Potential Pitfalls Of Forgiveness
The IRS likes to tax things, and forgiven debt is no exception. Public service loan forgiveness is not taxable. But any balance wiped out through an income-driven repayment plan can be counted as income and taxed. It’s important to prepare for this eventual tax bill. Consider setting aside money in a dedicated savings account.
Note that the American Rescue Plan , passed by Congress and signed by President Biden in March 2021, includes a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient.
Get A Lower Student Loan Payment
If youre struggling to pay off student loans or pursuing public service loan forgiveness, then you may be using an income-driven repayment plan. . This student loan repayment option bases your monthly student loan payment on your income, family size and state of residence. During the Covid-19 pandemic, you may have changed jobs, become unemployed, or received a different income. Now is a smart time to update your income and family size information because it may impact your monthly student loan payment. You can also evaluate which income-driven repayment plan IBR, PAYE, REPAYE or ICR that you are using to ensure that youre maximizing student loan forgiveness. Contact your student loan servicer with any questions.
How Are Monthly Payments Calculated
The average monthly payment on a student loan is $393.11 But how do loan companies come up with your monthly payment anyway?
That not-so-magic number is based on things like the total loan amount, interest rate, number of years it takes to pay the thing off, and any other requirements the lender of that loan might tack on .
Lets look at some averages and then some examples of how they affect your total payoff amount in the real world.
Dont want to crunch the numbers on a yellow notepad? Good newsyou dont have to! Just pop these numbers into our Student Loan Payoff Calculator. If youve got $38,792 total debt at a 5.8% interest rate and youre making a $393 payment each month, youll have that loan holding you down for 11 years.
But wait, the numbers get worse . Because at the end of those 11 years, youll have paid $14,052.09 in interest alone. Thats right, your $38,792 loan will actually cost you $52,844.09 when its all said and done. Ouch.
And most college grads arent raking in the dough either. Recent college grads earn an average salary of $53,889.16That means theyre bringing home roughly $3,400 a month . So, a $393 student loan payment will eat up around 11% of their monthly take-home pay!
Dont even get us started on what you could do with that kind of money. Talk about living and giving like no one else!
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Roughly 4 In 10 Direct Loans Are On Hold
About $1.05 trillion of Americans student loan debt is in the form of direct loans. Thats a steep increase from five years ago when the total was $508.7 billion. Currently, 52% of direct federal loan debt is in repayment. About 8% is in default because the borrower hasnt made a payment in nine months or longer. The remaining 40% is on hold for a variety of reasons:
- 13% is held by students who are still in school
- 11% is in forbearance
- 5% is in a grace period
- 1% is classified as other
Forbearance and deferment enable many borrowers to postpone payments if they are experiencing economic hardship, like unemployment or a medical crisis are serving in the military or are continuing their studies through a fellowship, residency, or postgraduate study. The main difference is that interest always accrues during forbearance, but does not during some deferments.
The current breakdown is a significant change from the third quarter of 2013, when 42% of federal student loan debt was in repayment, 24% was held by students in school, 13% was in deferment, 8% was in forbearance, 7% was in a grace period, 5% was in default, and 1% was classified as other.
Pei Debt Reduction Program
If youre a PEI resident and you have to borrow at least $6,000 in federal or provincial student loans each year, you could be eligible for a special grant to reduce the debt from your provincial student loan.
Eligible Academic Periods
If you started your schooling prior to August 1st, 2018, you could qualify for a debt reduction grant of up to $2,000 per year of your studies, which you can apply directly to your unpaid provincial student loan balance. To qualify, you must graduate from your program within one year of filing your application.
If you commenced your education after July 31st, 2018, you may be eligible for a debt reduction grant of up to $3,500 per year of study. Once again, you may use your grant funds to pay any provincial student loan balances. However, you must graduate within 3 years of sending your application .
Eligibility Requirements For The PEI Debt Reduction Program
If you graduated during an academic year prior to, you must submit your application within one year of your graduation date. You also have to submit:
- A completed Debt Reduction Grant application
- A copy of your certificate, degree or diploma
- Your loan statement balances from National Student Loans Service Centre and Edulinx-PEI
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Average Student Loan Debt In The Us 2021 Statistics
Americans now owe more than $1.53 trillion in student loan debt, based on the most current figures available to Nitro. That money is not only owed by young people fresh out of college, but also by borrowers who have been out of school for a decade or more. The standard repayment timetable for federal loans is 10 years, but research suggests it actually takes four-year degree holders an average of 19.7 years to pay off their loans.
Biden Has Focused On Preexisting Forgiveness Programs
The Biden administration’s approach to student loan relief began with improving, extending or expanding a handful of programs that were already on the books.
“We’re working really hard to get students the relief that they’re entitled to” through these preexisting programs, Undersecretary of Education James Kvaal told NPR on Friday.
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Make Use Of Resources To Pay Off Student Loans
If you find yourself in a bad spot, consider contacting the U.S. Department of Education for help or to speak with a professional.
Before heading to bankruptcy , there are options of debt consolidation and debt settlement.
In debt consolidation, several of your debts are rolled into one. The debts amount doesnt change, but you will have just one bill per month and the monthly payment should be less than what you were paying individually. Over time, you might save significant money in interest.
In debt settlement, the debt is reduced through negotiations with your lenders. A debt settlement company can negotiate directly with your creditors.
There are many reputable professionals, such as those at InCharge, who can help with student debt management. The key is communication. With early anticipation of a potential problem, then contacting the right people, you can arrive at the best-case scenario.
Student Loan Debt Facts
- The total student loan debt in 2018 was a collective $1.5 trillion amongst 44.5 million graduates in the U.S.
- The most recent study from 2016 showed average student debt at end of his or her studies was $28,446.
- 62% of Americans over age 30 are still paying their student loans
- Average monthly student debt loan payment: $351
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Review Your Loan Terms And Details
Know what you owe, and double check the pay-off dates and grace periods for each loan.
Do this by creating a master list of your student loans, including the servicers, outstanding balances, minimum monthly payments, and interest rates. Having a place you can go to with all your information right in front of you will help you stay organized and make it easier to figure out who to contact for help or advice.
Success in getting back into repayment really depends on student loan borrowers having a clear view of how much they owe, says Canady.
How Can I Make My Loans Cheaper
If the idea of trying to discharge your loans sounds exhausting and not at all feasible, remember that there are other legal ways to make your student loan payments more tolerable. There are alternatives that can make your student loans more affordable without completely discharging them.
Some forgiveness options require 20 to 25 years of payments.
With federal student loans, you can apply for income-based repayment programs that may cap your monthly payments between 10% to 20% of your income, depending on your eligibility. There are some downsides to these plans so be sure to research the difference between them.
You can also apply for forbearance or deferment, which allow you to put your payments on hold while you are experiencing financial hardship, however there may be interest that can still accrue with these plans.
Finally, there are student loan forgiveness programs , which forgive your loan balance after a certain number of years.
Some of the eligibility requirements for forgiveness programs are tied to working in the public sector, and generally forgive your loans with after 10 years. However, some forgiveness options require 20 to 25 years of paymentsand you may have to pay taxes on the amount forgiven.
Interested in finding out how much you can save by refinancing your student loans? Learn more about SoFi student loan refinancing today.
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How Budgeting After College Can Help Repay Student Loans
It is virtually impossible to navigate the road to financial success without knowing how to budget and college is a great place to start tracking income and expenses.
Budgeting is a two-step process that tells you volumes about your ability to manage money.
The first step is to determine monthly income from all sources. In college, that could mean money from a job, your parents, and the financial aid office . After college, that list usually goes down to your job and whatever help your parents might offer.
Step two is to list expenses and this could take a while. There are fixed expenses like rent, utilities, phone/cable bill, food and maybe a car loan.
Subtract your fixed costs from your total income and whatever is left is your disposable income to use for eating out, movies, sporting events, transportation, laundry, clothing and health care.
Students who graduate with a sizable debt usually dont know what happened to all of their disposable income and the same is true after college. If you have a budget, especially one that breaks down spending into every category possible, youll see that you dispose of income in places that will surprise you.
Here are some idea of how to lighten the spending of disposable income:
What about fun? Yes, you can still have fun without spending much money.
Student Loan Forgiveness And Income Taxes
Loan forgiveness that requires you to work in a particular occupation is tax-free, such as:
- Public Service Loan Forgiveness
- Teacher Loan Forgiveness
- Other job-specific programs
Other types of student loan debt cancellation are treated as taxable income, leading to a potential tax liability, such as:
- Income-based repayment plan forgiveness
- Student loan repayment assistance programs
- Student loan discharge for disability, death, closed school, etc.
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How Do You Get Your Private Student Loans Cancelled
Student loan forgiveness is primarily available for federal student loans, which are issued by the federal government. Private student loans are issued by a private lender, so any potential for student loan forgiveness would be between you and your lender. Contact your lender or student loan servicer to understand student loan forgiveness options for your private loans based on your specific life circumstance. There is no plan for Biden or Congress to cancel private student loans.
Time May Be Running Out
There’s an argument to be made that Biden is running out of time to broadly cancel student debts. Democrats’ majorities in Congress are likely to shrink next year, if not melt into minorities.
What’s more, the Education Department has said it will require that federal student loan payments, paused during the pandemic, resume as early as Jan. 31.
Imagine millions of borrowers navigating a repayment system they haven’t used in more than a year and a half. Many will need to speak with their loan servicing company to change repayment options. And two of those companies, which serve roughly 15 million borrowers, are right now transitioning out of the federal student loan business all together.
NPR has spoken with more than a dozen student loan experts, including a handful inside the department, who all say they expect this return to repayment to be … difficult.
If broad-based student loan forgiveness is going to happen, it makes all the sense in the world to do it before Jan. 31. Biden’s campaign pledge would mean millions of borrowers would have their debts erased, allowing them to avoid this difficult, potentially disastrous payment restart.
That doesn’t mean Biden has to keep his $10,000 loan forgiveness pledge by then. It just means, if he doesn’t, it’s hard to imagine broad forgiveness happening anytime soon, if at all.
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Update Your Contact Information
This may sound basic, but make sure you update your contact information with Federal Student Aid and your student loan servicer. The Education Department may need to send you notices regarding your student loans and the restart of student loan payments. You may have moved during the pandemic, so its important to check in with your student loan servicer. This is also a good time to update your autopay information in case you have new account information. Multiple student loan servicers have announced plans to exit student loan servicing. Approximately 16 million student loan borrowers, including you, may get a new student loan servicer next year. Theres no need to panic: your student loan interest rate, student loan balance and student loan repayment terms wont change. However, you may need to work with a new student loan company for student loan repayment. The Education Department will contact you if youre impacted.
The most important thing you can do to prepare for the end of student loan relief is to start preparing now. Dont wait until January to get a student loan repayment plan. Here are some popular options to pay off student loans faster:
Private Student Loan Debt Forgiveness Options
Private loans, from a bank, parent or other financial institution, are repaid directly to your lender. They might include a student line of credit, student credit card or overdraft. Any term revisions must be negotiated with your student loan provider.
Private student loans are just like any other unsecured debt. There are no special rules or study period limitations to qualify for of loan forgiveness. Any credit card debts, lines of credit or bank loans you used to fund the tuition fees and other costs of your education can be discharged in a bankruptcy or proposal with no limitations or waiting period. Read our article for more on repaying private student debt.
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Cancel Student Loan Debt: 12 Ways To End Your Payments In 2021
Student debt has become a major problem in the U.S concerning more than 40 million people. Every student accrues debt hoping that better education will lead to a better future. However, most of them struggle to meet the loan obligations after graduation. Whether it is a private or federal loan, debt repayment can take several years and require constant income inflow.
Yet, luckily, there are some options to ease the debt repayment process. Programs exist that can help borrowers to reduce or cancel the debt obligations. These opportunities are mostly available to federal borrowers, while private debtors can access a few options.
This guide will introduce 12 ways to cancel student loan debt, covering different types of qualifications.
Strategies To Pay Off Student Loan Debt Faster
The video panel included: Andrew Josuweit: CEO of StudentLoanHero.com Shannon McNay: Director of Content at MyBankTracker.com Rod Griffin: Director of Public Education at Experian Mike Delgado:Director of Social Media at Experian.
We also featured student loan pay off tips on Snapchat with 4 Strategic Ways to Pay Off Student Loan Debt Faster.
Here are some tips we discussed in more detail
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If You Dont Get Student Loan Forgiveness This Plan Will Get You Student Loan Relief
If you dont get wide-scale student loan cancellation and youre struggling financially, then consider an income-driven repayment plan to help lower your monthly payment. Income-driven repayments can help save you money on federal student loans and provide you with student loan forgiveness. Heres how to benefit from income-driven repayment plans:
Other Repayment Plans For Student Loan Debt
Other types of repayment plans include a standard repayment plan, a graduated repayment plan, and an extended repayment plan.
What Happens if I Default on My Student Loans?
Defaulting on your federal student loans can lead to serious consequences, like tax refund offsets and federal benefits intercepts, wage garnishment, and the loss of eligibility for deferment, repayment plans, and probably forbearance.
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