Question: “I’m a 33-year-old fourth-year teacher who earns $41,098 a year before taxes with about $103,000 in student loans. I still live with my parents because I can’t get a mortgage or loan. Maybe because my credit is worse than student-loan debt. What are my options?”
Answer: Student loan debt that exceeds one’s annual salary is a common occurrence, and carrying high debt adds a huge burden to your monthly budget, even if you’ve reduced housing costs together with mom and dad. So with student loan repayments resuming in May, it’s time to take steps to get your own financial home in order.
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The good news is that in the case of federal lending, tuition is one area with “a lot of repayment assistance and student loan forgiveness programs,” says Andrew Pentis, loan specialist and certified student loan advisor at StudentLoanHero. Here are some options.
Income-driven repayment plans and other repayment options
First and foremost, check your monthly loan repayments – and strategize. If yours is too much, consider applying for an income-driven repayment plan with your federal loan servicer, says student loan specialist Anna Helhoski of NerdWallet. “That would set your payout at a portion of your discretionary income and extend the pay period,” she says. The standard repayment time is ten years; With an income-driven repayment plan, you can get a repayment plan of 20-25 years, after which your balance is waived off.
“Income-based repayment should reduce payments, but the borrower will not pay off their debt as quickly and will continue to accrue interest,” says Helhosky. “This may not be as important to a borrower who is a teacher who may have forgiveness options for federal loans.” (We’ll get to that.)
There are four income driven repayments plans Modified Pay As You Earn (REPAYE), and they are designed to maintain affordable monthly payments relative to income. Each comes with eligibility requirements as well as caveats to consider (with respect to issues such as taxes and marital status). Depending on the plan, the repayment period will be either 20 or 25 years and the percentage of discretionary income will be 10%, 15% or 20%, says Mark Kantrowitz, author of “How to Appeal for More College Financial Aid.”
“Lenders on income-driven repayment plans may qualify for payments as low as $0,” Pentis says. “The odds are that this person’s payout will not be zero, but in all likelihood it will fall. This will bring some relief to the monthly budget.”
For a personal loan through a bank, credit union or other lender experts recommend going to the source. Explain whether you want a temporary or permanent change, which could be a lower interest rate or a longer repayment period. Note, however, that the receptivity and flexibility of private lenders will vary.
student loan forgiveness
There are two loan forgiveness programs public school teachers could potentially qualify for – Teacher Loan Forgiveness (TLF), which experts recommend as a first step, and Public Service Loan Forgiveness (PSLF).
TLF is a federal program for full-time qualified teachers who work in low-income schools. “After five consecutive years they teach that their federal direct loans can be deductible up to $17,500,” says Helhosky.
What if there is a loan balance, as in the case of this borrower. That’s where PSLF comes in. “You can double dip,” says Pentis. PSLF enables people who make 120 loan payments while working in careers as government servants or teachers, to make a portion of their student loans tax-free.
“This borrower wants to take advantage of a limited exemption that currently exists that will count towards any payments made while working for a qualified employer,” says Helhosky. “It came into force a few months ago, and it will remain in force until the end of October.”
Borrowers can avail credit for past payments which were not earlier eligible for PSLF till October 31, 2022. If you have been denied PSLF earlier, you may be eligible under the provisional Sacrifice,
One long-term idea, according to Kantrowitz: Income-driven repayment forgiveness begins after 20 or 25 years, depending on your plan.
As you get a hold on student loan repayments, you can rehab your credit status as well. Down the road that will make it more feasible to secure a mortgage or other loans.