student loan debt forgiven? Share your thoughts on loan forgiveness below or on the Repayable Facebook Page.

 

See you next week for a post about common student loan forgiveness mistakes that can cost you time and money.

 

Is Student Loan Forgiveness a Safe Choice?

Is Student Loan Forgiveness a Safe Choice?

by | Jan 29, 2018 | #Millenniallife, Loan Forgiveness

If you’re considering student loan forgiveness but the dubious PSLF news has you wondering if any forgiveness option is safe you’ll want to read this. Estimated read time 5 min.

PROSPER wants to eliminate time-based loan forgiveness for new borrowers, I haven’t heard of anyone who’s actually received PSLF, what is the deal with loan forgiveness? Is loan forgiveness for real or is the government going to pull the rug out from under borrowers? The proposals in the PROSPER Act and the news around PSLF might have you wondering if you’re on safe ground and if loan forgiveness is a secure option for getting rid of your student loan debt. Let’s take a look at the information we know about loan forgiveness.

 

PSLF and income-driven loan forgiveness

Public Service Loan Forgiveness (PSLF): Forgives remaining balance of student loans after a borrower makes 120 payments on a qualifying income-driven repayment plan while working for a qualifying employer. The loan amount forgiven is tax free.

Income-driven Loan Forgiveness: Forgives the remaining balance of student loans after a borrower makes payments on an income-driven plan for 20-25 years (depending on when loans originated). The loan amount forgiven is taxable.

 

Borrowers who qualify for these programs

PSLF: Borrowers employed in specific public-service jobs.

Income-driven Loan Forgiveness: Any borrower who makes payments on their income driven repayment plan for 20-25 years.

 

Estimated costs

PSLF: $23.7 billion dollars over the next decade.

Income-driven Loan Forgiveness: $74 billion over the next decade.

 

Security of Plans Based on Cost

PSLF: is an incredibly high cost plan that doesn’t cap the loan amount forgiven and covers a broad range of borrowers. The proposed PROSPER Act eliminates this plan for future borrowers. If you haven’t yet borrowed and are considering PSLF as a way to make your debt affordable look somewhere else. It’s unlikely this plan will survive in the long term. If you’re currently working toward PSLF you should be able to get loan forgiveness through PSLF.

Income-driven Loan Forgiveness: is another high cost loan forgiveness option. This option helps borrowers with the most need making it a plan that is better targeted than PSLF. However time-based loan forgiveness is also set to be eliminated for new borrowers under the PROSPER Act to be replaced with a plan that protects borrowers from negative amortization so they would pay no more than they would have under a 10 year standard repayment plan. Because this type of forgiveness is better targeted and allows the government to collect more of the original debt it’s more likely that this will survive in some form for future borrowers. If you’re a current borrower you will likely get loan forgiveness under this model.

 

So what’s a borrower to do?

Unfortunately the security of loan forgiveness options depend greatly on the desires of Congress. If you want to exert the control you have then you must talk to your representative and state senators. Tell them what your life looks like with loan forgiveness and tell them what it looks like without it. Borrowers have demonstrated they’re ready to speak up as evidenced by the fact that the student loan interest deduction and graduate school tuition waiver remained intact in the tax plan.

Find and contact your representative here.

Find and contact your senators here.

Borrowers counting on loan forgiveness need to continue to keep their loan in good standing by making payments on time each month. If you’re counting on PSLF, start submitting your certification of employment now and keep doing it annually.

Do you feel uncertain about loan forgiveness? Let me know in the comments below or on the Repayable Facebook Page.

 

Additional Resources

PSLF Budget Estimates

Income Driven Repayment Plan Budget Estimates

The Do’s and Don’ts of Public Service Loan Forgiveness

The Do’s and Don’ts of Public Service Loan Forgiveness

by | Dec 4, 2017 | #Millenniallife, Loan Forgiveness, Money Matters

Photo by Glenn Carstens-Peters on Unsplash

Some repayers are in deep student loan debt and forgiveness provides the only light at the end of a very long repayment tunnel. Today’s post is going to lay out the right things to do and the things you want to avoid doing when you’re trying to get Public Service Loan Forgiveness (PSLF).

If you’re after PSLF success this article is for you. Estimated read time 4 minutes.

Do

  • Know the specifics of PSLF. You must maintain full time employment by an eligible employer and make 120 payments on eligible loans for forgiveness.
  • Submit the Employment Certification form annually and when you change employers.
  • Keep making your monthly payments under an income-driven repayment plan and keep your loan in good standing.

Don’t

  • Consolidate your Direct Loans if you’ve been making payments for awhile. If you consolidate, the 120 payments will start all over with your new Direct Consolidated Loan.
  • Refinance your loans. Federal student loans are the only type of loans that qualify for PSLF.
  • Stop working for an eligible employer until you’ve received loan forgiveness, even if you’ve made 120 payments.  If you move to a private sector job after meeting the PSLF eligibility requirements but before you apply for loan forgiveness, you will not be eligible for forgiveness since you must be working for a qualifying employer at the time you apply for and receive forgiveness.

Two important steps to take right now.

  1. Submit your Employment Certification form. If you don’t hear back from the Department of Education or Federal Loan Servicing after a month call FedLoan Servicing at 1-855-265-4038
  2. Figure out how many qualifying payments you have made and how many you have left to go. If you haven’t submitted an Employer Certification form yet this you can count the number of payments you’ve made since your grace period ended and subtract from 120. If you’ve already submitted your Employer Certification form you can find out how many qualifying payments you’ve made by logging in to your FedLoan account and viewing your loan details or by looking on your most recent billing statement.

 

Resources

Employment Certification Form

Public Service Loan Forgiveness Basics

Public Service Loan Forgiveness FAQ

The Social Reason I Decided Not to Use Loan Forgiveness

The Social Reason I Decided Not to Use Loan Forgiveness

by | Nov 20, 2017 | #Millenniallife, Advocacy, Loan Forgiveness

Student loan forgiveness is one hotly debated topic. The fact that we have student loan debt at all is probably the only topic debated more.

Today’s post is going to share my personal experience and why I didn’t choose Public Service Loan Forgiveness (PSLF) despite the fact I have eligible employment and it would have saved me tens of thousands of dollars.

This isn’t to say that you have to share my mindset or that you should feel guilty about making the financial choice that’s best for you. This post is here to share a perspective you might not hear from anyone else through my own experience. It’s not about getting you to make a certain choice. It’s about helping you see there are countless alternatives to the standard school of thought so you can give yourself permission to pursue the one that fits your financial needs and moral compass.

 

$128,000 in Federal Loans at 6.8% Interest

I graduated in 2013 with my Pharm.D and went straight to residency. I made the decision to make income based monthly payments of around $360 per month because there was no way at $47,000/year I could afford the 10 year payments of almost $1,500 per month. After finishing residency and despite paying $6,000 toward my student loans my amount went up to $132,000 because I couldn’t keep up with interest.

 

It was Time to Go For It

After becoming a salaried pharmacist I had a choice to make. Continue in my income-based repayment plan and wait nine more years for Public Service Loan forgiveness or take matters into my own hands, control my destiny, and decimate my debt aggressively.

Here are the financial deets.

You can do the math, it’s going to cost me $60,000 more if I pay my loans off myself in 10 years instead of waiting for forgiveness. So why the hell would I make this choice?

 

I Believe PSLF Isn’t Meant for Me

Here’s the thing, whether I pay $1,100 a month (my income-based payment) or $1,500 a month I can still live the life I want to. I’m incredibly fortunate and have a job that fairly compensates me and sets me up for financial success despite my six figure debt.

There are a lot of people who aren’t so fortunate. Think about a social worker who has $57,500 of student loans for their masters degree so they can help the most vulnerable patients in the hospital obtain affordable access to medical equipment, home care, etc. This social worker makes $50,000 annually. They will pay about $79,200 in a standard 10 year repayment plan and around $48,000 under PSLF that’s a $31,000 savings.

Because the social worker makes less than I do as a pharmacist, a larger percentage of their monthly income goes to necessary living expenses. Their forgiven dollar amount is less than mine would be and the savings can ease the real impact student loan debt has on their every day life. More good is done in their life by spending less money.

 

If I Take PSLF, if Comes at a Cost to Someone Else

The fact of the matter is, when PSLF was designed they had lower debt, lower income borrowers in mind. Unfortunately they attracted a lot of high-debt high-income borrowers like myself and many other pharmacists, physicians, and high income folks working at non-profit institutions. That means there’s not enough funding to go around.

 

I Care About My Fellow Borrowers, Not Tax Payers

We all pay our fair share of taxes here in the middle class, and if my tax money can be used for something I believe in I don’t mind paying taxes. That’s why I chose not to utilize PSLF because I didn’t need it, I could afford to pay my loans with marginal financial sacrifice. I want this money to be there for people who need it. If I use it, it won’t be.

 

What About You?

What do you think about the idea of “saving” loan forgiveness for someone who needs it? What do you think about the idea of borrowers who can afford to pay their loans under standard repayment taking advantage of the savings offered via PSLF? Let me know in the comments below or on the Repayable Facebook Page.