Last month on the heels of a blow to affirmative action in this country, the Supreme Court rejected Biden’s $20K student loan forgiveness plan. I was too depressed to write about it, because it’s clear that a strong contingent of people want things to be worse when we’ve already made such little progress on the issues of racial and economic equality. It sure would be nice to live in a world that didn’t charge exorbitant amounts of money just to be educated to the point of participation in the work force!
Anyways, forgiveness is off and student loans are coming back online. Despite the setbacks, new changes to the repayment options are a good thing. So let’s dig into it together.
Loans restart accruing interest after August 31st, and the first payments will be due in October.
Let's Get Organized
This is prime time to get organized!
Many of you may have a new servicer since the last time you logged in. For instance, FedLoan got moved to Mohela and Navient moved to Aidvantage. Not sure what the new one is for you? Start with studentaid.gov.
Once you log in there or create an account, you’ll be able to see it listed and get a link.
Next, log in to your student loan account with your servicer. Make sure that your bank account is attached and set to auto pay so that you don’t forget to pay.
Seeking Public Service Loan Forgiveness?
Do you work at a 501(c)(3) nonprofit organization or a government entity? Then you may qualify for Public Service Loan Forgiveness (PSLF) on your student loans.
In order to get this, you have to make income-driven repayments for 10 years. Then the rest of your balance will be wiped out, tax-free.
Without the tax-free part, your loan forgiveness would be considered income, as if your boss gave you a huge bonus and you used it to pay off loans.
Note for private-sector employees: after paying income-driven repayment for 20-25 years depending on the plan, the balance will be forgiven, but based on today’s rules you would owe tax on the amount forgiven. Hopefully things will change for the better by then.
It is recommended that you certify your employer to confirm your eligibility. This also will help you to track your progress. If you’ve been in the field for a long time, you may have multiple employers to confirm and old HR managers to track down.
Ten years after the Public Service Loan Forgiveness program was created, we saw a lot of news stories that only a fraction of applicant had been approved. A big part of this is that every little box has to be checked off correctly, and phone center representatives often didn’t know the answers themselves. Getting organized now will help smooth the way later on. Not least of those benefits is alerting you now if your employment is not eligible—rather than 10 years later!
Note that when you certify your employer, your loan service will be switched over to Mohela, which handles PSLF loans. It would be wise to make that change now a couple months before payments are due (and the phones are tied up).
Introduction of the SAVE Plan option for repayment
If your income is high and your loan balance is low, you’ll likely be better off simply paying your loans in a standard 10 year repayment plan (or faster, if you can). But for others who use an income-driven repayment plan, including people seeking PSLF, the new SAVE plan offers some huge benefits.
My personal favorite change is that surplus interest beyond what you pay will not increase the size of the balance of your loan. Previously, loans would balloon over ten years making it really scary to rely on loan forgiveness.
Another attractive benefit is that for married debtors who file taxes separately, spouses’ income can be excluded from the income-driven calculation for payment. This is a departure from the previous REPAYE Plan (which will now automatically turn into the SAVE Plan), which included spousal income regardless of filing status.
Finally, the calculation used to determine your payment has become a bit more generous.
Example Calculation for the SAVE Plan
To calculate your payment for the SAVE Plan, do the following. Your adjusted gross income - 225% of poverty line income x 10% for graduate borrowers or 5% for undergraduate borrowers.
Note: your adjusted gross income is whatever you made after pre-tax retirement contributions and other “above-the-line” deductions. You can find what this number is on line 11 of your 1040 tax return.
Let’s assume you have no spouse or kids and that all your debt is from grad school. If you had an adjusted gross income of $100,000 then subtract $32,805. $32,805 is 2.25 x $14,580 which is the poverty line for the 48 continuous states and the District of Columbia. $100,000 - $32,805 is $67,195. 10% of that is $6,720. Then divide by 12 to find your monthly payment, $560/month.
Note that the payment is based on your income and not the size of your loan.
(If you initially had $50,000 loan at 7% interest and paid $560/month, without the new interest wipe-out feature you would have owed $92,123 after 10 years.)
Save these handy flyers that it took me like two hours to make in Canva!
Best of luck with your student loans. You can do it!