Higher Student Loan Rates Take Effect in July. Here’s What That Means for Borrowers

For the first time since 2014, the interest rates on federal student loans are going up.

For the first time since 2014, the interest rates on federal student loans are going up. Loans disbursed between July 1, 2017 and June 30, 2018 will carry the new rates, which are 0.69 percentage points higher than those of federal loans that have gone out since July 1, 2016. Here are the new rates:

  • Direct subsidized loans for undergraduate borrowers: 4.45%
  • Direct unsubsidized loans for undergraduate borrowers: 4.45%
  • Direct unsubsidized loans for graduate or professional student borrowers: 6%
  • Direct PLUS loans for graduate and professional student borrowers: 7%

Why Did the Interest Rates Change?

Legislation that went into effect in 2013 tied federal student loan interest rates to the 10-year Treasury note. Every year, the undergraduate loan rates are calculated by adding 2.05 percentage points to the high yield of the 10-year note at the last auction prior to June 1. Add 3.6 percentage points to the high yield to determine unsubsidized graduate loan rates, and for PLUS loans, add 4.6 percentage points.

How the Rate Change Affects You

If you’re getting a federal student loan in the next year, these are the rates you’ll pay for the life of the loan. Borrowers with existing federal student loans won’t experience a rate change, unless they have a variable interest rate, which is rare.

While the rates have gone up, they could be much worse: The 2013 legislation caps federal student loan interest rates at 8.25% for undergraduates, 9.5% for unsubsidized graduate loans and 10.5% for PLUS loans. Since the 2008 financial crisis, the benchmark rate has remained historically low, but if it rises, future student loan borrowers will pay. So if you’re going to college in the next few years, or will borrow on behalf of someone who is, keep tabs on the 10-year Treasury yield.

How to Change Your Student Loan Interest Rates

Whether you’re a new borrower or have been repaying student loans for a few years, you should know there are a few options for changing the interest rates on your student loans.

You could apply for a federal Direct consolidation loan, which combines multiple eligible loans into a single loan. The interest rate on that loan is the average weighted interest rate of the loans you consolidated, rounded up to the nearest 1/8th of 1%. Whether this strategy will save you money on interest depends on the balances and interest rates of the loans you’re consolidating.

Let’s say you have three loans with the following balances and interest rates: $3,500 at 4.66%, $6,500 at 4.29% and $7,500 at 3.76%. The weighted average interest rate of those loans is 4.14%. But if you switch the interest rates on the largest and smallest loan balances, the weighted average would be 4.36%. The math matters when considering consolidation.

You could also refinance your student loans at a lower rate with a private lender (there’s no federal refinancing option beyond consolidation), but you will lose many of the benefits federal student loans offer, like income-driven repayment plans and student loan forgiveness.

There’s also a simpler way to cut your student loan rates: Set up automatic payments. The savings may not be as significant as they can be with consolidation or refinancing, but most student loan servicers offer a rate discount to borrowers who enroll in auto-debit. If you’re looking for other ways to make your loan payments more affordable, here’s a list of your options.

It’s crucial you stay on top of your student loans, as missing payments can trash your credit and result in significant financial obstacles. You can see how your student loans and other accounts affect your credit by reviewing your free credit report summary on Credit.com.

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How Your Credit Report Can Help You Manage Student Loans

Handling your student loan payments may not be easy, but here's where you can start to take control.

More than 1.8 million students graduate from college in 2017. While it’s a momentous achievement, many graduates will walk away with significant student loan debt. Though keeping up with monthly payments can be difficult, knowing how to budget for them can be an even bigger obstacle.

If you’re feeling overwhelmed and don’t know how to begin managing your loans, your credit report can be an essential tool. Here’s how your credit report can help you take control of your debt.

What’s in Your Credit Report?

Your credit report is a complete picture of your financial history. It contains information about your bills, loans and what credit cards you have open.

Lenders use your credit report to make decisions on your reliability and financial stability. They look at your report to evaluate whether to offer you a car loan, mortgage or a new credit card. However, your credit report is an invaluable source of information for you too, especially if you have student loans.

2 Ways Your Credit Report Can Help You Manage Your Loans

When you’re in school and take out federal or private student loans, it’s easy to lose track of who your lenders are or how much you borrowed — especially if you don’t have to start repaying them yet.

To make things more difficult, your debt can sometimes transfer to a new loan servicer. If that happens, you’ll have to make payments on a different website and you’ll have a new account. That’s where your credit report comes in handy. You can use it to locate your loans and their current status in the following ways:

  1. Identify your loan servicer: If you aren’t sure who your loan servicer is, use your credit report to identify who manages your loans. Your credit report will list all the institutions behind your debt. Once you have the name of your servicer, you can use that information to sign into your account and begin making payments.
  2. Find out your current balance: Thanks to interest, your loan balance could grow while you’re in school. If you’re unsure what amount you owe, your credit report will list the current balance on your loans.

Where to Get Your Free Credit Report

There are many services that will send your credit report for a fee. However, paying for your credit report is unnecessary. You can get a free credit report from each of the three credit bureaus — Equifax, Experian, and TransUnion — once a year from AnnualCreditReport.com.

It’s a good idea to stagger your credit reports throughout the year. For example, you could review one credit report from each agency every four months. That way, you can continually review your credit report for issues, rather than waiting a full 12 months. Catching problems early can save you money and protect your credit.

You can also check your credit scores for free on Credit.com. They’re updated regularly and can help you spot changes in your credit reports if they go up or down unexpectedly.

What to Do If There’s an Error

An essential part of checking your credit report is reviewing it for errors. Sometimes loans are reported incorrectly or, in cases of identity theft, fraudulent accounts can be put under your name.

If you find an issue, whether it’s a simple mistake or a more serious issue of theft or fraud, it’s important to take action right away. If the accounts in error become delinquent, those late payments can cause your credit report and score to plummet. That will make it more difficult for you to get a loan, a new credit card or get approved for a new apartment. The longer you wait to act, the longer it could take to correct.

To report a problem, write a letter disputing the errors and send it in the mail to the following:

  • Equifax: Equifax Information Services, LLC., P.O. Box 740256, Atlanta, GA, 30348
  • Experian: Experian, P.O. Box 4500, Allen, TX 75013
  • TransUnion: TransUnion LLC, P.O. Box 2000, Chester, PA, 19016

You should also notify the bank or financial institution that reported the error. Include copies of any supporting evidence you may have to prove your case.

To ensure you have a record of contacting the organizations, it’s a good idea to send the letter as certified mail as proof.

If you report the error and the credit bureaus and financial institutions do not fix the issue, you can escalate the problem to the Consumer Financial Protection Bureau.

Managing Your Credit

Graduating from college is a huge milestone, but it’s easy to get overwhelmed managing your student loans. From figuring out who your loan servicer is to learning how much your loans grew, the process can be complex.

Getting your credit report and credit scores and reviewing them thoroughly can help you keep track of your loans and stay current on your payments.

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What Trump’s Budget Means for Public Service Loan Forgiveness

Confirming the fears of many, President Donald Trump’s recently proposed federal budget calls for the defunding of the Public Service Loan Forgiveness program. While those currently enrolled in the program would not be affected, anyone taking out loans after July 1, 2018, would not be eligible.

Proponents of the program, designed to attract candidates to the public sector by forgiving student loans after 120 consecutive payments, fear this cut would incentivize teachers, lawyers, nurses, and other professionals to seek out careers in the private sector where the salaries are significantly higher. Opponents say the program is too costly, and the proposed cuts would save taxpayers billions.

What Does This Mean?

Adam Minsky, a Boston, Mass.-based attorney who specializes in student loans and consumer issues, cautioned that President Trump’s budget proposal is just that — a proposal.

The president can propose a budget, but it’s up to Congress to finalize and ratify it. The Republicans currently have a majority in both the House of Representatives and the Senate, and the federal budget only needs to have a simple majority for it to pass. Still, that would require about eight Democrats to vote yay, something they’re unlikely to do unless the final draft takes a more bipartisan turn.

The process of getting a budget approved through Congress is a long road. Each chamber of Congress has to approve the bill internally, then the bill goes to a committee that looks at both the Senate and House of Representatives bills to reconcile any differences. Finally, the bill is sent to both houses of Congress for a final vote.

Budget proposals rarely make it through Congress unaltered. Trump’s proposal is more like a polite nudge from the executive branch, not a firm decree.

Budget talks will continue throughout the summer and fall, and it’s not clear when a final proposal will be announced.

What Is the Public Service Loan Forgiveness Program?

Started in 2007, the Public Service Loan Forgiveness program allows borrowers who took out federal student loans to have their loans forgiven after 120 consecutive payments (10 years), as long as they served in a government or nonprofit role while all those payments were made. Graduates who utilize the program are on a mandated income-based repayment plan, so their payments are often much lower than they would be on the standard plan.

Careers such as law, nursing, social work, teaching, law enforcement, firefighting, and the military would all be affected by this shift. Many who choose to enter these professions have the option of working for the private sector where salaries are higher, but choose the public route because of this program. Not having the PSLF program could mean a dearth of candidates entering these fields.

“You have people making major life decisions based on the existence of this and other programs,” Minsky said.

The program incentivizes people to work in the public sector where salaries are lower and the demand is greater. If people don’t have a reason to take a lower-paying job, some experts worry that the gap between the rural and urban communities and other low-income areas will continue to increase.

Who Is Affected by This?

Only borrowers who take out federal student loans after July 1, 2018, would be affected by this change, and anyone who took out loans before this would be grandfathered in. The first crop of students who will have their loans forgiven will be this fall. Currently, over half a million people are enrolled in the PSLF program.

What’s the Problem?

The problem with Trump’s proposal is that the Public Service Loan Forgiveness program is a federal law. A budget proposal can’t change the law, but it can defund the program. That’s where the legal confusion arises.

“That’s the million dollar question,” Minsky said. “How can you have a program that is legally allowed to exist without funding it?”

He anticipates that if a budget passes defunding the PSLF program, several lawsuits would immediately come about.

“The way they’re going about doing it is problematic from a legal point of view,” Minsky said.

What Can People Do?

If you oppose the president’s proposal, you should contact your local representatives to tell them how you feel. Each citizen has one House representative and two Senators. Minsky recommends calling, writing a letter, and setting up a meeting with their spokesperson.

When you call, “you want to identify yourself as a constituent and as a voter,” he said.

If you have coworkers who would also be affected by this, try to rally them to take action. Ask your boss if the organization you work for can take a public stand on these issues. Post about it on social media and encourage your friends to reach out to their elected officials. Strong public opinion could sway politicians to listen to the people and not include this proposal in their own budget.

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Ultimate Guide to Teacher Student Loan Forgiveness

With reporting by Hannah Rounds and Brittney Laryea

Becoming a schoolteacher is heralded as a rewarding profession but not one that often comes with a large paycheck. Starting salaries for public school teachers range from $27,000 to $48,000, according to the National Education Association. And yet, teachers who graduate with a Master in Education carry an average of $50,000 in student loan debt.

With salaries like these, it’s no wonder teachers can struggle to afford their student loan payments. Thankfully, classroom teachers qualify for many debt forgiveness programs. These programs can help give teachers an extra boost to help them pay down debt while working.

These are the most important student loan forgiveness programs for teachers, which we’ll review in detail in this guide.

To skip ahead to the program you’re interested in, just click the links below.

Public Service Loan Forgiveness

Public Service Loan Forgiveness is a 2007 program that originally promised to forgive federal student loans for any employees of nonprofit or public sector companies. That, of course, includes teachers.  Under the program, borrowers who made 120 on-time payments would ultimately qualify for loan forgiveness.

However, the program’s future is now uncertain. A proposed education budget from the White House appears to eliminate the program, and it is not yet clear whether or not enrolled workers will have their loans forgiven as promised. Any budget will have to receive Congressional approval, which means we may not have a certain answer for months to come.

How do l know if I’m eligible?

Teachers at nonprofit schools are eligible for Public Service Loan Forgiveness. This includes public and private nonprofit schools. To qualify, teachers must make 120 on-time payments while working full time in a public service role.

The 120 payments do not have to be consecutive. However, you must pay the full amount listed on your bill. Additionally, your loans must be in good standing when you make the payment.

IMPORTANT: You can only qualify for loan forgiveness if you are enrolled in a qualified income-driven repayment option.  Learn more about income-driven repayment plans here.

Also, payments only count toward forgiveness if your loan is in active status. That means any payments made while loans are in the six-month grace period, deferment, forbearance, or default do not count toward forgiveness.

How can I be sure my employer is covered by PSLF?

There has been a lot of confusion about which employers are considered nonprofit or public service organizations. To be sure your employer is eligible, you should submit an employment certification form to FedLoan Servicing.

Although the future of the loan forgiveness program remains uncertain, borrowers may still want to prepare for a positive outcome and enroll in hopes that the program will continue.

How much of my loan will be forgiven?

After 120 payments, the government will cancel 100% of the remaining balance and interest on your Direct Federal Loans.

Direct Federal Loans include: Direct Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Will I have to pay taxes?

Public Service Loan Forgiveness (PSLF) is completely tax-free. You will not see an increased tax bill the year your loans are forgiven.

How to claim Public Student Loan Forgiveness

As the program launched in 2007 and requires 10 years of on-time payments, the first group of graduates who could be eligible for PSLF will begin submitting their applications in 2017.

But don’t expect it to happen automatically. Even if you qualify for loan forgiveness, the government will not automatically discharge your loans. You need to submit the PSLF application to receive loan forgiveness.

The applications for loan forgiveness are not yet available. The U.S. Department of Education will make them available before October 2017.

What if I have a Parent Plus, Perkins or FFEL loan?

As it stands, some types of federal student loans — such as Parent PLUS, Perkins and Federal Family Education Loans — are not included under the PSLF program. One way to get around this is by consolidating those loans through the federal direct consolidation program. If you take this route, the entire consolidation loan will be forgiven.

PSLF works best in conjunction with an income-based repayment plan. These plans lower your monthly payments.

Since you will qualify for loan forgiveness, this means more money in your pocket. Just remember, you must keep your loans in good standing — making 120 on-time consecutive payments — to qualify for forgiveness.

Federal Teacher Loan Forgiveness

The Federal Teacher Loan Forgiveness program encourages teachers to work in the neediest areas of the country. Teachers who qualify can have up to $17,500 in federal loans forgiven after five years.

How do I know if I’m eligible for Federal Teacher Loan Forgiveness?

Teachers must complete five consecutive years of teaching at a low-income (Title I) school. If your school transitions off the list after your first year of teaching, your work in that school still counts toward forgiveness.

Direct Subsidized and Unsubsidized Loans and Subsidized and Unsubsidized Stafford Loans can be forgiven. Loans must have originated after October 1, 1998. This is important for anyone who hasn’t paid off loans and wants to consider teaching as a second career.

Your loans may not be in default at the end of your five years of teaching. The only exception includes loans that are set up in a repayment arrangement.

You qualify for teacher loan forgiveness as long as you are on a qualified repayment option. These include the standard 10 year repayment plans or the payments required by an income-based repayment plan. If your loan goes into a default, a repayment arrangement works with this program.

How much of my loan will be forgiven?

To receive the full $17,500 in forgiveness, you must meet one of two criteria: either work as a highly qualified math or science teacher in a secondary school, or work as a qualified special education teacher for children with disabilities.

Other highly qualified teachers can have up to $5,000 of loans forgiven if they work in Title I schools.

You’ll notice that all teachers must be “highly qualified.” To meet the highly qualified standard, you must be licensed in the state you work, hold a bachelor’s degree, and demonstrate competence in the subject(s) you teach. Do you need to check whether you’re highly qualified? The U.S. Department of Education explains qualification in detail.

Will I have to pay taxes?

The Federal Teacher Loan Forgiveness program forgives your loans and does not result in a taxable event.

How to apply

Qualified teachers must submit this application with administrative certification. Be sure you work with your school’s administration in advance.

Tips and tricks

Consider teaching at a Title I school directly after graduation. The loan forgiveness may help you achieve debt freedom within five years. Consider an income-based repayment program to lower your payments while you’re teaching.

Teacher Cancellation for Federal Perkins Loans

If you’re a teacher who took out a Federal Perkins Loan from your school, you may qualify for loan cancellation. Teachers can cancel up to 100% of their Perkins Loans after five years.

How do loans become eligible?

The teacher cancellation program for Perkins Loans is one the most lenient programs for loan forgiveness.

You will qualify to have loans forgiven if you meet any one of these three requirements:

  • You work full time in a low-income (Title I) school.
  • You work full time as a special education teacher.
  • You work full time in a designated shortage area (such as math, science, foreign language, bilingual education, or any shortage area declared by your state).

If you work part time at multiple qualifying schools, you may qualify for loan cancellation.

Your loans may be in a grace period, deferment, or any qualified repayment plan at the time of discharge. They may not be in default.

Also, you must be enrolled in a qualified repayment option. Your payment plan could be the standard 10 year repayment plans or an income-based repayment plan. If you qualify fordeferment, your loans may still be eligible for cancellation.

How much of my loan will be forgiven?

Over the course of five years, 100% of your Federal Perkins Loan will be forgiven. The discharge occurs at the end of each academic year. In years 1 and 2, the government discharges 15% of the principal balance of the loan. It cancels 20% of the loan in years 3 and 4 of service. The final year, the remaining 30% of your loan will be canceled.

In most cases, the five years of service do not have to be consecutive. However, this isn’t always the case. The university that issued your Perkins Loan administers the loan cancellation program. That means you need to check with your alma mater for complete details.

Will I have to pay taxes?

This program forgives your loans and does not result in a taxable event.

How to apply

You must request the appropriate forms from the university that holds the loans. If you don’t know the office that administers Perkins Loans, contact your university’s financial aid office.

Tips and tricks

If your Federal Perkins Loan qualifies for deferment, take advantage of this option. Under deferment, you don’t have to make any payments on the loan. At the same time, the government pays any accruing interest. Teachers who qualify for deferment can have 100% of their Perkins Loan forgiven without ever paying a dime.

TEACH Grant

The Teacher Education Assistance for College and Higher Education (TEACH) Grant isn’t like other loan cancellation programs. Under the terms of the program, you accept the money during your college years. Eligible students can receive a grant of up to $4,000 per year of education. After you graduate, you agree to work as a teacher for four years in a high-need field in schools that serve low-income families.

As long as you keep your end of the bargain, you don’t have to pay the money back. Otherwise, the grant transforms into a loan. If you’re planning to become a teacher, this can be a great opportunity. But you need to understand the details before you accept the grant.

How do I qualify for a TEACH Grant?

To qualify for a TEACH Grant, you must enroll in a teacher education program, complete the Free Application for Federal Student Aid, maintain a certain GPA (usually 3.25), and agree to a work requirement.

When you accept a TEACH Grant you agree to work as a teacher in a high-need field serving low-income families. You must complete four years of full-time teaching within eight years of graduation.

In this instance, you take the money first and agree to do the work later. That means that you’re taking on a risk.

You must complete a Free Application for Federal Student Aid form, and you must complete a training and counseling module from StudentAid.gov. Pay attention to the training; it will help you understand the risks of the TEACH Grant.

What happens if I change my mind?

If you don’t keep up your end of the bargain and meet all of the work requirements, the funds get converted into a Direct Unsubsidized Loan. What’s worse? The interest begins accruing from the point you received the grant. That means you’ll have the principal and interest to pay.

Don’t take a TEACH Grant unless you plan to meet the work requirements.

Will I have to pay taxes?

TEACH Grants are nontaxable education grants. However, you cannot claim a tax credit for education expenses paid by the grant.

Tips and tricks

The TEACH Grant offers a great way to graduate debt free, but you must commit to follow through. Don’t take the grant money unless you know that you can work as a teacher for at least four years.

Teacher Loan Forgiveness Programs by State

Several states offer generous loan forgiveness opportunities. You can use these programs in conjunction with the federal programs above. Qualified applicants might achieve debt freedom in a few years with these programs. These are some of the highlights of state loan forgiveness programs.

If your state isn’t listed, check out the database at the American Federation of Teachers. They keep track of most major scholarship and loan forgiveness opportunities for teachers.

Arkansas State Teachers Education Program

The Arkansas State Teachers Education Program (STEP) helps teachers with federal student loans pay back their loans. Teachers must work in geographical or subject areas with critical shortages.

Arkansas teachers with federal student loans can receive loan repayment assistance if they serve geographical areas with teacher shortages. They can also receive repayment assistance if they have licensure or endorsements in designated subject areas.

Eligible teachers can receive up to $3,000 per year that they teach in critical shortage areas. There is no lifetime maximum of loan forgiveness. Licensed minority teachers can receive an additional $1,000 for every year that they qualify for STEP.

Arkansas Teacher Opportunity Program (TOP)

The Teacher Opportunity Program, or TOP, awards tuition reimbursement grants up to $3000 of out-of-pocket expenses to licensed Arkansas classroom teachers and administrators with the Arkansas Department of Education.

Arkansas classroom teachers and administrators who declare an intention to continue employment as a classroom teacher or administrator in Arkansas after completing their program are eligible for TOP. Applicants must also have at least a 2.5 cumulative GPA in the courses funded by the TOP grant when they apply.

Applicants who meet all requirements can receive reimbursement for out-of-pocket expenses up to $3000 for courses related to employment. The grant reimburses educators up to 6 college credit hours each academic year.

Arkansas administrators and educators can find more information about TOP on the Arkansas Department of Higher Education website. Applicants must complete and submit an application to The Arkansas Department of Higher Education by June 1 each year.

Delaware Critical Need Scholarships

The Critical Need Scholarship program reimburses Delaware teachers for all or part of tuition and registration fees paid for courses that contribute toward the completion of a Standard Certification.

Full-time employees of a Delaware school district or charter school who teach on an Emergency Certificate in a critical need area as defined by the Delaware Department of Education. Applicants must also have a minimum 2.0 GPA.

The scholarship forgives all or part of tuition and registration fees paid up to $1,443 for undergraduate coursework or up to the cost of three credits per term for graduate coursework, not to exceed the cost of three credits at the University of Delaware.Courses must contribute toward the completion of a Standard Certification.

Teachers can find more information and application instructions here. You must apply through the school district or charter school where you are employed. The application cycles twice each year; one deadline is in January and the other is in June.

Illinois Teacher Loan Repayment Program

The Illinois Teacher Loan Repayment Program offers up to $5,000 to Illinois teachers who teach in low-income schools in Illinois. This award is meant to encourage the best teachers to serve students in high-need areas.

The Illinois Teacher Loan Repayment Program is a unique loan forgiveness matching program. Teachers must meet every qualification to receive Federal Teacher Loan Forgiveness. In addition, teachers must have served all five years in a low-income Illinois school.

Teachers who meet all requirements can receive federal loan forgiveness up to $5,000. You must apply for Illinois loan repayment funds within six months of receiving federal loan forgiveness.

Iowa Teacher Shortage Forgivable Loan Program

Iowa offers student loan repayment assistance to state-certified teachers as an incentive for educators to teach in subjects with a shortage of instructors through the state’s Teacher Shortage Forgivable Loan Program.

Current Iowa teachers who began their first teaching position in Iowa after July 1, 2007 and are completing studies in a designated shortage subject area are eligible for the Teacher Shortage Forgivable Loan Program.

Teachers must have a balance on either a Direct Stafford Loan or Direct Consolidation Loan and agree to teach in the shortage subject area upon graduation. For 2016 graduates, the maximum award is $6,858.

Recipients are awarded up to 20% of their remaining loan balance annually, up to the average resident tuition rate for students attending Iowa’s Regent Universities the year following graduation.

Teachers can find more information on the Iowa College Student Aid Commission website. The 2016-17 application window is between January 1 and March 31, 2017, for the academic year. Recipients must reapply each year.

Maryland Janet L. Hoffman Loan Assistance Repayment Program

Maryland offers loan repayment assistance to excellent teachers who teach STEM subjects or in low-income schools.

Only teachers who earned a degree from a college in Maryland or a resident teacher certificate from the Maryland State Department of Education qualify for this award. Additionally, qualified Maryland teachers must serve in low-income (Title I) schools or other schools designated for improvement. Alternatively, licensed teachers who work in designated subject areas such as STEM, foreign languages, or special education can qualify.

To qualify, you must earn less than $60,000 per year or $130,000 if married filing jointly.

Qualified teachers can have up to $30,000 repaid over the course of three years. The repayment assistance you receive depends on your overall debt load.

Total Debt Overall Award Limit Yearly Payment
$75,001 – Over $30,000 $10,000
$40,001 – $75,000 $18,000 $6,000
$15,001 – $40,000 $9,000 $3,000
$15,000 – Below $4,500 $1,500

The Janet L. Hoffman Loan Assistance Repayment Program offers some of the most generous loan repayment terms. However, the program has stringent eligibility requirements. To find out more about your eligibility, visit the Maryland Higher Education Commission website.

Mississippi Graduate Teacher Forgivable Loan Program (GTS)

The Graduate Teacher and the Counseling and School Administration Forgivable Loan Program (GTS/CSA) was established to encourage classroom teachers at Mississippi’s public schools to pursue advanced education degrees.

Current full-time Mississippi public school teachers earning their first master’s degree and Class ‘AA’ educator’s license in an approved full-time program of study at a Mississippi college or university are eligible for the GTS program.

Selected applicants are awarded $125 per credit hour for up to 12 credit hours of eligible coursework.

Teachers can find more information about GTS program on the Rise Up Mississippi website. Complete and submit the online application with all supporting documentation by the year’s stated deadline. The application must be completed each year to remain eligible.

Mississippi Teacher Loan Repayment Program (MTLR)

The Mississippi Teacher Loan Repayment Program, or MTLR program, helps teachers pay back undergraduate student loans for up to four years or $12,000.

Mississippi teachers who currently hold an Alternate Route Teaching License and teach in a Mississippi teacher critical shortage area or in any Mississippi public or charter school if teaching in a critical subject shortage area are eligible for the MTLR program. Perkins and Graduate-level loans are not eligible for repayment.

Recipients can receive a maximum $3000 annually toward their undergraduate loans for up to four years or $12,000.

Teachers can find more information on the Rise Up Mississippi website. Complete and submit the online application by the year’s stated deadline. The application must be completed each year to remain eligible.

Montana Quality Educator Loan Assistance Program

The Montana Quality Educator Loan Assistance Program encourages Montana teachers to serve in high-needs communities or in subject areas with critical shortages. The program provides direct loan repayment for teachers who meet the requirements.

Licensed Montana teachers who work in “impacted schools” in an academic area that has critical educator shortages. Impacted schools are more rural, have more economically disadvantaged students, or have trouble closing achievement gaps.

Montana will repay up to $3,000 a year for up to four years.

New York City Teach NYC

Teachers hired by the New York City Department of Education who work in specified shortage positions can receive up to $24,000 in loan forgiveness over the course of six consecutive years.

Teachers must work in a New York City school in one of the following designated shortage areas:

  • Bilingual special education
  • Bilingual school counselor
  • Bilingual school psychology
  • Bilingual school social worker
  • Blind and visually impaired (monolingual and bilingual)
  • Deaf and hard of hearing
  • Speech and language disabilities (monolingual and bilingual)

The NYC Department of Education will forgive one-sixth of your total debt load, each year for up to six consecutive years. The maximum award in one year is $4,000. The maximum lifetime award is $24,000.

North Dakota Teacher Shortage Loan Forgiveness Program

The North Dakota Teacher Shortage Loan Forgiveness Program encourages North Dakota teachers to teach in grades or content levels that have teacher shortages.

The North Dakota Department of Public Instruction identifies grades and content areas with teacher shortages. Teachers who work full time as instructors in those grades and content areas in North Dakota can receive loan forgiveness.

Teachers can receive up to $1,000 per year that they teach in a shortage area. The maximum lifetime award is $3,000.

This program is administered by the North Dakota University System. To get more information, teachers should visit the North Dakota University System website, call 701-328-2906, or email NDFinAid@ndus.edu.

Oklahoma Teacher Shortage Employment Incentive Program

Oklahoma’s Teacher Shortage Employment Incentive Program, or TSEIP, is a legislative program carried out by the Oklahoma State Regents for Higher Education to help attract and keep mathematics and science teachers in the state.

Oklahoma state-certified classroom teachers who are not yet certified to teach math or science are eligible for TSEIP. Teachers must also agree to teach in an Oklahoma public secondary school for at least five years.

TSEIP reimburses eligible student loan expenses or a cash equivalent. The amount reimbursed varies from year to year.

Teachers can find more information on about the TSEIP on the Oklahoma State Regents for Higher Education website. Fill out and submit the Participation Agreement Form to your institution’s TSEIP coordinator no later than the date of your graduation from a four-year college or university in Oklahoma.

South Carolina: Teachers Loan Program

The South Carolina Teachers Loan awards forgivable student loans to students studying to become public school teachers. The program was created as an incentive for state residents to pursue teaching careers.

South Carolina school teachers and residents enrolled at least half-time at an accredited institution. Students must already be enrolled in a teacher education program or express an intent to enroll in a teacher education program. If already certified, you must seek an initial certification in a different critical subject area.

Freshmen and sophomore recipients can borrow $2,500 for each year, all other recipients can borrow $5,000 each year, up to $20,000. Loans are forgiven only if teachers work in an area of critical need.

Teachers can find more information on about the Teachers Loan Program on the South Carolina Student Loan website.Download and complete the application and submit it to South Carolina Student Loan.

South Carolina Career Changers Loan

The South Carolina Career Changers Loan awards forgivable student loans state residents who wish to change careers to become public school teachers. The program was created as an incentive for state residents to pursue teaching careers.

South Carolina residents who meet all requirements for the Teachers Loan, and have had a baccalaureate degree for at least three years. In addition, you must have been employed full-time for at least three years.

Recipients can borrow up to $15,000 per year up to $60,000.

South Carolina residents can find more information on about the Teachers Loan Program on the South Carolina Student Loan website.Download and submit a completed application to South Carolina Student Loan.

South Carolina PACE Loan

The South Carolina Program of Alternative Certification for Educators (PACE) loan reimburses individuals who have completed a PACE program. Those who are interested in teaching who have not completed a teacher education program may qualify to participate in the PACE program.

Teachers must be enrolled in the South Carolina Program of Alternative Certification for Educators (PACE) program and have received an Educator’s Certificate for the current year. You must be teaching full-time in a South Carolina public school.

Participants can borrow up to $750 per year, capped at $5,000.

Teachers can find more information on about the PACE Loan program on the South Carolina Student Loan website.Download and submit a completed application to South Carolina Student Loan.

Tennessee Math & Science Teachers Loan Forgiveness

The Tennessee Math & Science Teacher Loan Forgiveness Program is offered through the Tennessee Student Assistance Coalition. The program awards up to $10,000 of forgivable loans to public school teachers working toward an advanced degree in math or science or earning a certification to teach math or science.

Tenured Tennessee schoolteachers working toward an advanced degree in math or science or earning a certification to teach math or science at an eligible institution. Recipients Must work in a Tennessee public school system for two years per each year of loan funding received.

Recipients are awarded $2,000 per academic year up to $10,000.

Teachers can find more information on the Tennessee Student Assistance Coalition website. Teachers must reapply for the program each academic year. The application has two cycles; one deadline is in February, the other is in September.

Teach for Texas Loan Repayment Assistance Program

The Teach for Texas Loan Repayment Assistance Program encourages Texas teachers to serve high-needs areas. Qualified teachers can receive up to $2,500 in loan repayment per year with no lifetime maximum.

Any Texas-based teacher with outstanding loans can apply for loan repayment assistance. However, funds are given out with priority to teachers who work in shortage subjects in schools with at least 75% economically disadvantaged students. Shortage subjects include ESL, math, special education, science, career education, and computer science.

If funds remain, they are given out in the following order:

  1. Teachers who work in areas with 75% or more economically disadvantaged students in nonshortage subjects.
  2. Teachers who work in shortage subjects in schools with 48.8%-75% economically disadvantaged students.
  3. Teachers who demonstrate financial need.

Eligible teachers can receive up to $2,500 in loan forgiveness each year with no lifetime maximum.

West Virginia Underwood-Smith Teacher Scholarship Loan Assistance Program

West Virginia teachers who work in critical need positions may qualify for the Underwood-Smith Teacher Scholarship Loan Assistance Program. This scholarship helps qualified teachers pay back student loans.

Teachers and school professionals who work in a designated critical position can qualify for the Underwood-Smith scholarship. Critical positions include all teachers in underserved districts and certain teachers who teach subjects with designated shortages.

Qualified teachers can receive up to $3,000 per year in federal loan forgiveness and up to $15,000 over their lifetime.

West Virginia teachers can learn more about the scholarship on the College Foundation of West Virginia website. The most recent list of critical needs can be found here.

Pros & Cons of Student Loan Forgiveness

While some or all of a student loan balance magically disappearing is a dream for many Americans, student loan forgiveness programs aren’t always a walk in the park. Here are the pros and cons.

Pro: Poof! Your debt is gone.

A huge upside of student loan forgiveness is obvious: borrowers can get rid of a significant amount of student loan debt. Beware of caps on the total amount of debt that can be forgiven with some programs. For example, the federal government’s Teacher Loan Forgiveness Program caps loan forgiveness at $17,500.

Con: Eligibility

It’s tough to first qualify and then remain eligible for student loan forgiveness. For example, teachers are eligible for the federal Teacher Loan Forgiveness program, but those who got teaching degrees before 2004, only qualify to have $5,000 worth of loans forgiven. To top that, borrowers must also remember to update their repayment plans each year or risk losing eligibility for the program.

Pro: No tax…sometimes.

The federal repayment plans don’t tax the forgiven amount as income, so you won’t need to pay taxes on the forgiven balance there. However, other programs may not grant the same pardon. If your loans are repaid through a different program, you might be required to count the money received towards your income and pay taxes on it. Look at the program carefully and prepare to set aside funds in case you do need to pay up.

Con: Limited job prospects

Loan forgiveness is give and take. You might be limited to teaching in a particular subject or geographic location for a period of time in order to get your loans forgiven. This could mean relocating your family or a long commute if you unable to live near the location. If you fall out of love with teaching, you might be stuck with the job, just to get your loans paid off.

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Here’s How Trump’s New Budget Will Affect Your Student Loans

Have a student loan? You'll want to read this.

The 43 million Americans with student loans — and the millions more who will take out their first college loans this fall — should pay close attention to President Donald Trump’s proposed 2018 budget. It requests dramatic changes to the help offered to borrowers, calling for an end to many benefits for lower-income students, and making life harder for those repaying graduate school loans. There’s a glimmer of hope, though, for those repaying undergraduate loans.

The budget, which was made public Tuesday, and is available on the White House website, is not set in stone — in fact, it’s more like a wish list the White House sends to Congress every year. Still, it will be used to frame discussion of student loan borrowing and repayment, so it demands attention.

Let’s break down what it could mean for you.

Lower-Income Borrowers Would Take a Hit…

Trump’s budget calls for elimination of the Stafford Loan program, which provides discounted loans to students with financial need. Stafford borrowers pay roughly half the interest rate of standard federal loan borrowers. These borrowers would also have to pay interest on their loans while in school, ending a long-time benefit. Students with standard federal loans don’t make payments while in school, but interest on their loans accrues and is capitalized, or added to their balance.

As Would Service-Based Loan Forgiveness…

The budget also calls for the end of the Public Service Loan Forgiveness (PSLF) program, which allows workers in some professions to see their loan balances erased after they make income-based repayments on their loans for as few as 10 years. The program began under the Bush administration, but under President Obama, the earn-out time was reduced to 10 years.

The program is already the subject of controversy, as the first crop of students eligible for 10-year forgiveness — about half a million graduates — will have that benefit kick in this fall. The Department of Education, under the leadership of Education Secretary Betsy DeVos, already has said it might not honor the forgiveness now. The Department of Education did not immediately respond to a request for comment about the program, or Trump’s budget.

Income-Based Repayment Plans Would be Reduced, But…

The biggest government savings in the budget when it comes to student loans, though, comes from reducing the number of income-based repayment plans made available to struggling graduates, according to a New York Times analysis. Currently, there are a series of complex offerings (explained in detail on the Department of Education website).

Plans with names like income-contingent repayment, income-based repayment, and “pay as you earn” are all designed to keep payments between 10% and 20% of the borrower’s income. Some offer payments as low as $5 per month, depending on income.

…Forgiveness Could Come Sooner

However, the Trump plan offers those using income-based repayment plans something Trump promised on the campaign trail. Monthly payments for undergraduate loan holders would increase slightly to 12.5% of income (from 10%), but would promise forgiveness on a shortened schedule — after 15 years of on-time payments. Currently, many plans require 20 years of payments.

Grad Students Would Be Hit Hard

On the other hand, those with graduate loans would face a tougher road. Graduate students would also have to pay more — 12.5% of their incomes — and would have to pay for 30 years instead of 25 years.

In other words, under Trump’s plan, a student who earned a graduate degree at age 25 would have to make on-time income-based repayments until age 55 to earn loan forgiveness, while someone with an undergraduate degree who graduated at 22 could earn forgiveness by age 37.

Those who plan to stop school after college might cheer the proposal, but an analysis of the student loan problem published by Credit.com shows that the majority of borrowers with oppressively large loans accumulated their balances in graduate school. While the average college loan balance for a 2016 graduate is about $37,000, one quarter of all grad degree earners had borrowed more than $100,000, according to a paper published by the New America Education Policy Program in 2015.

The New America paper also found that 40% of America’s outstanding $1 trillion-plus student loan balance is owed by those who earned a graduate degree. Trump’s budget essentially uses savings from cutting help to graduate school borrowers to offer help to undergraduate-only borrowers.

Whatever your student loan situation, keep in mind that missed or late payments can end up impacting your credit scores, which can hinder your borrowing ability in the future. You can see how your loan repayments are affecting your credit by checking your two free credit scores right here on Credit.com.

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6 Vital Things Parents Need to Know About Student Loans

Before helping your child take out loans — or taking out loans in your own name — make sure you understand the benefits and drawbacks.

About 3.5 million high school students are expected to graduate from high school this spring, and most will go to college. While this a proud moment for students and parents, many families are stressed about how to pay for school in the fall.

Before helping your child take out loans — or taking out loans in your own name — make sure you understand the benefits and drawbacks. Here are six things every parent should know about student loans.

1. There’s Still Time to Complete the FAFSA

For your children to get federal student aid such as loans, grants and work-study programs, they must complete the Free Application For Federal Student Aid (FAFSA) every year.

If your child hasn’t completed their FAFSA yet, there’s still time — but not much. Though the federal deadline is June 30, 2018, states and individual schools often have much earlier due dates.

Moreover, schools have limited funds when it comes to some loans and grants, so the earlier your child applies, the better. To make sure you get the necessary funds, submit the FAFSA as soon as possible. You can complete the application online in less than 30 minutes.

2. Take Advantage of Federal Loans First

You’ll find out what types of federal aid your child is eligible for after completing the FAFSA. If your children need to take out loans to pay for school, encourage them to start with federal student loans rather than private ones.

Federal loans typically have lower interest rates, more generous repayment terms and do not require a lengthy credit history or a co-signer. Plus, they come with benefits such as access to income-driven repayment plans and deferment or forbearance options if your child struggles to make payments after graduation.

Private student loans can have higher interest rates and typically require a co-signer. They also have fewer repayment options, which can make keeping up with payments more difficult on an entry-level salary. Private loans should be a last resort used to fill the gap if federal loans don’t cover the total cost of college attendance.

3. Learn How Parent PLUS Loans Work

If you want to help your child pay for school but don’t have enough money saved to pay outright, you may be eligible for a parent Direct PLUS Loan. This is a federal loan designed specifically for parents of dependent students.

To be eligible, you must be the biological or adoptive parent and your child must be enrolled at least half-time at a qualifying school. Both you and your child need to be U.S. citizens or eligible noncitizens. Unlike other forms of federal loans, parent PLUS Loans require a credit check.

To get a parent PLUS Loan, your child should complete the FAFSA. You will sign a PLUS Loan master promissory note. You can borrow as much as the cost of your child’s education, minus any other financial assistance you receive. The current interest rate for Parent PLUS Loans is 6.31%.

4. Think Twice Before Co-Signing

If your child needs a private loan to pay for school, the lender may require a co-signer before approving them. Before you agree to cosign, make sure you understand what it entails.

Becoming a co-signer means you’re the guarantor of the loan. If your child falls behind on the payments, you’re responsible for making them. If your child misses a payment and doesn’t tell you, your credit will be damaged. That consequence can make it more difficult for you to get approved for other forms of credit, such as a mortgage or car loan. (You can see how student and other loans impact your credit with a free credit snapshot on Credit.com.)

Co-signing is a huge responsibility, so make sure you’re comfortable with the potential fallout before putting your signature on a loan application.

5. Know Discharge Rules

While no one wants to think about themselves or their child dying or suffering a serious accident, it’s important to understand a loan’s rules about these events before taking on student debt.

If your child has federal loans and later dies, the government will discharge the debt. If you have a parent PLUS Loan and either you or your child passes away, the loans are also eliminated. If your child becomes permanently disabled and can no longer work, they can get their loans forgiven through Total and Permanent Disability Discharge.

Private loans are different. Some lenders discharge loans in the case of death or disability, but not every lender offers this. There have been horror stories about parents who have lost a child, yet are still responsible for the student loans. Make sure you understand the lender’s rules before taking out or co-signing a private loan.

6. Prioritize Yourself

Though supporting your children through school is a wonderful gift to offer, take a hard look at your finances first. If you have other forms of debt or your retirement savings are too small, prioritize your own finances.

Your children can get grants, scholarships and work part-time in school to pay for college. If they struggle to repay their federal student loans, there are a wealth of plans and programs to help them get back on track.

The same is not true when it comes to credit card debt, personal loans or retirement. If you fall behind on payments or don’t save enough before you stop working, there are few places you can turn for help. Ensure you are in a secure financial position before taking on more debt for your child.

Know Your Funding Options

Before signing loan paperwork, make sure you know exactly what you’re getting into. Student loans can be complicated, and if you’re not careful, you could be on the hook for thousands in debt. Work with your children to ensure you understand all your options and obligations as you prepare to send them off to college.

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President Trump’s Education Budget Leaked — And Student Loan Borrowers Won’t be Happy

More details from President Donald Trump’s long-awaited education budget leaked to the Washington Post on Wednesday. The proposed plan would slash $10.6 billion from federal education initiatives, including after-school programs, public service loan forgiveness, and grants for low-income college students, according to the Post.

Here’s what we know so far:

This May Be the End of Public Service Loan Forgiveness

Trump has long promised to dramatically scale back the role of government in education, a plan heartily supported by Betsy Devos, the embattled Education Secretary appointed by the president earlier this year.

Among the programs on the chopping block is the Public Service Loan Forgiveness initiative. Implemented in 2007, the PSLF sought to reward student loan borrowers who took jobs in nonprofits or the public sector by allowing them to discharge their federal student loan debt after 10 years of on-time payments.

Over half a million students were enrolled in the program, and the first cohort would have been eligible for loan forgiveness this October.

Now, the future of the initiative is uncertain. There are no details on whether eligible students will be grandfathered into the program, as has been the case when previous student loan assistance programs were phased out. A Department of Education representative didn’t immediately return a request for comment.

Disgruntled college graduates took to social media Thursday to cry foul.

Changes are Coming to Income-Driven Repayment Plans

As it stands there are five different income-driven repayment plans available to student loan borrowers. The proposed budget calls for one single IDR plan, which could potentially be good news for borrowers.

Typically, under the current IDR plans, borrowers are eligible to have their loans forgiven after 20 years of on-time payments, and their monthly payments are capped at 10% of their income. Trump’s new budget would decrease the payment period from 20 to 15 years but would increase the payment cap to 12.5% of income, the Post reports.

But advanced degree earners wouldn’t be so lucky. Trump’s plan would not only raise the income cap for borrowers who earned advanced degrees, it would lengthen the repayment period. IDR plan payments would be maxed at 12.5% of their income, up from 10%, and they would have to pay for 30 years rather than 25.

Low-Income College Students Could Lose Child Care Services

Trump’s budget would slash the entire $15 million budget for CCAMPIS, a federal grant program that funds on-campus child care services for low-income parents. Dozens of campuses received grants under the program.

$700 Million Cut from Perkins Loans

While Pell Grant funding remains untouched under the proposed budget, the plan would slash more than $700 million in funding from Perkins loans, according to the Post. Perkins loans are low-interest federal student loans for low-income undergraduate and graduate students.

Federal Work-Study Programs Scaled Back

The Federal Work-Study program offers part-time jobs to college students who prove financial need. Their earnings help cover their education expenses. Under the proposed budget, the program would lose $490 million, or about half its budget.

What’s next?

We wait. The final proposed budget is still set to be released May 23, and the particulars could still change. After that, it will have to pass muster with lawmakers in Congress. To write a letter to your representatives,  contact them here. 

 

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Want to Roll Your Student Loans Into Your Mortgage? Here’s What to Consider

It can be a good option for some people, but for others it's just trading old debt for new.

It’s a question as old as debt itself: Should I pay off one loan with another loan?

“Debt reshuffling,” as it’s known, has garnered a bad reputation because it often amounts to just trading one debt problem for another. So it’s no wonder the news that Fannie Mae would make it easier for homeowners to swap student loan debt for mortgage debt was met with some caution.

It’s awfully tempting to trade a 6.8% interest rate on your federal student loan for a 4.75% interest rate on a mortgage. On the surface, the interest rate savings sound dramatic. It’s also attractive to get rid of that monthly student loan payment. But there are things to consider.

“One thing we stress big time: It worries me, taking unsecured debt and making it secured,” said Desmond Henry, a personal financial adviser based in Kansas.  “If you lose your job, with a student loan, there is nothing they can take away. The second you refinance into a mortgage, you just made that a secured debt. Now, they can come after your house.”

The Cash-Out Refinance

The option to swap student loan debt for home debt has already been available to homeowners through what’s called a “cash-out refinance.” These have traditionally been used by homeowners with a decent amount of equity to refinance their primary mortgage and walk away from closing with a check to use on other expenses, such as costly home repairs or to pay off credit card (or student) debt. Homeowners could opt for a home equity loan also, but cash-out refinances tend to have lower interest rates.

The rates are a bit higher than standard mortgages, however, due to “Loan Level Price Adjustments” added to the loan that reflect an increase in perceived risk that the borrower could default. The costs are generally added into the interest rate.

So what’s changed with the new guidelines from Fannie Mae? Lenders now have the green light to waive that Loan Level Price Adjustment if the cash-out check goes right from the bank to the student loan debt holder, and pays off the entire balance of at least one loan.

The real dollar value savings for this kind of debt reshuffle depends on a lot of variables: The size of the student loan, the borrower’s credit score, and so on. Fannie Mae expressed it only as a potential savings on interest rates.

“The average rate differential between cash-out refinance loan-level price adjustment and student debt cash-out refinance is about a 0.25% in rate,” Fannie Mae’s Alicia Jones wrote in an email. “Depending on profile [it] can be higher, up to 0.50%.”

On $36,000 of refinanced student loan debt — the average student loan balance held by howeowners who have cosigned a loan — a 0.50% rate reduction would mean nearly $4,000 less in payments over 30 years.

So, the savings potential is real. And for consumers in stable financial situations, the new cash-out refinancing could potentially make sense. Like Desmond Henry, though, the Consumer Federation of America urged caution.

“Swapping student debt for mortgage debt can free up cash in your family budget, but it can also increase the risk of foreclosure when you run into trouble,” said Rohit Chopra, Senior Fellow at the Consumer Federation of America and former Assistant Director of the Consumer Financial Protection Bureau. “For borrowers with solid income and stable employment, refinancing can help reduce the burden of student debt. But for others, they might be signing away their student loan benefits when times get tough.”

Risking foreclosure is only one potential pitfall of this kind of debt reshuffle, Henry said.  There are several others. For starters, the savings might not really add up.

Crunch the Numbers. Alllll the Numbers…

“You don’t just want to look at back-of-a-napkin math and say, ‘Hey, a mortgage loan is 2% lower than a student loan.’ You’ve got to watch out for hidden costs,’ Henry said.

Cash-out refinances come with closing costs that can be substantial, for example. Also, mortgage holders who are well into paying down their loans will re-start their amortization schedules, meaning their first several years of new payments will pay very little principal. And borrowers extending their terms will ultimately pay far more interest.

“We live in a society where everything is quoted on a payment. That catches the ears of a lot of people,” Henry said. “People think ‘That’s a no brainer. I’ll save $500 a month.’ But your 10-year loan just went to 30 years.”

There are other, more technical reasons that the student-loan-to-mortgage shuffle might not be a good idea. Refinancers will waive their right to various student loan forgiveness options – programs for those who work public service, for example. They won’t be able to take advantage of income-based repayment plans, either. Any new form of student loan relief created by Congress or the Department of Education going forward would probably be inaccessible, too.

On the tax front, the option is a mixed bag. Henry notes that student loan payments are top-line deductible on federal taxes, while those who don’t itemize deductions wouldn’t be able to take advantage of the mortgage interest tax deduction. On the other hand, there are caps on the student loan deduction, while there’s no cap on the mortgage interest deduction. That means higher-income student loan debtors who refinanced could see substantial savings at tax time.

In other words, it’s complicated, so if you’re considering your options, it’s probably wise to consult a financial professional like an accountant who can look at your specific situation to see what makes the most sense. (It’s also a good idea to check your credit before considering any refinancing or debt-consolidate options since it’ll affect your rate. You can get your two free credit scores right here on Credit.com.)

As a clever financial tool used judiciously, a cash-out student loan refinance could save a wise investor a decent amount of money. But, as Henry notes, the real risk with any debt reshuffle is that robbing Peter to pay Paul doesn’t change fundamental debt problems facing many consumers.

“The first thing to take into consideration is you still have the debt,” he said.

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Student Loan Companies are Failing College Graduates in a Crucial Way

college students Teenagers Young Team Together Cheerful Concept

The vast majority of student loan borrowers who default and rehabilitate their loans are set up to fail again because of bad advice, a new government study claims.

The Consumer Financial Protection Bureau says a stunning 9 out of 10 of these high-risk borrowers were not enrolled in affordable repayment plans, such as income-driven repayment — meaning their monthly payments were much higher than they had to be. Predictably, those borrowers were five times more likely to re-default on their loans, racking up $125 million in unnecessary interest charges along the way.

Conversely, students who were enrolled in income-driven repayment plans, which reduce payments based on the borrower’s income, were much less likely to have trouble making on-time payments. Fewer than one in 10 re-defaulted when enrolled in income-derived repayment, the CFPB said.

Loan servicers are responsible for informing borrowers about their options, but the CFPB has alleged previously that they do a poor job of it.

A Government Accountability Office report in 2015 found that while 51% of borrowers were eligible for a repayment program that could lower their payments, only about 15% were enrolled in it. The CFPB complaint database is littered with allegations that servicers make enrollment unnecessarily hard. And earlier this year, the CFPB and the state of Illinois both sued Navient — the nation’s largest servicer — and alleged the firm systematically failed to inform borrowers of their options. (Navient denied the allegation.)

Tuesday’s report focuses on a more narrow group — those who had stopped paying their student loans but had recently restarted payments and “rehabilitated” them. The group, which consists of about 600,000 borrowers, is considered the riskiest of the 43 million Americans who owe student loans.

Their plight shows the system is broken, said CFPB Student Loan Ombudsman Seth Frotman.

“For far too many student loan borrowers, the dream of a fresh start turns into a nightmare of default and deeper debt,” Frotman said. “When student loan companies know that nearly half of their highest-risk customers will quickly fail, it’s time to fix the broken system that makes this possible.”

The Student Loan Servicing Association, a trade group that represents servicers, didn’t immediately respond to requests for comment.

Roughly one in three student loan borrowers are late to some degree on their monthly payments. The Department of Education estimates that more than 8 million federal student loan borrowers have gone at least 12 months without making a required monthly payment and have fallen into default.

At-risk borrowers should know there are multiple programs designed to help them avoid default — income-contingent repayment, income-based repayment, and “pay as you earn” are all designed to keep payments at between 10% and 20% of income. Some offer payments as low as $5 per month, depending on income.

Details are available at the Department of Education website. Consumers should not take advice from websites claiming to offer student loan help — many are scams — but should instead contact their loan servicers directly.

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File Taxes Jointly or Separately: What to Do When You’re Married with Student Loans

Married couples with student loans must make a difficult decision when they file their tax returns. They can choose to file jointly, which often leads to a lower tax bill. Or they can file separately, which may result in a higher tax bill, but smaller student loan payments. So which decision will save the most money?

First, let’s discuss the difference between the two filing statuses available to married couples.

Married filing jointly

Married couples always have the option to file jointly. In most cases, this filing status results in a lower tax bill. The IRS strongly encourages couples to file joint returns by extending several tax breaks to joint filers, including a larger standard deduction and higher income thresholds for certain taxes and deductions.

Married filing separately

Because married couples are not required to file jointly, they can choose to file separately, where each spouse is taxed separately on the income he or she earned. However, this filing status typically results in a higher tax rate and the loss of certain deductions and credits. However, if one or both of the spouses have student loans with income-based repayment plans, filing separately could be beneficial if it results in lower student loan payments.

For help figuring out which filing status is better for married couples with student loans, we reached out to Mark Kantrowitz, publisher and Vice President of Strategy at Cappex.com. Kantrowitz knows quite a bit about student loans and taxes. He’s testified before Congress and federal and state agencies on several occasions, including testimony before the Senate Banking Committee that led to the passage of the Ensuring Continued Access to Student Loans Act of 2008. He’s also written 11 books, including four bestsellers about scholarships, the FAFSA, and student financial aid.

Two Advantages to Filing Taxes Jointly:

  • Most education benefits are available only if married taxpayers file a joint return. This can affect the American opportunity tax credit, the lifetime learning credit, the tuition and fees deduction (which Congress let expire as of January 1, 2017, but is still available for 2016 returns), and the student loan interest deduction.
  • Couples taking the maximum student loan interest deduction of $2,500 in a 25% tax bracket would save $625 in taxes. But this “above the line” deduction also reduces Adjusted Gross Income (AGI), which could yield additional tax benefits (e.g., greater benefits for deductions that are phased out based on AGI, lower thresholds for certain itemized deductions such as medical expenses, and miscellaneous itemized deductions).

However, there is a potential downside to filing jointly for couples with student loans.

Income-driven repayment plans use your income to determine your minimum monthly payment. Generally, your payment amount under an income-based repayment plan is a percentage of your discretionary income (the difference between your AGI and 150% of the poverty guideline amount for your state of residence and family size, divided by 12).

  • If you are a new borrower on or after July 1, 2014, payments are generally limited to 10% of your discretionary income but never more than the 10-year Standard Repayment Plan amount.
  • If you are not a new borrower on or after July 1, 2014, payments are generally limited to 15% of your discretionary income, but never more than the 10-year Standard Repayment Plan amount.

Because filing jointly will increase your discretionary income if your spouse is also earning money, your required student loan payment will typically increase as well. In some cases, the difference is negligible; in others, this can add up to a pretty significant cost difference.

“Calculating the trade-offs of income-driven repayment plans versus the student loan interest deduction and other benefits is challenging,” Kantrowitz says, “in part because the monthly payment under income-driven repayment depends on the borrower’s future income trajectory and inflation, not just the inclusion/exclusion of spousal income.”

Fortunately, some tools can help you run the numbers.

An example: Meet Joe and Sally

Here’s a simple scenario that shows how a change in filing status can save on taxes but cost more on student loans:

  • Joe and Sally are married with no children.
  • They live in Florida (no state income tax).
  • Joe is making $35,000 per year and has $15,000 of student loan debt with a 6.8% interest rate.
  • Sally is making $75,000 per year and has $60,000 of student loan debt with a 6.8% interest rate.

First, we can estimate Joe and Sally’s tax liability for filing jointly versus separately. TurboTax’s TaxCaster tool makes this pretty easy. Here’s what we get when run their numbers using 2016 tax rates:

  • Filing jointly, Joe and Sally would owe $13,249 in federal taxes.
  • Filing separately, they would owe $15,178.

So they would save just over $1,900 in federal taxes by filing jointly. But how would filing jointly affect their student loan payments?

We can use a student loan repayment estimator like the one provided by the office of Federal Student Aid to find out. Here’s what we get when we run the numbers and choose the Income-Based Repayment option, assuming they are new borrowers on or after July 1, 2014:

  • Filing jointly, Joe’s minimum required monthly student loan payment under a standard repayment plan would be $143, and Sally’s would be $571, for a total of $714 per month.
  • Filing separately, Joe’s minimum required monthly student loan payment would be $141, and Sally’s would be $474, for a total of $615 per month.

Over the course of a year, Joe and Sally would only save $1,188 on their student loan payments by filing separately. Even with the additional loan payments they would have to make, filing jointly would save them $712 more than filing separately.

What’s best for your situation?

Every situation is different. The simple example above comes out in favor of filing jointly, but you will need to run your own numbers to figure out what is right for you. Here are additional tips to help you figure it out:

  1. Know how much you owe. Make a list of all loan balances, interest rates, and the type of each student loan you have. You can find your federal student loans on the National Student Loan Data System. You can find information on your private student loans by looking at a recent statement.
  2. Estimate your student loan payment options. Using a student loan repayment estimator like the one mentioned above, determine your required payments when filing separately versus jointly.
  3. Calculate your tax liability. Use a tool like TurboTax’s TaxCaster or 1040.com’s Free Tax Calculator to calculate your federal and state tax liability when filing separately versus jointly.
  4. Be aware of long-term consequences. Filing separately might result in lower monthly payments today but more interest paid over time. If you make it to the 20- or 25-year forgiveness point, that could have tax implications down the line. Kantrowitz points out that “forgiveness is taxable under current law, causing a smaller tax debt to substitute for education debt. The main exception is borrowers who will qualify for public student loan forgiveness, which occurs after 10 years and is tax-free under current law.” Keep those long-term consequences in mind as you make a decision.
  5. Consider steps to lower your AGI. Your eligibility for income-driven student loan repayment plans depends on your AGI, which is essentially your total income minus certain deductions. You can reduce this number, and potentially lower both your tax bill and your required student loan payment, by doing things like contributing to a 401(k), IRA, or Health Savings Account.
  6. Keep the big picture in mind. These decisions are just one part of your overall financial situation. Keep your eyes on your big long-term goals and make your decision based on what helps you reach those goals fastest.

Other unique situations

There are a few unique situations that make deciding whether to file jointly or separately a little more complicated. Do any of these situations apply to you?

Divorce and legal separation

Sometimes, determining marital status to file tax returns isn’t cut and dried. What happens when you and your spouse are separated or going through a divorce at year end? In this case, your filing status depends on your marital status on the last day of the tax year.

You are considered married if you are separated but haven’t obtained a final decree of divorce or separate maintenance agreement by the last day of the tax year. In this case, you can choose to file married filing jointly or married filing separately.

You and your spouse are considered unmarried for the entire year if you obtained a final decree of divorce or are legally separated under a separate maintenance agreement by the last day of the tax year. You must follow your state tax law to determine if you are divorced or legally separated. In this case, your filing status would be single or head of household.

Pay as You Earn repayment plans

Pay as You Earn (PAYE) is a repayment plan with monthly payments that are limited to 10% of your discretionary income. To qualify and to continue to make income-based payments under this plan, you must have a partial financial hardship and have borrowed your first federal student loan after October 1, 2007. Kantrowitz says the PAYE plan bases repayment on the combined income of married couples, regardless of tax filing status.

Unpaid taxes, child support, or defaulted federal student loans

If you or your spouse have unpaid back taxes, child support, or defaulted federal student loans, joint income tax refunds may be diverted to pay for those items through the Treasury Offset Program. “Spouses can appeal to retain their share of the federal income tax refund,” Kantrowitz says, “but it is simpler if they file separate returns.”

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