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Tax Tips for Hurricane Victims

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The 2017 hurricane season wreaked havoc across the Southeast, but for those living in federally declared disaster areas, special disaster tax relief is available.

Three Category 4 hurricanes — Harvey, Irma and Maria — ravaged parts of the continental U.S., Puerto Rico and the U.S. Virgin Islands in 2017. Those storms alone caused about $265 billion in damages, according to estimates from the National Oceanic and Atmospheric Administration, and they weren’t the only ones. There were a total of 16 billion-dollar climate disasters in the U.S. in 2017, the NOAA reports.

States up the coast and as far inland as Tennessee felt the effects of the hurricanes. The U.S. Census Bureau says that Harvey affected nearly 22 million people, Irma affected more than 53 million and Maria affected about 3.7 million. Texas, Florida, Puerto Rico and the U.S. Virgin Islands bore the brunt of the damages, as that’s where the storms made landfall, but many residents also endured flooding and power outages in Alabama, Georgia, Louisiana, Mississippi and South Carolina.

Special tax provisions for both individuals and businesses can offset the impact of the three storms’ impact on millions of people under The Disaster Tax Relief and Airport and Airway Extension Act of 2017.

Under the act, deadlines for taxes like quarterly, payroll and excise were extended from Fall 2017 or early January deadlines to Jan. 31, 2018. In Florida, corporate returns and payments were extended to Feb. 15, 2018.

B. Trevor Wilson, partner in the tax and estates practice group at Jones Walker in Baton Rouge, La., says most returns qualify for relief, but filing documents like 1099s and W-2s, which are known as information returns, are not eligible for a deadline extension.

Here are key ways that residents in hurricane-stricken areas can take advantage of disaster tax relief.

You can claim personal casualty losses

Generally, you can’t claim personal casualty losses when doing your taxes, unless you meet certain qualifications, itemize your deduction and your loss exceeded 10 percent of your adjusted gross income (AGI), says Eric Smith, a spokesman for the IRS.

If you suffered damage from Harvey, Irma or Maria, and your uninsured, unreimbursed loss exceeds $500, you can claim it on your standard return without itemizing.

“Most people who suffered significant damage from these hurricanes were probably going to clear that threshold pretty easily,” said Smith.

Though it’s been updated, the aid is similar to tax relief provided after 2005’s Hurricane Katrina, says Smith.

There also are provisions for business owners. Though they vary slightly from individual relief, Wilson says one difference is there is no threshold for loss, so the first uninsured, unreimbursed dollar of loss can be claimed.

How to prove your losses

It may seem like a difficult task to determine your loss, but there are tools to help.

Even if you haven't had a recent appraisal on your home, Smith says IRS formulas can help you determine the amount of loss you can claim. Different tables help calculate damage to your roof, decking and the structure of your home; the cost of interior flooding; and if it was a near or total loss.

IRS revenue procedures provide eight safe harbor methods for taxpayers to use in determining their losses, three of which are specifically for assessing losses due to federally declared disasters and one specifically for Harvey, Irma and Maria victims. Six of the methods apply to personal residential property and two apply to personal belongings. Here’s an overview of the methods:

For losses of personal-use residential real property

Personal-use residential real property includes property that contains at least one personal residence and is owned by someone who suffered a casualty loss (like a hurricane). For these purposes, a personal residence includes single-family homes and individual units of attached properties (like a townhouse or duplex). Owners of condominiums, co-ops and some mobile homes are out of luck — people who don’t own the structural features of their property (like the walls, foundation or roof) don’t qualify. The property is also not considered personal-use residential property if any part of it is used as a rental property or home office for a for-profit business.

As you can tell from the complicated definition above, figuring out if you can claim these losses on your taxes can get tricky — there are lots of rules to follow and exceptions to be aware of. Work with a tax professional to make sure you’re doing it correctly.

Estimated Repair Cost Safe Harbor Method

This method is for losses of $20,000 or less. You have two independent contractors prepare itemized estimates of the costs required to restore your property to its pre-casualty condition. You use the lesser of the two estimates to determine your cost.

De Minimis Safe Harbor Method

This method is for losses of $5,000 or less. You can determine the loss on a good-faith basis, but must keep records of the methods used to determine loss.

Insurance Safe Harbor Method

This method allows an you to use the estimated loss as determined by your homeowners or flood insurance report.

Contractor Safe Harbor Method

This method allows you to determine the decrease in the fair market value of your property by using the contract prices for repairs by an independent contractor. It must be a binding contract signed by both you and the contractor, who is licensed and registered in accordance with state or local regulations.

Disaster Loan Appraisal Safe Harbor Method

Using this method, you can determine the decrease in your property’s fair market value using an appraisal that was prepared for the purpose of obtaining federal funds or federal government loan.

Cost Indexes Safe Harbor Method

This method provides cost indexes for properties based on square footage and geographical area. If you own two or more properties and use this method for one, you do not have to use the cost index method or any other safe harbor method for any other property.

For losses of personal belongings

For these purposes, personal belongings are items owned by people who suffered casualty losses, as long as those items are not used for business and do not maintain or increase in value over time (like antiques). Things like boats, aircrafts, mobile homes, trailers and vehicles are not considered personal belongings in this situation.

De Minimis Safe Harbor Method

This method is for losses of $5,000 or less. Similar to the same method used for property loss, you can determine your loss on a good-faith basis. You must keep records detailing the personal belongings affected and the methodology used to determine loss.

Wilson says one way to calculate the loss of personal items is to use third-party prices from resellers like Goodwill, which publishes its prices as reference.

“Something you’ve had for five years is not worth something you bought brand-new,” he added.

Replacement Cost Safe Harbor Method

Using this method, you can determine the decrease in fair market value of personal belongings by estimating the cost of replacing each item minus 10 percent for each year the item was owned. If owned for nine or more years, the pre-disaster value is 10 percent of the cost of replacement. If using this method, you must apply it to all personal belongings that are claimed as a loss for that disaster.

You can borrow from your qualified plan

Special provisions allow hurricane victims to take penalty-free hardship withdrawals from qualified plans like their 401(k). For example, if a person is less than 59 ½ years of age, there is typically a withdrawal fee of 10 percent. But under the new law, the fee is waived and the amount you’re allowed to borrow increases to either $100,000 or 100 percent of the account balance, whichever is lower. (The limit is usually $50,000.)

“Generally, you have limitations on what you can use loans for and your employer must allow for them,” said Wilson, “but this relief kind of overrides all that and gives you quicker access to your 401(k) plan for loans.”

Smith says using this option is an individual decision. Although it could be helpful, make sure that there isn’t another option that doesn’t deplete your retirement fund.

If it is something you feel comfortable doing, the typical five-year repayment period can be extended an extra year, as well.

You can file for this year or the previous year

“One of the things that’s unique about disaster area loss claims is that you can choose to report it for the year that it happened, or the prior year,” said Smith. “It sets up a different situation than what normally occurs in the tax world.”

The process can take a while, because you have to prepare an amended tax return on paper, he says.

If your income looks the same on your 2016 and 2017 returns, Smith recommends filing for 2017. However, if your income or tax bracket changed and amending 2016’s return would yield a bigger refund, that option is available.

Whether you choose to file an amended return for 2016 or claim your losses on your 2017 tax return, the IRS says to write your state and the hurricane(s) you are claiming casualties from at the top of your return, such as “Texas, Hurricane Harvey.”

Kat Khoury
Kat Khoury |

Kat Khoury is a writer at MagnifyMoney. You can email Kat at kat+mandi@magnifymoney.com

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How to Finally Pay Off Your Car This Year

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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A car is the second-most expensive thing most of us will ever buy. And it’s getting pricier: The average loan amount for a new vehicle is $30,621 and U.S. residents owe more than $1 trillion in car debt, according to Experian’s 2017 “State of the Automotive Finance Market” report.

We’re also getting deeper into auto debt over longer periods of time. The number of people borrowing longer-term loans (73 to 84 months) increased by 10% since the previous year’s report. Not only do these extended loans mean more interest paid, they also eat up consumer income for too long.

“You can handle $400 a month today, but what happens if you lose your job or have to move?” said Sonya Smith-Valentine, a former consumer protection lawyer and accountant who now offers financial wellness training in the Washington, D.C. area.

“Seven years is too much time to be tied into a car loan.”

The obvious alternative to getting stuck with a big auto loan is to pay cash, but not everyone can afford that. Another option is to buy a reliable used car or a less-expensive new car, and finance those loans for shorter periods.

“The more that you end up paying in interest, the less you have in cash flow over your life. That cash flow is what’s going to build your wealth,” said Tara Falcone, a certified financial planner in Princeton, N.J. “If you’re in your 20s or 30s, that (interest) invested over time could be a significant amount of money in the future, when you need it to live off.”

How to finally pay off your auto loan

Paying a loan off early may sound impossible to those whose budgets already feel tight. The following information can reveal options you didn’t know you had.

To make an early payoff game plan, you need to know:

  • The term of your loan and its interest rate
  • Whether the loan agreement includes a prepayment penalty
  • How much you still owe (call the lender for this)
  • The current value of your vehicle (find it on sites like Kelley Blue Book)
  • Your credit score, which will greatly impact your ability to qualify for a loan with better terms

From there, there are a few ways to manage your loan:

Option 1: Refinancing

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If you’re stuck with a high-interest auto loan, you might consider refinancing for a new auto loan with better terms. Banks, credit unions and online financial institutions may be able to get you a new loan with terms more favorable than the original one.

Ideally, the new loan term will be shorter than the current one. The point is to pay off the car note as quickly as possible, in order to pay as little interest as possible.

Depending on your original rate, however, a longer-term loan might still mean less interest paid overall. Falcone knows of a Navy enlistee who financed a car at a dealer for a whopping 24%. Fortunately, she was able to refinance at 7%.

Run your own numbers through an auto loan refinance calculator like this one from LendingTree, the parent company of MagnifyMoney. If your original agreement includes a prepayment penalty or if the new loan would carry an origination fee, you’ll need to factor those into your calculation as well.

If you can refinance at a lower interest rate, early payoff will become easier.

Option 2: The rapid repayment route

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The faster you retire a loan, the less interest you’ll pay. One simple tactic to pay off a loan quickly is to make biweekly payments instead of monthly payments.

If you owe $430 per month, for example, you’d make half that payment every two weeks. Paying $215 every other week (or 26 times per year) rather than the full amount 12 times a year would add up to $5,590 instead of $5,160.

You could also continue to make monthly payments, but pay more than the required amount. An easy way to start is by rounding up. For example, if you owe $389 per month, you could make the payment $400 (or more, if you can).

Where to find the extra money? These tactics can help:

Sell stuff. A game system, designer purse, mountain bike or other rarely used items could bring in decent dollars through eBay, Craigslist or consignment websites.

Write down what you spend. Small, unnoticed expenses can add up fast, says Brian Hanks, a certified financial planner who practices in Salt Lake City. He advises clients to keep track of all expenditures for a month (on paper or with an app). Often, they’re startled to discover how much the things they “don’t get real value out of” are costing them each month – money that could be applied to their loans.

“Once they realize it, behavior can change,” said Hanks.

Get a side hustle. Petsitting, driving for Lyft, a weekend waitressing gig – whatever fits your ability and personality. Or use your professional skill set to become a consultant, looking for work you can do on weekends.

Contribute windfalls. You got a tax refund. Grandma sent you $50 for your birthday. Vacationing neighbors paid you to pick up their mail. Any time additional money shows up, throw it toward your payment.

Ask for a loan. A relative or friend might be willing to help. Draw up an agreement specifying how you’ll repay (weekly? monthly? by cash, check or PayPal?) and then keep to the terms.

Spending freeze. Colorado-based certified financial planner Dan Andrews suggests clients drop one expensive habit (shopping, eating meals out) for 30 days.

“Prove that you have the savings gusto in you for a month,” he said. Then, put the money saved toward the next payment. Often, the spending freeze “reframes what they thought was a ‘need’ into a ‘want,’” said Andrews, who specializes in working with millennials. This means more money for the loan every month.

Before you start making extra payments, talk to the lender. You need to make absolutely sure that the additional money goes against the principal of the loan.

Option 3: Selling and starting over

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Want to get out from under a loan entirely? Let someone else pay it off.

Compare the Kelley Blue Book value to the amount you still owe. If there’s a positive balance – say, you owe $10,000 and it’s worth $11,000 – then put the car up for sale.

Once you have a buyer, ask the lender for the payoff amount: What it will take to pay in full and get the vehicle’s lien released. Smith-Valentine suggests creating a written agreement stating that the third-party buyer will pay the lender directly, and you will sign over the title once you receive it.

You’ll want to have another mode of transportation lined up, of course. Having to carpool or take public transit for a while might be preferable to being deeply in debt. Continue to make your “car payment,” though: Set aside that amount every month for a replacement vehicle. Figure out what you’re not paying for car insurance and add to the car fund, too.

If the agreed-upon sale price doesn’t cover the payoff amount, be prepared to make up the difference. Should you be lucky enough to sell the car for more than it’s worth, use the balance as seed money for a replacement car.

A word of caution about auto trade-ins: You may have seen ads for auto dealers who offer to pay off your previous loan if you’ll trade in the vehicle for a new one. The Federal Trade Commission advises consumers to be cautious about such deals, especially if they have negative equity (aka they’re “underwater” on their loans).

Some of those dealers find ways to include the money owed that in the new agreement – which means you would be financing that negative equity along with the cost of the replacement vehicle. Read the contract very carefully, and ask for an explanation of how any negative equity was handled.

What if you’re underwater on your auto loan?

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Owing more than a vehicle is worth makes it tougher to sell but not necessarily impossible.

If you have savings, make up the difference between what a buyer will pay for the car and what will be left on the auto loan afterward. No ready cash? Look into taking out a small personal loan to pay off the remaining balance. It may be better to owe some money than to be stuck with a large loan for a vehicle that continues to depreciate.

Another possibility: Make extra payments against the principal until the loan balance matches the car’s value, and then put it up for sale. Before you do, check to see if at that point you’ll be eligible for refinancing at a better rate – if you want to keep the car, that is – and if you’ll be able to swing the lower payments.

Should you give back the car?

Suppose you’re underwater, can’t refinance, have no savings and are disgusted with the thought of making payments for years. It can be tempting to just give the car back to the dealer.

Don’t do it. A “voluntary repossession” reduces costs only for the creditor, and will hurt you in the long run.

The now-used car will probably sell for less than the loan balance, and you are required to pay the difference. For example, if you still owe $12,000 and the vehicle sells for $9,000, then you’ll have to come up with the “deficiency” of $3,000. You’ll also be on the hook for other funds, such as fees associated with the repossession, including storage and legal fees.

The lender can sue you for a “deficiency judgment,” which shows up on your credit report. If the account gets turned over to a collections agency, you’ll be hounded nonstop – and the judgment will remain on your credit report until it’s paid. The repossession will also stay on your report for up to seven years, which wreaks havoc on your credit score.

Instead of giving the car back, use the rapid repayment tactics noted above to bring the loan balance closer to the vehicle’s current value. At that point, try selling or refinancing. If you’re financially stressed, Smith-Valentine suggests a longer finance term in order to get a lower monthly payment. That will mean more interest in the long run, but will give you some breathing room right now.

“I’m not a proponent of long car loans. But that’s still better than a repossession,” she said.

Bottom line

Ideally, you’ll be able to pay off your loan quickly, or at least refinance it at a more favorable rate that allows you to put more money toward the principal balance.

Imagine not having a car payment. What could that extra few hundred dollars a month do for the bottom line? Make this the year that it happens.

Donna Freedman
Donna Freedman |

Donna Freedman is a writer at MagnifyMoney. You can email Donna here

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Understanding Good Faith Estimates and Loan Estimate

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Nearly half of homeowners make a huge mistake during the homebuying process, according to the Consumer Financial Protection Bureau (CFPB) — they don’t compare lenders when shopping for a mortgage.

Not only do many consumers neglect to compare lenders in the process of purchasing a home, but a number of homebuyers express being unfamiliar with important factors that can greatly affect the cost of their mortgage as well, including:

  • The different types of mortgages
  • The money required at closing
  • The process of getting a mortgage
  • The income needed to qualify for a mortgage
  • The down payment requirements
  • Current mortgage rates
  • Personal credit history or credit score

This unfamiliarity increases even more for first-time home buyers. Without knowing what to expect, homeowners can go into the mortgage process unaware of what they are actually getting and paying for. From title searches to pest inspections, appraisals and more, the average homebuyer is purchasing much more than a home.

How much money do you bring to the closing table? Will you pay your taxes and insurance outright or have them escrowed (rolled into your mortgage payment)? What loan fees are set in stone versus ones you can shop around for? Will your loan interest rate remain the same or change at some point?

Depending on your choice for a home loan product, the outcome can have a big effect on your finances. A home is such a significant purchase — in fact, it’s probably the biggest purchase you’ll ever make — that just a few percentage points difference in interest can add up to tens of thousands of dollars saved (or lost) over the life of the loan.

Fortunately, it’s not all that difficult to compare mortgage loan offers between lenders these days. There’s been some standardization in the way banks present mortgage estimates to loan applicants. This is where the Good Faith Estimate (GFE) comes into play.

What is a Good Faith Estimate?

A Good Faith Estimate (GFE) is a standard template used by lenders to give you the rundown on your loan terms: interest rate, origination fees, monthly payments and more. However, you should know that as of October 2015, the Good Faith Estimate document was replaced by a document called the Loan Estimate for most types of loans.

The whole idea behind the GFE aka the Loan Estimate is to help consumers understand all the costs associated with their home loan, from the length of the loan to settlement fees you’ll have to pay at closing. It was also designed to inform consumers of which charges could change and when they could change for closing purposes.

With all of this information provided in a standardized format, the aim was to encourage borrowers to shop around for the best loan and loan terms for their home loan.

Before standardized estimate templates came on the scene, the average Joe consumer had a heck of a time deciphering all the loan “mumbo-jumbo” because there were many ways to state (and maybe even hide) fees associated with obtaining a home loan. Based on all the ways lending costs and fees could be itemized and stated, it became difficult to truly compare rates and get the very best rate for these home loan products.

Though the GFE was a great improvement over prior mortgage estimate methods, there were still more strides to be made in the usability and clarity. In other words, extensive testing showed that the average consumer still needed help with identifying key information pertinent to their loan terms. Enter the Loan Estimate.

GFE vs Loan Estimate: What are the differences?

GFEs were replaced with Loan Estimates after the CFPB initiated the Know Before You Owe mortgage disclosure rule. That effectively replaced Good Faith Estimates with the new Loan Estimate document. You’ll most likely see a loan estimate document when you apply for a traditional mortgage. Loan Estimates do not apply for reverse mortgages, HELOCs, and a handful of other real estate transactions.

According to the CFPB, the main objectives of the Loan Estimate form include helping consumers:

  • Understand their loan options
  • Shop for the mortgage that’s best for them
  • Avoid costly surprises at the closing table

There are some differences in design and usability that make the Loan Estimates different from the GFE in a few ways.

Easier to understand

The Loan Estimate form is designed to help you better identify loan risk factors, such as potential interest rate changes and negative amortization features. In addition, you should be able to see the overall cost of your home loan over both the short and long term. Finally, you should be able to understand, very clearly, what your monthly loan payments will be.

Better comparison shopping

A great thing about the Loan Estimate is that it’s easier to compare offers from competing lenders with a table that is clearly labeled for the sole purpose of comparison. Also, there’s a section on the Loan Estimate clearly labeled “Services You Can Shop For” and “Services You Cannot Shop For” in case there are other areas you can save money in the loan process.

Avoiding costly surprises at the closing table

Jonathan Dyer is a loan originator at Neighborhood Lending Services. He explains how the Loan Estimate further enforces provisions that started with the GFE and its similar predecessors. The Loan Estimate provides additional protections against last minute changes in loan terms and fees.

“Often, some fees [as stated in the disclosure] would be subject to change and would increase at the final hour [before closing],” he told MagnifyMoney. “Regulatory agencies have now prohibited any increase of disclosed fees without a significant change in the loan purpose or loan amount.”

Because of this, there are strict rules around what loan terms can and cannot change at closing. Another plus is that there are provisions that give you the chance to compare your Loan Estimate against your final Closing Disclosure at least three days before you come to the closing table.

Less paperwork

Another improvement with the Loan Estimate came with reducing the number pages consumers receive during the loan application process.The Loan Estimate effectively replaces both the GFE along with the Initial Truth In Lending (TIL) Disclosure and consolidates this into one, shorter form.

You can see example templates of each form before and after to get an idea of the differences (click images below to access to the PDFs). From the thumbnail view, we can see pretty easily that the form is shorter and potentially less confusing for loan applicants.

When do I get a loan estimate?

Now that you know about how the estimate process and documentation have improved for loan applicants, you should know about what starts the clock on when you should have your Loan Estimate in hand.

Loan Estimates must be provided to consumers within three business days of submitting a loan application providing six pieces of information to a lender:

  • Name
  • Income
  • Social security number (for credit reporting)
  • Property address
  • Market value of the property (normally the sale price)
  • Loan amount

According to federal regulations, this is not an optional step. Lenders must provide this document to loan applicants and it has to be within three business days, or they could be in violation of the law.

Key terms to understand

Once you receive your Loan Estimates, pay attention to key terms and make sure you are comfortable with the impact these obligations will have on your overall finances.

  • Loan amount. The amount you are borrowing from the bank. Your loan should be reduced by the amount of your down payment.
  • Rate lock. Explains if your interest rate is locked in or could change before closing.
  • Interest rate. How much interest you will pay the bank as a percentage of your loan. You should also pay attention to if this rate is fixed or variable (Note: Also pay close attention to the APR, which is discussed in the ‘Comparisons’ section below).
  • Monthly principal and interest. This how much you will pay on your home loan each month that will cover the principal loan amount and bank interest.
  • Estimated total monthly payments. This is how much you’ll pay each month for your loan. At minimum, your payment will Include loan principal and interest, but can also include property taxes, insurance, and possibly other fees like HOA dues.
  • Estimated taxes, insurance and assessments. It’s possible that these items will not be in escrow and therefore, not included in your payment. In this case, you will have to pay these fees yourself, aside from your monthly loan payment.
  • Estimated cash to close. This is the amount of money you’ll need to bring at the time of closing.

These are just a few key terms you should understand to start. If you want to understand all sections and terms on your Loan Estimate use the CFPB’s interactive tool called the Loan Estimate Explainer. This tool allows you to hover over sections of the document to get clear explanations of any sections or terms you don’t understand.

How to compare estimates from multiple lenders

Perhaps one of the best things about the Loan Estimate is the ability to compare estimates from multiple lenders. The template’s language is clear and uniform so you can quickly and easily identify areas where you should be comparing rates and terms.

Before you compare your Loan Estimates, make sure you are getting estimates for the same kind of loan from each lender. For example, if you ask one lender for rates and terms on a 15-year mortgage and another for a 30-year mortgage, you won’t be comparing apples to apples.

Next, there are certain sections you should examine to make sure you are getting the best deal from your lender:

Comparisons

On page 3 of your Loan Estimate, you’ll find a section labeled “Comparisons.” It contains a simple table with figures that you’ll want to use for comparing estimates. Once you get Loan Estimates from all the lenders you’re considering, put each lender’s comparison table side by side.

First up, you’ll see a section labeled “In 5 years,” showing how much you’ll pay for your home in the first five years. The first number in this box tells you the total you would have paid in principal, interest, mortgage insurance, and loan costs over the first five years of your home loan. Right below this number, you’ll see the amount of principal you would have paid off as well.

Next in the table, you’ll see the annual percentage rate (APR.) This figure is key because it takes into account all the fees you’ll pay for to purchase your home. Think of it as the bank’s interest rate plus any points, mortgage broker fees, and other charges that you might pay for your loan.

Finally, at the bottom of the table, you’ll see total interest percentage (TIP) will be right under the APR section. It represents the total amount of interest you’ll pay over the lifetime of your loan.

Closing

Under the “Costs at Closing” table on page 2, you’ll see a section labeled “Estimated Cash to Close.” For more details on how these numbers were calculated, look at “Calculating Cash to Close” at the bottom of page 3.

This section goes over the cash needed to settle up at the closing table i.e. what you need to bring to closing. Remember, this figure should be not changed drastically from the Loan Estimate once you get the final closing disclosure.

Fees that cannot change at closing include lender fees, other service fees, transfer taxes, and commission fees due to mortgage brokers or affiliates. Fees that can change 10 percent in either direction are recorder fees or service fees related to third-party providers.

If closing costs changed substantially, you may be eligible for a refund of costs that go beyond the allowable limits.

The smartest way to buying a home comes down to understanding your options and choosing the best one. You may feel tempted to go with the nicest lender, or the one with the most brand recognition, or where you already bank.

However, if you don’t compare actual loan terms, you could be forgoing the best possible outcome for your home purchase. Use the Loan Estimate for what it was designed for: comparison shopping to get the best deal on a home loan.

Aja McClanahan
Aja McClanahan |

Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

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How to Budget for Closing Costs and Fees on a Mortgage

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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When you buy a home, in addition to your down payment, you need to budget for closing costs. Closing costs are the fees paid to third parties that help facilitate the sale of a home. The amount you’ll pay depends on several factors including the price of your home, your lender’s requirements, and the location of the property. We’ve put together this guide to help you get a sense of what to expect.

What costs to expect when closing on a mortgage

The type and amount of fees you’ll pay vary widely based on the lender you work with, the loan you choose, and your location. Here are some common fees to expect when closing on a home loan:

Fee

Description

Appraisal fee

Paid to a professional who gives the lender an estimate of the home's market value.

Attorney fees

In some states, an attorney may be required to represent the interest of the buyer and/or lender. This fee is paid to the attorney to prepare and review all closing documents.

Credit report

Some lenders charge a fee for accessing your credit information.

Flood determination

Paid to a third party to determine whether the property is located in a flood zone. If your property is in a flood zone, your lender may require you to purchase flood insurance in addition to homeowners insurance.

Home warranty fees

If you choose to purchase a home warranty on the property, the annual premium may be included in your closing costs.

Homeowners association (HOA) fees

If your home is located within a homeowners association, the association may charge a fee to help pay for services and capital improvements. You may also need to prepay a portion of your annual dues at closing.

Homeowners insurance

The first year's premium for your homeowner's insurance is typically paid in full at closing.

Inspection fees

Paid to a home inspector to evaluate the home and tell you whether the property you want to buy is in good condition. You may also have a separate pest inspection to check for termites and other pest infestations.

Land survey

Your lender may require that a surveyor conduct a property survey.

Origination charges

Upfront charges from your lender for making the loan. This may include an application fee and underwriting fees.

Notary fees

The cost of having a licensed notary public certify that the persons named in the documents did, in fact, sign them.

Points

An upfront fee paid to the lender in exchange for a lower interest rate.

Prepaid interest

If you close on your loan in the middle of the month, your lender will collect interest on your loan from the closing date until the end of the month.

Private mortgage insurance premium

Depending on the type of loan you choose and how much money you put down, you may have to pay mortgage insurance – a policy that protects the lender against losses from loan defaults. Some lenders require an upfront premium, some collect it in monthly installments, and some do both.

Property taxes

Six months of property taxes are typically paid at closing.

Recording fees

State and local governments typically charge a fee to record your deed and other mortgage documents.

Real estate broker or agent fee

Fees paid to seller's real estate broker for listing the property and to the buyer's broker for bringing the buyer to the sale. The seller of the property typically pays these fees.

Title insurance

Provides protection if someone later sues and says they have a claim against your home, either from a previous owner's delinquent property taxes or contractors were not paid for work done on the home before you purchased it.

Title search

A fee paid to the title company to search the public records of the property you are purchasing.

Transfer taxes

Taxes imposed by the state, county, or municipality on the transfer of property. They may also be called conveyance taxes, stamp taxes, or property transfer taxes.

The amount you’ll pay depends largely on your location. A 2017 survey from ClosingCorp, a provider of residential real estate closing cost data, found that the national average closing costs totaled $4,876. That figure is based on closing cost data reported to more than 20,000 real estate service providers across the country. ClosingCorp compiled the average closing costs in each state, and based on the average purchase price in each state, average closing costs ranged from about 1% to about 4% of the purchase price. (The actual closing costs you pay could be higher or lower — a general rule of thumb says to expect paying about 2 to 7% of your home’s purchase price in closing costs.)

States with the highest average closing costs were:

  • District of Columbia: $12,573 (2.01% of average purchase price)
  • New York: $9,341 (2.60%)
  • Delaware: $8,663 (3.36%)
  • Maryland: $7,211 (2.28%)

But based on percentage of average purchase price, these states had the highest average closing costs:

  • Pennsylvania: $6,633 (3.50%)
  • Delaware: $8,663 (3.36%)
  • Vermont: $6,839 (2.99%)
  • New York: $9,341 (2.60%)

States with the lowest average closing costs were:

  • Missouri: $2,905 (1.63%)
  • Indiana: $2,934 (1.89%)
  • South Dakota: $2,996 (1.48%)
  • Iowa: $3,138 (1.70%)

And by percentage:

  • Hawaii: $5,528 (0.84%)
  • Colorado: $3,994 (1.09%)
  • Massachusetts $4,273 (1.14%)
  • California: $6,288 (1.20%)

In areas where home prices are high, closing costs will typically be high as well because many closing costs are calculated as a percentage of the home’s purchase price. In other areas, the ClosingCorp report pointed to high county transfer taxes as the principal reason certain areas have such closing costs.

Fortunately, there are steps to you can take to save on closing costs.

How to save on closing costs

Step 1: Choose your location

The location has a lot to do with the total closing costs you’ll pay. Factors that affect closing costs include:

  • Home price. Since many costs are calculated as a percentage of the home’s purchase price, buying a less expensive home can lower your closing costs.
  • Property taxes. You may have to prepay six months of property (or real estate) taxes at closing, so buying a home in a state with high-property tax rates can significantly impact your closing costs. The Tax Foundation publishes a list of the property tax rates by state. New Jersey is the highest with an effective tax rate of 2.11%, and Hawaii is the lowest at 0.28%.
  • Laws and customs governing the closing process. Some states require an attorney to handle closings, resulting in higher legal fees at closing. In other states, closing costs are lower because closings are handled by a title or escrow company.
  • Real estate transfer taxes. Transfer taxes are imposed by state and local government entities and can vary widely by locale. The National Conference of State Legislatures publishes a list of real estate transfer taxes by state. Some states, such as Alaska and Louisiana, have none as of 2017. In some localities in Colorado, the rates can be as high as 4%.

Ask your lender or real estate agent about closing costs in your area. If you’re not determined to live in a particular area, you could save thousands in closing costs by buying in a neighboring state or county.

Step 2: Shop around

A crucial step to saving on closing costs is to shop around. Home loans are available from many different types of lenders, and different lenders may quote you different rates and fees, even of the same type of loan. You should contact several lenders for quotes.

When you receive a quote, don’t just get the interest rate, APR, or monthly payment amount. The lender should provide you with a Loan Estimate that discloses the loan terms, amounts, interest rate, total monthly principal and interest, and whether the item can increase after closing. It also communicates which closing costs you can shop around for and which are fixed no matter which lender you choose.

Also, take a look at the homeowners insurance premium listed on Page 2 of the Loan Estimate. The lender will estimate an amount for the Loan Estimate, but your homeowner’s insurance premium is set by the insurance company, not the lender, and insurance rates can vary drastically by company. Comparison shopping for insurance can have a significant impact on your closing costs, as you’ll typically pay the first year’s premium at closing.

Step 3: Negotiate

Jeffrey Miller, co-founder of AE Home Group in Baltimore, Md., says knowing whether closing costs are negotiable or non-negotiable depends on whether or not they’re being charged for the mortgage company’s labor or to an outside service. “Line items like origination fee can be negotiated lower, whereas line items like the county recording fee are set by an outside third party and are non-negotiable,” Miller said.

Page 2 of your Loan Estimate will list the services you cannot shop for and the services you can shop for. The services you cannot shop for may be set by a government program or a third party rather than the lender. Your lender may provide you with a list of approved vendors for the services you can shop for.

Miller says in his experience, the line item with the most potential savings is the survey. “As a buyer, you have the right to select the survey company that is used,” Miller said. “We’ve seen this price range anywhere from $120 to $600. If this amount is on the high side, then it may be advisable to select a new survey company.”

Step 4: Ask the seller to pay closing costs

Many loans, including FHA loans, allow sellers to contribute a percentage of the sales price to the buyer as a closing costs credit. This is especially useful for buyers who are short on cash for the down payment and closing costs but can handle a slightly higher loan balance.

For instance, say the seller is asking $200,000 for the home. The buyer can offer $204,000 but asks the seller to cover up to two percent of the original asking price in closing costs ($200,000 x 2% = $4,000). The seller is able to get the same net profit on the sale, and the buyer reduces his closing costs by $4,000.

Keep in mind that lenders may have restrictions on how much the seller can credit to the buyer at closing. For instance, FHA loans limit the seller concession to 6% of the home’s sales price. There may also be restrictions on the types of closing costs that can be covered by the seller credit. For instance, they may restrict the seller credit to covering non-recurring items like the title insurance and loan origination fees.

Step 5: Time your closing

Part of your closing costs consists of prepaid interest charges for the time between your closing date and the end of the month. The earlier in the month you close, the more you’ll pay in prepaid interest. To reduce the amount you’ll need out of pocket, you can consider closing at the end of the month. The difference may be small, but if you’re really strapped for cash to close, this could help. However, timing your closing at the end of the month doesn’t actually save you any money in the long term. It just impacts the amount you’ll need to come up with at closing.

Step 6: Sign in person

Kevin Miller, Director of Growth with Open Listings, an online house-hunting service based in Los Angeles, says you may be able to reduce the costs you’ll pay at closing simply by asking your escrow company. “You should contact them at the beginning of the process to discuss the fees they charge you,” he said. “If you agree to use electronic documents and sign in-person, you may be able to avoid fees for a mobile notary, printing, and mailing.”

Should I get a no-closing cost mortgage?

While shopping around for a mortgage, you may have come across a “no-closing cost mortgage” and wondered if it’s the right deal for you.

A no-closing-cost mortgage is worth looking into, but “no closing costs” doesn’t actually mean you won’t have to come up with any cash for closing. Instead, it means that the lender doesn’t charge any lender fees. However, they may charge a higher interest rate to cover the costs of making the loan or add the closing costs to your loan amount.

Either way, you won’t need to come up with as much cash to close, but you’ll typically have a higher monthly payment.

Also, keep in mind that you may still have to pay costs at closing, such as title insurance and appraisal fees. Before you get locked into a no-closing-cost mortgage, ask the lender for a Loan Estimate and take a look at the interest rate, APR, monthly payment and the amount you’ll need at closing. Consider whether reducing the cash you need to close is worth paying more in the long run with a higher interest rate or larger loan amount.

The bottom line

When you’re in the market for a mortgage, it pays to shop around. Review your paperwork carefully. Ask your lender about any costs and fees you aren’t familiar with, or anything that changes from your Loan Estimate to the closing documents. Negotiating can be intimidating for many people, but your home is a big investment. The more you can save on closing costs, the more cash you’ll keep in your pocket for moving, buying furniture, and making your new place feel like home.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here

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College Students and Recent Grads

The 2018 Guide to Student Loan Forgiveness

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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The numbers don’t even seem to make sense. In late 2017, Americans collectively carried $1.36 trillion in outstanding student loan debt, according to the Federal Reserve Bank of New York.

Even worse, 11.2% of that debt is currently delinquent or in default. If you’re paying off student loans, you know full well what the reality behind these statistics feels like. Paying off student loans is more than just a drag. It can put you in long-term financial jeopardy if things don’t turn out like you’d hoped post-graduation.

But, there is a beacon of hope in the darkness. It might be possible for you to have your student loan balance partially or even completely forgiven. These programs aren’t necessarily easy to find or qualify for, and they don’t come without strings attached. But if you can complete a student loan forgiveness program, you just might be able to move on with your life and leave the student loans behind like a bad habit.

Whether you have private or federal student loan debt, there are various programs in place to help struggling borrowers ease their debt burden.

Part I: Student loan forgiveness options

When your student loan debt is forgiven, cancelled or discharged, you are off the hook for that amount. Some loan forgiveness programs actually do wipe away your debt like a fairy debt godmother with a magic wand. Other programs, such as Loan Repayment Assistance Programs (LRAPs) or Loan Repayment Programs (LRPs) will make additional payments toward your student loan for you, thereby reducing your balance over time.

There is no one-size-fits-all rulebook that dictates how student loan forgiveness programs work.
You may need to follow strict reporting protocols throughout the program until you become eligible for some programs, and other programs may require you to be in a certain profession or live in a certain state.

Because each program varies so much, you need to do extensive research so you know exactly what the requirements are. Some programs may have a big impact on your life, and you need to be prepared for the consequences and opportunity costs. We’ll discuss in this guide which student loan forgiveness plans are available and the main details of each program.

At a glance: Student loan forgiveness programs

Forgiveness Type

Who is eligible?

Amount that can be forgiven

Which loans are eligible?

‘Time served’ Requirement

Tax implications?

Public Service Loan Forgiveness*

People who make a commitment to a public service career.

No cap

Federal Direct loans and Federal Direct Consolidation loans. Only payments made after October 1, 2007 count toward the 120 payments needed for forgiveness.

Make 120 payments (i.e. 10 years) while working full time for any level of government or in a 501(c)(3) nonprofit.

Forgiven amount is not taxable

Teacher Loan Forgiveness

Full-time teachers working in low-income schools.

Up to $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans

Federal Direct loans, Federal Direct Consolidation and Federal Stafford loans.

Must work full time for five years.

Forgiven amount is not taxable

Perkins Loan Cancellation

Teachers and some other professionals, AmeriCorps VISTA or Peace Corps volunteers.

100% of the loan balance

Federal Perkins loans.

Must work full time for four to seven years if applying based on your occupation.

Cancelled amount is not taxable.

Forgiveness for Income-Driven Plans

Graduates who are enrolled in one of the four income-driven plans: PAYE, REPAYE, IBR, and ICR.

No cap.

Federal Direct loans, Federal Direct Consolidation loans, and Federal Direct PLUS loans made to students.

Remaining loan balance is forgiven after 20-25 years.

Forgiven amount is taxable.

Loan Forgiveness for Nurses

Nurses who work in certain high-need areas.

Up to 85% of your student loan balance.

Federal Direct loans, Federal Direct Consolidation loans, Federal Stafford loans, and Federal Direct PLUS loans made to students.

Must work full time for three years in a Critical Shortage Facility to receive forgiveness on up to 85% of your loans.

Forgiven amount is taxable. However, the NURSE Corps will pay your federal taxes for you.

Loan Forgiveness for Doctors

Doctors who make a commitment to serving in a high-need area or in the military.

Varies by program.

Varies by program.

Varies by program.

Varies by program.

Loan Forgiveness for Lawyers

Lawyers who have made a commitment to certain positions (e.g., public defenders, DOJ employees, etc.).

Varies by program.

Varies by program.

Varies by program.

Varies by program.

Military student loan forgiveness

Members of the military who have taken out student loan debt before enlisting.

Up to 100% for Army service, up to $65,000 for Navy service, or up to $65,000 for Air Force JAG service..

Federal student loans.

Varies depending on which branch you enlist in.

Forgiven amount is taxable.

Loan Forgiveness for Volunteers

AmeriCorps volunteers

Up to $11,840

Federal loans and loans issued by state agencies.

Complete at least one term of service (this ranges from 10 months to one year).

Forgiven amount is taxable.

Federal student loan repayment programs

Public Service Loan Forgiveness (PSLF)

This is one of the most popular programs. Before you get too excited though, there are a lot of hoops to jump through to apply for PSLF. Additionally, the future doesn’t look too bright for this program: The GOP is actively trying to eliminate this program. In 2017, Republicans introduced the PROSPER Act that would eliminate PSLF. Regardless of whether or not it’s passed, it is highly likely that it will be phased out at some point. Even so, current students eligible for PSLF may be grandfathered into the program, at the exclusion of new student borrowers.

Only loans issued under the Federal Direct Loan Program qualify.

You have to be up to date with your Federal Direct student loan payments and make at least 120 consecutive on-time payments.

Must have been paying on loans while working full time for the government or a 501(c)(3) nonprofit or another qualified employer. If you take a hiatus with a private-sector employer and switch back, the payments you’ve already made while previously employed still count. You also need to be enrolled in some sort of repayment plan. Luckily, income-driven repayment plans such as “Pay As You Earn” count.

If you meet all those criteria and submit an annual employment certification form, you could be eligible to have your remaining student loan balance forgiven after 120 payments (i.e., 10 years). To get that, you’ll have to fill out yet another PSLF forgiveness application form.

This means that if you’re on the default 10-year repayment plan and are able to keep up with it, you won’t really be able to take advantage of this program because you’ll already have paid off your loans after 10 years anyway.

Federal income-driven repayment plans

Income-driven repayment programs offer more than just student loan forgiveness. They’ll make your student loans more affordable in the short term as well by capping your monthly payments at 10-20% of your discretionary income, divided by 12.

The details of how the monthly income-driven payments work vary. Here, we’ll give a brief overview of how these programs work before focusing specifically on how you can get your student loan balance forgiven with each of the four plans.
Warning: With each of these federal income-driven repayment plans, any forgiven balance is considered taxable income in the year it’s forgiven. You’ll need to plan ahead accordingly.

Pay As You Earn (PAYE)

The PAYE and REPAYE programs both limit your monthly payment amount to 10% of your discretionary income and require you to certify your income and family size every year. The nitty-gritty details of who is eligible and how the PAYE and REPAYE programs work from there vary.
Here’s how you can get your student loans forgiven if you’re enrolled in these programs:

If you’re in the PAYE program, your Federal Direct or Consolidation loans will be forgiven after 20 years. If you’re in the REPAYE program, it works a bit differently: Your student loans will be forgiven after 20 years, but only if all of your loans are from undergraduate study. If you went to grad school and took out any student loans, your remaining balance would instead be forgiven after 25 years.

Income-Based Repayment (IBR)

If you’re enrolled in the IBR plan, your monthly payment amount will be limited to 15% of your discretionary income. You’ll also have to recertify your income and family size each year.

If you do those things and still have a remaining balance at the end of 25 years, regardless of what type of federal student loans you have (with the exception of Federal PLUS loans made to parents), you will be forgiven.

Income-Contingent Repayment (ICR) plan

If you’re enrolled in ICR, you’ll have the highest monthly payments of all: either 20% of your discretionary income or whatever the payment would be on a 12-year repayment plan (whichever is less). You’ll also need to recertify your income and family size with this plan as well.

ICR also has one of the longest repayment periods. If you have anything left on your student loan balance after 25 years, it’ll be forgiven.

Federal Perkins loan cancellation

Perkins loans work a bit differently the most other federal loans. Rather than being doled out through the William D. Ford Direct Loan program as with most federal student loans, each loan is made directly to you from the school itself. That means that when it comes time to apply for forgiveness, you’ll need to contact the school itself for an application.

How you qualify for Federal Perkins loan cancellation and how much you’re eligible to have cancelled depends on your profession and time served in your position.

Teachers, nurses, medical technicians, firefighters, tribal college faculty, law enforcement officers and attorneys working in public positions may be eligible to have up to 100% of their remaining Perkins loans waived after five years of service.

Certain early childhood education professionals may be eligible for Perkins loan cancellation after seven years. If you were in the military and served in a dangerous location, you may be eligible to have your remaining Perkins loan balance waived after five to 10 years, depending on when your service ended.

Finally, if you are an AmeriCorps VISTA or Peace Corps volunteer, you might be able to have 70% of the remaining balance on your Perkins loans cancelled after four years.

At a glance: Student loan cancellation or discharge programs

Forgiveness Type

Who is eligible?

Which loans are eligible?

Tax implications

Closed school discharge

People whose school closed while enrolled, or within 120 days of withdrawing from class.

Federal Direct loans, FFEL loans and Federal Perkins loans.

Forgiven amount is not taxable.

Total and permanent disability discharge

People who become “totally and permanently disabled.”

Federal Direct loans, FFEL loans and Federal Perkins loans.

Forgiven amount is taxable.

Discharge due to death

People who die, and students whose deceased parents have taken out Federal Parent PLUS loans.

Federal Direct loans, FFEL loans, Federal Perkins loans and Federal PLUS loan (including those taken out by parents).

Forgiven amount is not taxable, unless a parent with a Federal Parent PLUS loan is claiming discharge for a deceased child.

False Certification of Student Eligibility or Unauthorized Payment Discharge

People whose school falsely certified their eligibility for loans (this also includes victims of identity theft).

Federal Direct loans or FFEL loans.

Forgiven amount may or may not be taxable.

Unpaid Refund Discharge

Students who withdrew from school and whose schools did not issue a refund back to the lender.

Federal Direct loans or FFEL loans.

Forgiven amount may or may not be taxable.

Borrower Defense Discharge

Students whose schools “misled them or engaged in other misconduct.”

All Federal student loans.

Forgiven amount may or may not be taxable.

Part II: Loan forgiveness programs by profession

Teacher loan forgiveness

Teachers have a lot of options for student loan forgiveness. Aside from the Perkins loan cancellation discussed above, you may be eligible for teacher loan forgiveness for your Federal Direct and Federal Stafford loans.

Unfortunately, this loan program won’t cancel the full remainder of your balance. If you spend five years teaching full time in a low-income school, you’ll only have $5,000 of your remaining loan balance forgiven for most teachers.

If you’re a math, science, or special education teacher, the deal is sweetened even more: You’ll have up to $17,500 of your student loan balance forgiven.

Teacher loan forgiveness might not fully cancel out your loans, but you may have another option: public service loan forgiveness.

As a teacher, you’re also eligible for this program. Sadly, you can’t use the same period of service to qualify for both programs simultaneously. That means you’ll need to teach for five years in a low-income school to qualify for the teacher loan forgiveness program, and then restart the clock for another 10 years to qualify for PSLF (it doesn’t have to be at a low-income school, however).

You may also be eligible for other student loan forgiveness or assistance programs depending on where you live. To find out more, check out the American Federation of Teachers online loan forgiveness database.

Loan forgiveness for nurses

One of the most well-established student loan forgiveness programs for nurses is the NURSE Corps loan repayment program. If you agree to work in a facility with a critical nurse shortage, you can have up to 85% of your student loan balance paid off for you after three years.

Even better, the program will pay your federal taxes automatically for you so you don’t have to worry about the dreaded student loan forgiveness tax bombs (although you may be on the hook for state taxes). To earn these student loan payments, you first need to apply and be accepted into the program.

There are also many state loan repayment programs for nurses. To see if your state has one, simply do a Google search for “your state + nurse student loan forgiveness.”

Check out the full guide to nurse loan forgiveness programs here.

Loan forgiveness for doctors

There are numerous state-specific student loan repayment plans for doctors. The Association of American Medical Colleges maintains an excellent database of state-run programs.

Here are some others to consider:

IHS: If you agree to work in an IHS (Indian Health Service) facility for at least two years, this agency will agree to pay $40,000 toward your student loans. You can also agree to extend your employment beyond the two-year mark to earn even more student loan repayments, with no maximum cap. In other words, you could have your entire student loan balance paid off with this program if you stick around long enough. Another nice benefit of this program is that the IHS will pay 20% of the income taxes that result from their payments (you’re still on the hook for the other 80%, and any other income tax, however).

Military doctors: There are several military-specific programs for doctors and dentists in particular. The Navy’s Health Professions Loan Repayment Program will pay up to $40,000 per year (minus about 25% for taxes) toward your student loans if you agree to enlist in a certain skill shortage area. The Army offers a smattering of student loan repayment programs offering up to $250,000 for a wide range of doctor specialties and higher-level medical personnel.

National Health Service Corps: Doctors and dentists who haven’t yet completed their final year of school may be eligible for the National Health Service Corps Students to Service Loan Repayment Program. In exchange for agreeing to provide health care in an NHSC-approved facility in need for at least three years, the NHSC will pay off up to $120,000 of your federal and private student loans. Even better, the S2S award is not considered taxable income.

Repayment assistance for other healthcare professionals

Doctors, nurses and other licensed professionals, such as social workers, counselors and midwives may be eligible for up to $50,000 in student loan forgiveness under the National Health Service Corps (NHSC) Loan Repayment Program.

To qualify, you need to submit an application to be accepted into the program and agree to work at least two years in an NHSC-approved medically underserved location. This program is also tax-free.

The NHSC also grants money to certain states to run their own health care student loan repayment program. To see if your state participates and how the program works, visit their website.

If you are involved in medical or veterinary research, you may also qualify for up to $35,000 per year in student loan forgiveness through the National Institute of Health (NIH) Loan Repayment Program. There are currently eight different repayment programs available (the details of which vary), and you will have to enroll in an LRP in advance.

Loan forgiveness for lawyers

Student loan forgiveness programs for lawyers are also equally piecemeal. One of the most popular programs is run by the Department of Justice for its employees.

If you’re able to commit to a three-year term and have at least $10,000 in federal student loan debt, you can apply to this program. Applications are only accepted once per year by a certain due date. Once accepted into the program, the DOJ will match your student loan payments of up $6,000 per year toward your student loans, for a maximum of $60,000. This is also considered taxable income, although the DOJ will withhold a part of the money to pay your extra income taxes for you.

If you’re a public defender or a state prosecutor, you may also be eligible for the John R. Justice Student Loan Repayment Program. If you agree to remain in your position for at least three years, this program will help you pay back $10,000 in federal student loans per year, up to a maximum of $60,000. This program is run through state agencies. To learn more, you can find your state’s agency here.

There are also numerous student loan assistance programs for lawyers run by state agencies. To find these programs, simply Google “your state + lawyer student loan assistance program.” Your school may also offer a loan repayment program; to find out, check out the Equal Justice Works directory.

Military student loan forgiveness

In addition to the student loan forgiveness programs available to military members and veterans under other umbrellas (such as the Perkins loan cancellation or PSLF), many branches of the military offer loan repayment programs (LRPs) as enlistment incentives.

Army: The Army offers LRPs for regular Army, Army Reserve, and Army National Guard soldiers. The details of these programs vary depending on your current job status, but in general, these programs all require a few common things to earn payment toward your federal loans. First, you need to get your LRP guaranteed in writing in your enlistment contract (very important!), decline G.I. Bill benefits, be a high school graduate with a minimum 50 score on your ASVAB test and agree to enlist in a critical MOS (military occupational specialty) for a certain period of time. If you meet these qualifications, you could have up to 100% of your federal student loan balance forgiven.

Navy: If you’re more seaward-oriented, the Navy offers a single LRP for incoming sailors. If eligible for this program, the Navy will pay up to $65,000 toward your student loans and your income tax liability (a nice perk!). This program is currently only offered to sailors with certain eligibility ratings as they are going through the enrollment process.

Air Force: The Air Force also offers an LRP, but it’s much less comprehensive than the Army and the Navy’s LRP and only applies to those with a legal bent. You can apply for up to $65,000 in student loan repayment assistance by joining the Air Force’s JAG Corps. You become eligible for this award after serving for at least one year as a JAG officer.

Student loan forgiveness for volunteers

AmeriCorps volunteers are eligible for the Segal AmeriCorps Education Award after they’ve completed at least one term of service. The amount of the award is pegged to the value of the Federal Pell Grant each year (currently $5,920 in 2017), and volunteers can’t earn more than two full-time awards (even if they serve more than two full-time terms).

The forgiven amount is also considered taxable income, so plan accordingly.

Part III: Learn more

It can be tough to sort out the requirements for a student loan forgiveness program, assuming that you qualify for one. You may even have to commit to making a life-changing decision by accepting a job in a location you otherwise wouldn’t have chosen, or by taking a lower salary while in public service, for example.

Which student loan forgiveness program is right for you?

Making a decision based on these factors isn’t easy. You will have to do a lot of research and reading of the fine print to understand whether a particular student loan forgiveness program will work for you or not. Look for a fee-only Certified Financial Planner who specifically specializes in student loan forgiveness. Believe it or not, CFPs do not receive student loan training as part of the requirements to pass the CFP exam, so you should really interview several planners beforehand to test their knowledge.

Then there’s the uncertainty of whether these programs will even be around in the future, given the current political environment. Mark Kantrowitz, a nationally-recognized student loan expert, believes it’s very likely that the popular Public Service Loan Forgiveness program will eventually be phased out, for example.

If you’re currently deciding whether or not to take a job based on being eligible for a federal student loan forgiveness program, take heart.

“In general, when there is a change in federal law, existing borrowers tend to be grandfathered in,” said Kantrowitz. There are no promises, of course, but you may be a bit safer if you start a student loan forgiveness program now rather than waiting.

Pitfalls of student loan forgiveness

One of the biggest disadvantages of student loan forgiveness programs is that in many cases, the forgiven amount is considered taxable income. This means you could owe taxes on the forgiven amount just as if you’d been cut a check.

For example, if you have $25,000 worth of student loan debt forgiven and you’re in the 22% tax bracket (earning between $38,700 and $82,500 for a single person in 2018), that means you’ll get a whopping tax bill at the end of the year for $5,500.

“You're substituting a tax debt for education debt,” said Kantrowitz, even if the tax debt is lower.
If you absolutely cannot pay the tax bill, however, Kantrowitz says all hope is not lost. “The IRS, in many cases, is actually quite reasonable. They realize that you can't squeeze blood from a stone.”

You may be able to negotiate a lower lump-sum payment, or may even have the debt discharged if you’re financially insolvent (which the IRS defines as having a net worth of $0 or less).

Becoming financially insolvent as a way to escape your tax bill is never a good idea, so you need to plan ahead for the outrageous tax bill. Again, this is another good time to consult with a fee-only Certified Financial Planner.

Alternatives to student loan forgiveness

If you don’t qualify for one of these student loan forgiveness programs, there may be two last cards you can play.

1. Your employer

“About four percent of employers now offer student loan repayment assistance, or LRAP programs, for their employees,” said Kantrowitz. PricewaterhouseCoopers and Fidelity have established programs, for example.

Finding a private-sector employer who offers an LRAP may be your best bet if you don’t qualify for forgiveness under another program.

2. Make your own de facto student loan forgiveness program

How? Simply make extra payments toward your student loans on your own.

This is especially important to consider when evaluating job offers. Let’s say one company pays less but offers an LRAP. The other company pays way more, but maybe doesn’t offer an LRAP. Tally up the value of the program: You very might well be able to get out of debt faster with the higher-earning job by making extra payments yourself, rather than relying on a potential employer’s LRAP.

Student loan forgiveness and repayment programs can help unshackle you from a mountain of debt. But, you don’t have to wait for the ability or permission from someone else to start paying your loans off early yourself.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Ranked: The Best Finalists for Amazon’s Newest Headquarters

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Pittsburgh topped our rankings for the best city for Amazon's next headquarters, tying Raleigh, N.C. for first place.

Amazon finally narrowed the list of candidates to host its second headquarters down to 20 on Thursday.

The 20 finalists were picked from 238 cities from across the United States, Canada and Mexico to host what Amazon calls HQ2, a new facility that it expects to create 50,000 jobs. On top of that, the company estimates it will invest more than $5 billion in the city it ultimately chooses.

Amazon has been transparent about what it’s looking for in a potential headquarters — focusing on factors like the area’s proximity to airports, major highways and the city’s population center.

But which of the 20 cities is really going to offer those 50,000 employees the best quality of life?

MagnifyMoney researchers decided to do an analysis of the cities on Amazon’s HQ short list to determine which cities are the best to live in. We not only wanted to see which of these 20 cities offered a decent cost of living and relatively affordable housing, but also key quality of life factors like weather and the average commute time, and whether the housing stock has slack to support an influx of jobs.

The cities were rated on a scale of 100, based on these seven factors. Those rankings were summed and divided by seven for a highest possible score of 100 and a lowest possible score of zero.

  • Average commute time (in minutes)
  • Median monthly housing costs
  • Cost of living index (non-housing)
  • Temperate climate, as measured by the difference between the highest and lowest average temperatures across twelve months (a lower range ranked higher)
  • Marginal income tax rate for a single filer earning $100,000 in taxable income (state, federal and city)
  • Vacancy rate of rental homes
  • Vacancy rate of owner-occupied homes

“We trust that Amazon is doing a great job of evaluating (and negotiating) the core criteria and key preferences they deem essential to their business operations,” said study author Kali McFadden, an analyst at LendingTree, the parent company of MagnifyMoney. “We wanted to take a closer look at what each of these cities can offer their rank and file employees, both local and transferred.”

The best possible Amazon HQs: Pittsburgh and Raleigh

Let's start with the top three. MagnifyMoney gives Pittsburgh and Raleigh a tie for first place, both scoring 78 points.

Pittsburgh topped our rankings for the best city for Amazon's next headquarters, tying Raleigh, N.C. for first place.

Overall score: 78 

Pittsburgh combines a low cost of living with a decent commute time of just 26 minutes. Bring a jacket. The weather is on the chilly side.

  • Monthly median housing cost: $791
  • Avg. commute time: 26 minutes
  • Climate: Between the hottest and coldest day, there was a difference of 46 degrees

Overall score: 78

  • Monthly median housing cost: $1,051
  • Avg. commute time: 26 minutes
  • Climate: Between the hottest and coldest day, there was a difference of 38 degrees.

Dallas came in at no. 3.

Overall score: 69

  • Monthly median housing cost: $1,096
  • Avg. commute time: 28 minutes
  • Climate: Between the hottest and coldest day, there was a difference of 39 degrees.

The worst of the top 20 contenders

New York City is the lowest-ranking finalist on the MagnifyMoney list, scoring poorly at 22. The Big Apple fell to the bottom of the pack for three key reasons: it has the highest living costs, highest marginal tax rates and longest commute time.

Northern Virginia and Montgomery County share the second-to-last place with a score of 29.

Interestingly, the current Amazon headquarters Seattle, only earned a score of 41 points, but we didn’t include it in the official rankings. Seattle would have been ranked in the 14th place if we had.

Full rankings:

Methodology

The data was gathered on the Metropolitan Statistical or Combined Statistical area for a city, except in the cases of Northern Virginia; Montgomery County, Md.; and Washington, D.C., as these finalists are, at least partly, part of the same statistical area.

County data was used for commute times and median monthly housing costs (county data was not available for the other factors). Similarly, county data was used for Newark, N.J., where available, because it is part of the New York City (another finalist) statistical area.

The U.S. Census American Community Survey (2016) was used for commute times and median housing costs, while the Census Housing Vacancy and Ownership data was used for vacancy metrics. Statistics Canada was used for Toronto data. Federal and local tax authority rate tables were used to derive marginal income tax rates for $100,000 in income.  Weather data was derived from USClimateData.com and The Weather Network, while cost of living index data was sourced from Numbeo.com.

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Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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10 Money Rules to Break in 2018

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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When it comes to personal finance, you’ve probably heard all types of “rules of thumb” to follow. Yet the painful truth is that there is no one-size-fits-all rulebook for financial success.

These rules are good places to start. However, blindly following them won’t lead to satisfying results. The future is unknown and every individual's goals and circumstances are unique.

What you can do is use the rules as general guidance. Assess your goals and needs regularly, and adjust your strategies for saving, investing, spending and debt payment accordingly.

We’ve summarized 10 common personal finance rules that you can refer to but can feel free to pick and choose based on your own situation:

1. “Save 10% for retirement.”

If you are comfortable enough to start saving, a common rule of thumb is to save 10% of each paycheck for retirement.

Catherine Hawley, a San Francisco-based financial planner, told MagnifyMoney that 10% may too low a bar for many workers, especially those whose incomes may fluctuate.

“[This rule] might be better thought of as a starting place one builds on,” Hawley said. “If you have a high income but anticipate switching careers or if that income is not stable, such as some sales jobs, your long-term savings rate may need to be closer to 50% to keep you on track for retirement.”

By saving more now, you’re allowing yourself a cushion of protection if you were to see a major reduction income.

Another reason the 10% rule isn’t so great is that some people simply can’t afford to go there just yet. In that case, it’s much better to start with 4% or 5% and work your way up than let this rule dissuade you from saving at all.

Instead: If you are earning a lot, don’t let the rule stop you from saving more. If you are early in your career, you don’t have to get up to 10% all at once. At the very least, contribute enough to your company-sponsored retirement plan to capture the full company match, if you are offered one. From there, consider increasing your contribution based on your other financial goals.

2. “Whatever you do, max out your 401(k).”

Financial planners can’t emphasize enough the importance of saving for retirement: The earlier you start saving and the more you contribute, the better. But maxing out your 401(k) isn’t necessarily a good idea for everyone.

The legal maximum amount you can save in your 401(k) is $18,500 in 2018 ($24,500 if you are 50 or over). If you were starting from scratch, you would have to tuck away more than $1,500 a month to max it out by the year’s end.

If you are a high-wage earner, it’s great if you can max it out without much effort. But if you make $50,000 a year, you would have to stash nearly 40% of your salary for retirement. Remember, this is money that, if contributed to a traditional 401(k), can’t be withdrawn until age 59 1/2 without incurring penalties (with some exceptions).

Planning for retirement from an early age is wonderful, but there may be other goals you want to achieve when you are young and need money in the near future. For example, you might want to prioritize paying off high-interest debts like credit cards or auto debt before throwing a good chunk of your paycheck into your retirement fund. And you should definitely save up at least a few months’ worth of income in your savings account so you have money set aside in case of emergencies.

It’s not wise to sacrifice your current life goals if maxing out your 401(k) is a tough task.

Instead: Although there are multiple benefits to saving for retirement, you may want to take a holistic view of your financial situation and review your near-term financial goals before deciding whether or not to max out your 401(k). Read our guidelines on things you should consider before hitting that maximum.

3. “Save at least three to six months’ worth of expenses.”

One common financial planner mantra is that you should have an emergency fund to cover three to six months of expenses.

Clearly, not many people can achieve that goal. The Federal Reserve reported that in 2016, 44% of Americans could not come up with $400 in cash to cover emergencies.

Depending on circumstances, some people probably can make do with a smaller cash reserve, but others may need a bigger one.

Hawley suggested for those who have consumer debt, they may be better off having a smaller emergency fund while prioritizing paying off one’s deficit.

A person who has an unstable income or several mouths to feed may find that three to six months’ worth of expenses may not be nearly enough. For example, if you’re a freelancer or a seasonal worker, you may want to double your savings goal so you can cover any dry spells.

“If you are very conservative or in a volatile industry where you periodically get laid off you may be more comfortable with more cash on hand,” Hawley added.

Instead: An emergency fund is an account you can use to cover necessary expenses in case you lose a job, your car breaks down or you get hit by an unexpected hospital bill. Your non-routine costs like a vacation or a kitchen renovation should not be part of the calculation. Don’t be afraid to go below or beyond the three-to-six-month rule considering your needs and debt situation. In general, the less steady your job is and the more dependents you have, the larger your emergency fund should be.

4. “Subtract your age from 100 to get your perfect investment allocation.”

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One of the most basic rules for asset allocation is to subtract your age from 100 to calculate the percentage of your portfolio that you should keep in stocks.

Under this rule, at age 25, for instance, you should keep 75% of your portfolio in stocks and the rest in bonds and other relatively safer securities. At age 75, you invest 25% of your assets in stocks. The idea is to gradually reduce investment risk as you age, because older people don’t have as much time to wait for a market bounce-back following a dip.

Much research has been done about asset allocation adjustment for retirement. Experts have different conclusions based on different models. David Blanchett, head of retirement research for Morningstar Investment Management, concluded in an 2015 article that declining shares in equity as people grow older is best for retirement planning in an environment of low bond yields and decent market performance.

This 100-minus-age rule is a good place to get people started in allocating their investments, but it has its flaws.

Americans are living longer and retiring later. The average life expectancy was 79 in 2015, five years longer than 1980, according to the World Bank. Retirement savings strategies should be adjusted as people need a bigger nest egg, can potentially grow the money more and recover from a market downturn.

At the same time, the yield on a 10-year Treasury Bill is roughly 2.5%, down from a peak of nearly 16% in the 1980s. But the stock market keeps soaring — the Dow Jones Industrial Average shot up 24% last year and hit 26,000 for the first time the third week of January. It may not make as much sense today to dump a large portion of money into fixed income when you could potentially reap greater gains.

Instead: Rebalance your investment portfolio each year, considering your target retirement age, plans on using the funds at retirement, your risk tolerance and market performance. If you’re feeling more comfortable with risk, use 110 (or even 120) as a starting point to calculate your stock exposure.

Maria Bruno, senior investment analyst at the Vanguard Investment Group, told MagnifyMoney that stocks should be a significant part of a young worker’s portfolio — 80-100% in equity is very reasonable. For people in retirement, it’s better to be more conservative but still not too afraid to take some risks. A ratio of 60:40 stocks to bonds is considered a balanced allocation for them, Bruno said.

“Equities still do play a role for somebody at retirement because they could be looking at a 30- to 35-year time horizon,” Bruno said. “Individuals may think that they are playing it safe by staying out of the market, but actually what they are doing is they are overexposing themselves to inflation risk, because the portofolio can’t grow in real terms.”

5. “Withdraw 4% of your savings in retirement.”

Here is another retirement savings regimen: You start withdrawing 4% from your portfolio in your first year of retirement, increasing your withdrawal each year enough to cover inflation.

If you have $1 million in your retirement account, for instance, you take out $40,000 for the first year. If the annual inflation rate is 2%, then you withdraw $40,800 the following year ($40,000 plus 2%). And you continue on the path for the next 30 years. This rule was created based on historical data by financial advisor William Bengen in 1994.

But this is not how life works; it hardly goes as planned. Your spending in retirement may vary year by year. This rigid rule doesn’t take into consideration of your investment performance, your retirement time horizon nor the current market and economic conditions. It assumes retirees have a portfolio split between stocks and bonds. Bengen later revised the rule himself to 4.5%, using a more diversified portfolio.

Instead: Be flexible. Revise your spending rate annually based on needs, portfolio performance and taxes. If you have a personal financial advisor, discuss with your planner to determine the withdrawal rates that best suit your personal situation.

For early retirees or someone who’s invested much more conservatively and may have a smaller nest egg, they would probably need to withdraw a little under 4% to make sure their lifestyle remains sustainable, Bruno said. On the other end, she said someone with a shorter horizon — in other words, someone who doesn’t think they’ll have much time to enjoy their savings —  or who’s late in retirement shouldn’t feel tied to that 4% rule; instead, they could stand to spend a little bit more.

6. “Spend no more than 30% of your income on housing.”

The 30% rule is a common budget benchmark for housing costs. The idea is to cap your rent or mortgage at under 30% of your monthly income.

This idea stems from housing regulations from the late ’60s. A U.S. Census Bureau study said the Brooke Amendment (1969) to the 1968 Housing and Urban Development Act established the rent threshold of 25% of family income in response to rising renting costs. The rent standard later rose to 30% in 1981, which has since remained unchanged, according to the study.

But the standard crafted almost four decades ago may not be realistic for many today. A Harvard University study shows that in 2015, nearly 21 million renters — that’s nearly half of the country’s renters — spent more than 30% of their income on housing across the country.

Instead: Think of affordability instead of the 30% rule. Depending on how much you earn, how much debt you bear and where you live, rent could be more or less than 30% of your paycheck. Hawley said she encourages people to work on earning more when rent eats away a huge chunk of income, which may be easier than relocating to reduce rent. If you live in a relatively affordable area compared with California or New York, housing doesn’t have to fill 30% of the budget, she said. In that case, you may have wiggle room to save more.

7. “Buy in bulk.”

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Price per unit may be cheaper at club warehouses like Costco than a local grocery store, and buying in bulk saves money for tens of thousands of American families. But bulk-buying won’t necessarily save money if you buy more than what you can consume. Indeed, many shoppers confessed they have always bought more than they needed just because they couldn’t avoid the temptation of “super deals” at those clubs.

In addition, wholesale markets are not a paradise for every family. If it’s a family of two, the quantities of groceries you stocked up from a major trip to a wholesale market are so large that it may take weeks or even months to consume. You are basically paying upfront a lot more for saving money later. Worse yet, jumbo-sized products may go rotten or expire before you remember that they are even there.

A 2014 University of Arizona study found that families trying to buy all their groceries in one major trip, stocking up on discounted items and purchasing in bulk often buy things that end up unused.

Instead: Buy what you need and how much you need now.

8. “Borrow as much student debt as your expected salary.”

Many college students find themselves saddled with an enormous student loan debt today.

When determining how much students should borrow for higher education, a rule of thumb is that you should cap your total student loan debt below your expected first-year annual salary.

But wait a minute, private schools charge far more than public universities. In some industries, wage growth has been in Stagnantville for decades. Graduates may see big wage increases as their careers advance if they are in finance or law. But if they are government workers, their pay raises may not come as often and substantial.

In a MagnifyMoney survey of the 2017 graduate class, 40% of the 1,000 surveyed recent graduates with student loans anticipated that they’d need more than 10 years to repay their student loans.

Aside from the projected initial annual salary, many other factors, including time expected to repay the loan, the school you attend, the industry you may end up entering, should go into the borrowing calculation.

Instead: Figure out how much you actually need to borrow by evaluating the potential costs, including tuitions, fees and living expenses. Adjust your lifestyle and cut down unnecessary expenses. Remember, you want to borrow as little as possible. Find a loan that works for your future lifestyle. Refinance student loans to a lower interest rate can help you save money.

[9 Options to Refinance Student Loans]

9. “Pay off your mortgage before saving for retirement.”

You may be advised to pay off your mortgage as early as possible because debt is a liability. It may feel great to be completely debt-free, but slowly paying off your mortgage early isn’t always the best move, especially if you are not living in your home for the long run.

“If you can pay off the house you plan to stay in for five years or more after the debt is retired, great,” said Kristin C. Sullivan, a Denver, Co.-based financial planner. “If not, keep that money for yourself and invest more in your 401(k) or other assets that have the possibility for growth.”

Homeowners who purchased their homes after Dec. 15, 2017 can deduct mortgage interest paid on up to $750,000 in mortgage debt from their taxes under the new tax law. For those living in expensive housing markets who will itemize their taxes, that’s all the more reason to invest that money elsewhere.

Instead: Before adding extra monthly mortgage payment, you should pay off other high-interest debt first, such as credit card balance. Prioritize your financial goals, for example, ask yourself whether paying off the mortgage or investing for retirement is more important for you, or if you want to save for your children’s education. If you can enjoy the tax benefits or plan to move in the next five years, that money can be well used in other ways.

10. “Credit cards are bad.”

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Many people shy away from credit cards, being fearful that they will spend money they don't have and later be trapped in debt over their heads. Those people are more likely to rely on debit cards or cash.

But credit cards are not that bad at all if they are used wisely. A cardholder will stay out of trouble if he/she can pay off the balance on time and in full to avoid a high-interest charge.

By steering clear of credit cards, consumers not only miss the opportunity to build credit, but lose rewards, which can come in forms of travel points or cash, that credit card companies give to incentivize cardholders to spend.

Instead: Stick to your budget and spend within your means. Focus on your card balance — not your credit limit. Set auto payment to pay off your credit debt in full, not just the minimum balance, every month. Check our latest review of best credit card offers and how to choose a card that suits your needs.

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Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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15 Ways to Save More, Owe Less and Boost Your Net Worth in 2018

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Maybe this is the year you finally want to save enough money to go to Paris with your significant other. Perhaps you just had children, and thoughts are looming about saving for their future college education. Or maybe you’ve simply decided that you’d like to have enough money to live lavishly once retirement comes.

Whatever the case may be, there are tangible steps you can take to boost your income and improve your overall net worth this year.

The first step is simply calculating your net worth. Understanding your net worth is arguably one of the most important ways to get a clear picture of where you stand financially after hypothetically ridding yourself of liabilities with your assets.

And it’s simple to calculate: “Subtract what you owe from what you own,” said Tiffany Aliche, a financial educator and founder of the Live Richer Challenge. This January, Aliche, also known as the “Budgetnista,” sponsored a multi-week challenge with hundreds of thousands of participants to educate them on the power of boosting their net worth.

Once you know your net worth and determine whether that figure puts you in the red, the next step is a bit more challenging: finding ways to increase it over time.

Get started with these tips to boost your net worth with any or all of the strategies below.

Earn More 

Ask for that raise. This is the initial move to take toward increasing your annual earnings. “Start by establishing where you are,” said Stefanie O’Connell, author of “The Broke and Beautiful Life.”

“Do your research to figure out what the current pay range is for your position by talking to recruiters, speaking to friends and colleagues in similar positions, or by using a website with salary information like Glassdoor or PayScale,” she said.

Consider the cost of living in your city when you negotiate, too. An accountant in Charlotte, N.C. might be paid much differently than an accountant in San Francisco, where costs are much higher, for example.

“Establish where you want to go,” O’Connell said. “What are the going rates in your field, and where do you fall in that pay range? Given your competency and the value you add to your workplace, where do you think you should fall within that pay range?”

If no raise is possible, ask for something else in its place. In you’re denied a raise, don’t be afraid to ask for something else, suggests O’Connell. For example, you could ask for equity in your company if it’s available to employees. Once that equity is vested (meaning, it’s totally available to you to use), you can leverage it in a number of ways and potentially grow it over time if invested properly. That will no doubt boost your net worth.

Other soft perks to consider include a more flexible schedule, more paid time off, access to educational programs, an expense account, a club membership, a bigger office or a new job title.

These may not have a concrete impact on your financial bottom line, but they could definitely add value to your quality of life and make you a more productive worker.

Turn your hobby into a real business. During Aliche’s Live Richer Challenge online workshop, she encouraged people to look into starting a side business to bring in additional income.

“I had people create a mind map of what they’re good at, what they’re passionate about, and [had them] ask their family and friends: Looking at this, what do you think I could start or open?” Aliche said. “Something that’s going to increase your income so you can increase how much money you have saved.”

Thanks to the gig economy, options for side hustles are endless. If none of the obvious outlets appeal to you (Uber, Favor, Amazon Flex) don’t worry. From designing T-shirts and selling them on Etsy to being a remote personal assistant, there are myriad side gig options out there. 

“I suggest people do side hustles that are related to what they went to school for or what they’re currently doing,” Aliche said. “When I was a schoolteacher, I side hustled by tutoring and babysitting. You get paid more because you’re already doing it, and there’s no learning curve.”

Look for unexpected income sources. If your skills have lead to additional side income, look for ways to lock in lucrative business contracts.

Aliche says it snowed in her city recently, and she discovered the city had a contract for $210,000 for snow cleanup. You didn’t need a snow plow or even experience to secure the contract. All you needed was a license to drive the vehicle.

In addition, her city’s zoo had a $25,000 face-painting budget, and her friend secured the contract because she was the only one who applied. “You have the ability to lock down good money for doing something you’re already doing,” Aliche said. You need an LLC to secure a contract, but they’re typically only around $125, according to Aliche.

Put your tax refund to work. “Most taxpayers who use the standard deduction will get a tax cut this year,” said Jane Bryant Quinn, author of “How to Make Your Money Last: The Indispensable Retirement Guide.”

“Instead of changing your withholding schedule, consider leaving it alone and collecting the tax cut as a refund in 2019, and save the refund.” 

Figure out your hourly rate. You can figure out exactly what your time is worth using this Norwegian website  by FINN.no AS, an online classified advertising marketplace. This tool is good not only for figuring out what you should charge for freelance or contract work, but also for determining which things you should do, and which you should outsource.

For example, it might be worth your time to hire someone to clean your apartment once a week, or you might find it’s easier to do your taxes yourself rather than hiring an accountant.

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Invest wisely in your 401(k). If you’ve already invested a significant amount in your 401(k) and you’re younger, Quinn suggests taking more risks. “If you’re under 40, don’t be afraid of investing 100 percent of your 401(k) or other savings into stock-owning mutual funds,” she said. The stock market will fall from time to time, but it tends to rebound in time, and you may be better off riding the rough patches if you’re investing for long-term growth.

Start an Individual Retirement Account (IRA). If you don’t have a company 401(k), or you’ve maxed out your contribution for the year, don’t worry. “Start an IRA at a low-fee purveyor of mutual funds such as the Vanguard Group or Schwab,” Quinn said. “Buy an index fund that follows the U.S. market as a whole or the total U.S. and global markets as a whole.”

Look into automatic advising companies like Acorns. If you’re interested in investing but aren’t sure where to start, Aliche suggests dipping your toes into robo-advising, or services like Acorns, Betterment and Wealthfront. “A lot of people don’t know where to begin investing, and that’s truly the only way to grow wealth,” Aliche said. “You have to invest.”

Delay receiving Social Security. “For older people, delaying Social Security collection for even six months can have a big impact on lifetime net worth,” said Teresa Ghilarducci, professor of economics at the New School for Social Research in New York City and author of “How to Retire with Enough Money.” For example, if you delay until age 67, you’ll receive 108% of the monthly benefit and if you delay until age 70, you’ll get 132% of the monthly benefit.

Reduce expenses

Keep a record of your expenses. This might seem basic, but if you’re not doing it yet, you should be. “Keep a record of expenses and review every month,” said Ghilarducci. “This one low-energy, low-cost habit can help people identify where they are being overcharged and where they spend money without much pleasure.”

Attack your debt head-on. One half of the equation when it comes to increasing net worth is paying off debt. Aliche suggests an automated plan, like Dave Ramsey’s well-known debt-snowball method, in which you pay off debts from smallest to largest. 

Ghilarducci also emphasizes the importance of paying off debt, especially high-interest debt like credit cards. “If people can pay off all their debts, they earn a guaranteed rate of interest far above what they can earn risk-free in the stock market or anywhere else,” she says.

That being said, you should also try to keep saving as you pay down your debts. If you don’t have an emergency fund set up for the unexpected expenses, you might find yourself only digging deeper into debt.

Also, consider how much that debt is costing you versus how much you could gain by saving. It might make sense to throw every last penny at that 22% APR credit card. But it might make less sense to forfeit your 401(k) savings in favor of paying off a low-interest mortgage or auto loan more quickly. 

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Maintain good health. “An overlooked way of saving money is not getting sick,” Ghilarducci said. “Everyone over 20 should pretend they have diabetes and eat a diabetic diet. It’s good insurance against the rising cost of health care, insurance premiums and copays.”

In a less dramatic fashion, you could simply strive to stay on top of your health and preventative treatments that could stave off illness down the road. Maintain your annual checkups and don’t let minor health issues spiral out of control.

Find ways to trim expenses. Whether you grab takeout way too many nights a week or have a penchant for Whole Foods, groceries and eating out are a perfect area to cut back. Try shopping at a cheaper grocery store, or making a goal to cook four nights a week. You might even try becoming a vegetarian, temporarily. “Vegetarianism has lots of pluses – it’s cheaper and healthier,” Ghilarducci said. “A good diet is a good way to raise your lifetime net worth.”

Sell unused items in a Facebook Buy/Sell/Trade group. Groups for selling anything and everything abound on Facebook. If you’re addicted to shopping at Anthropologie or love rare Nikes, there’s a group for you. Some extremely popular groups—such as Lululemon Buy, Sell and Trade — have over 50,000 members.

Jamie Friedlander
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Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

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Personal Loans

P2P Lending: The Complete Guide for Peer-to-Peer Lending

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Peer-to-peer lending is a modern name for a practice as old as money itself — individuals loaning money among themselves. What’s modern is the scale afforded by technology. Ten years ago, an individual needing a loan to start a business, consolidate debt, or cover unexpected home improvements would have been limited to borrowing from his or her immediate friends, family, and acquaintances outside of a traditional bank loan. Today, online peer-to-peer (P2P) lending platforms connect individuals who need to borrow money with investors willing to lend. Technology now allows perfect strangers to borrow from and lend to each other.

For many people, borrowing from peers can be a great alternative to borrowing from a bank, but it’s not for everyone. We’ll take a look at how peer-to-peer lending works and what you need to know before you apply.

How P2P loans work

The Small Business Administration (SBA) defines P2P lending as, “Individual investors providing small sums to lend personal loans to individuals via internet platforms.” Some of the most popular platforms include LendingClub, Prosper, Upstart and Funding Circle, although there are several others.

Potential borrowers can apply for credit on the platform, and borrower qualifications vary by lender. For example, the interest rate a LendingClub borrower receives depends on an internal score developed by the company, which is one of the largest P2P lenders. “They will give you a grade between A (the best grade, qualifying for the highest amount at the lowest rates) and G (the lowest grade with the highest interest rate),” a LendingClub spokesperson told MagnifyMoney.

LendingClub currently caps its personal loans at $40,000. Prosper caps its loans at $35,000. Typical loan terms range between three and five years.

Who invests in P2P loans

P2P loans may be funded by an individual investor or a group of investors. According to MarketWatch, P2P loans can be a good way to diversify the portfolio of income investors who take time to understand the risks and rewards. Income investing generates a cash income in the form of dividends and interest. In other words, investors don’t buy a stock, bond, or other investment and wait for it to appreciate in value so they can sell it and earn a profit. Simply holding on to the investment generates income.

P2P loans are an income investment because once an investor opens an account and chooses to participate in a loan, principal and interest payments (less fees charged by the platform) are deposited into the investor’s account on a monthly basis.

The investors may be individuals or institutions, such as banks, pension plans, foundations, finance companies, asset managers, insurance companies, broker-dealers, and hedge funds. Individual investors can open an account with Lending Club with an initial investment of $1,000, but other platforms are available only to institutions and accredited investors (those who can demonstrate high-earned income and net worth).

Connor Murphy, a public relations and communications specialist with Funding Circle, says their platform in the U.S. is only open to accredited investors and institutional investors. “We actually use the term ‘marketplace lending’ rather than peer-to-peer lending,” Murphy said, “because investors on our platform globally include large financial institutions and even governments.”

Whether the investor is an individual with $1,000 or an institution looking to invest $250,000, they select loans to invest in and earn monthly returns on. According to Sarah Cain, head of communications at Prosper, borrowers do not know their lenders. “They simply know if their loan has been funded or not,” Cain said.

Why P2P loans?

P2P lending platforms started gaining traction more than a decade ago as a way to bypass banks and use technology to connect investors with money to the borrowers that need it. P2P lenders have claimed their online platforms help them reduce costs, and that, in conjunction with analytics and proprietary algorithms, allow them to offer borrowers lower interest rates or provide loans to individuals who have been refused loans by traditional banks.

LendingClub currently advertises APRs for personal loans from 5.99 percent to 35.89 percent. The company surveyed borrowers during the first seven months of 2017 and found that borrowers who received a loan to consolidate existing debt or pay off credit card balances reported that they saved an average of $287 per month. However, that statistic compares high-interest credit card rates with personal loan rates – not P2P personal loan rates to bank personal loan rates.

As of August 2017, the average APR on credit cards carrying a balance was 14.89 percent, but banks may offer much lower rates for personal loans. Of course, whether you choose a P2P loan or a bank loan, having a high credit score can help you get the lowest rate offers, while a lower credit score will likely stick you with higher interest rates, if you are approved for a loan at all.

Some borrowers just prefer the idea of avoiding large, traditional banks. But as with any borrowing decision, you should compare apples to apples when seeking financing for any purpose and shop around for the best rate.

Applying for a peer-to-peer loan

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To apply for a loan, a potential borrower visits a P2P lending website and fills out an application.

The platform leverages online data and technology to assess risk, determine a credit rating and assign an appropriate interest rate. Applicants may receive offers within a few minutes and can evaluate options without impacting their credit score. Once you select a loan offer, you’re required to complete an online application that gathers information about your income and employment as well as identifying information, such as address and Social Security Number.

You may also be required to provide additional documentation to verify your identity, income, and employment. That may include:

  • Tax forms such as W-2s and 1099s
  • Tax returns
  • IRS Form 4506-T, which is used to request a copy of your tax forms or returns directly from the IRS
  • Recent bank statements or pay stubs
  • Proof of income from alimony or child support, pension or annuity income, disability insurance or workers compensation benefits, if applicable
  • Copies of government-issued photo ID
  • Utility bills

Once you’ve completed the application and submitted the necessary documents, your application is reviewed and the platform matches you with investors to fund the loan. Once the loan is approved, the funds are deposited into your bank account. The process can take anywhere from seven to 45 days.

Each P2P site has its own rules and approval criteria, including minimum credit score, so an application declined by one platform doesn’t necessarily mean that you won’t be approved by the others.

The Financial Industry Regulatory Agency (FINRA) reported that P2P lenders tend to be more forgiving than banks when it comes to short credit histories, but if you’re trying to get a P2P loan with less than stellar credit, don’t expect the lowest rates.

Lending Club states that applicants who qualify for the lowest rates have:

  • An excellent credit score
  • A low percentage of total outstanding debt compared with income
  • A long history of credit with significant successful credit lines

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Upstart looks for borrowers with:

  • A minimum FICO score of 620 (although they do accept borrowers with insufficient credit history to produce a FICO score)
  • No bankruptcies
  • No accounts currently in collections or delinquent
  • Fewer than six inquiries on their credit report in the last six months (other than inquiries for student loans, vehicle loans, or mortgages

Prosper’s minimum criteria include:

  • A minimum FICO score of 640
  • Debt-to-income ratio below 50%
  • No bankruptcies within the last 12 months
  • Fewer than seven credit inquiries within the last six months

While the approval process isn’t without its hurdles, peer-to-peer loans give borrowers another — sometimes less expensive — option for borrowing beyond credit cards and bank loans. Because P2P lenders facilitate borrowing without a bank intermediary, there is less overhead and none of the capital reserve requirements that drive up costs for traditional banks. As a result, the cost of originating and funding loans is lower, providing more competitive rates to borrowers and a faster approval process.

Plus, some borrowers just like the idea of borrowing outside of the traditional banking industry. Cain says although the process is online, P2P lending is not simply a different way of dealing with a faceless lender. “We do have a robust customer service team that is available to help,” Cain said.

What if your loan isn’t funded?

If your loan application is denied, you will receive an adverse action notice that provides the specific reason for the denial.

Cain says it’s hard to say exactly why a loan application would be denied, as every person’s credit profile is unique. However, some common reasons credit applications may be denied even though the borrower has a good credit score include:

  • Problems verifying employment. A stable job and stable income indicate that you’ll be able to pay your lender back. If the lender has trouble verifying your employment history, they may decline your application.
  • Not enough income. If you don’t have enough income in relation to your existing debt obligations to pay back the loan, most lenders will deny credit.
  • Bankruptcy. Lenders are often wary of approving a loan after you’ve declared bankruptcy. A bankruptcy may remain on your credit report for up to seven or 10 years, depending on the type filed.
  • Credit card utilization. If you are using a large percentage of your available credit, you may be seen as a potential risk to lenders.

If your loan application is denied, check your credit report to make sure that there are no inaccuracies that are dragging down your credit score. You can check your credit report with each of the three credit reporting agencies for free once a year at annualcreditreport.com.

Also, review your loan application to ensure you filled it out completely and accurately. If you find any errors in your credit report or application, correct them and apply again. Otherwise, take a look at the adverse action notice and see what you can do to improve your situation.

While there are no quick fixes for a bad credit score, small steps can improve your score over time.

  • Reduce the amount you owe. Stop using credit cards and make a plan to pay down existing balances.
  • Pay your bills on time. Payment history accounts for as much as 35 percent of your FICO score, so set up payment reminders to avoid missed or delinquent payments.
  • Avoid closing unused cards. Part of your credit score depends on the average length of time you’ve been using credit, so closing old accounts can actually hurt your score.
  • Don’t open new accounts too rapidly. A large number of new accounts in a short time frame can make you look risky to lenders, so apply for and open new accounts only as needed.

Shopping around

Each platform has their own lending criteria, loan limits, fees, interest rates, and areas of operation. Take a look at the FAQs and other information on the provider’s website to get an overview of the types of loans they offer, and the rates and fees they charge.

Here are a few to get started:

Lending platform

Loan amount

Terms

Who it’s best for:

Upstart


$1,000-$50,000

3 and 5 years

Borrowers who may not have an
excellent FICO score (or any score
at all) but are good loan candidates
based on other factors such as
education and job history

Prosper


$2,000-$35,000

3 and 5 years

Borrowers interested in a personal
loan to consolidate credit card debt,
fund home improvements, vehicle
purchases or other life events,
or start, or expand a small business

Lending Club


$1,000-$40,000

3 and 5 years

Borrowers interested in a personal
loan for consolidating high-interest
debt, funding home improvements,
or paying for unexpected expenses

Funding Circle


$25,000-$500,000

6 months to 5 years

Borrowers looking for funding to start
or expand their business

Keep in mind that interest rates and other terms can change, so you should compare rates and other terms from a variety of lenders every time you need to borrow.

The P2P lending market is only a little over a decade old, thus P2P platforms have not had the long history of government oversight to which banks and credit unions have been subjected.

And there is reason to be cautious about getting involved in P2P lending. In 2016, the Department of the Treasury released a report, Opportunities and Challenges in Online Marketplace Lending, looking at the opportunities and risks of P2P lending. Their concerns included:

  • The use of data-driven algorithms for making credit decisions has the potential to violate fair lending laws and doesn’t allow applicants to check and correct the data being used.
  • Interest rates may be high. The report acknowledged that the majority of loans are made to borrowers with good credit scores, but some platforms offer loans to borrowers with poor credit (FICO scores as low as 580) at interest rates as high as 36 percent.
  • Borrowers using P2P lending to refinance federal student loans lose the protections available to federal student loan borrowers, including income-driven repayment plans, loan forgiveness, and deferral or forbearance while the borrower returns to school or faces economic hardship or disability.
  • Many borrowers use P2P loans to fund small business development, but it may be difficult to enforce consumer protection laws and regulations, contract law, or fair lending laws with P2P platforms since these platforms are not subject to the same oversight as traditional banks.
  • While many marketplace lenders clearly disclose loan rates and terms, not all platforms are as transparent. The report acknowledged a need for standardized disclosures.
  • Most P2P platforms service loans only until a loan becomes delinquent, at which point collection is outsourced to a collection agency. Not all platforms have plans in place to work with borrowers who are experiencing financial distress or plans to continue servicing loans if the company goes out of business.

However, they are required to follow the same state and federal laws as other lenders. If you encounter any problems with a P2P lender, you should submit a complaint to the Consumer Financial Protection Bureau.

The CFPB began accepting complains about P2P lenders in March of 2016. We reviewed the complaints database in December of 2017 and counted more than 300 complaints about some of the largest P2P lenders. Consumers who submit complaints assign categories themselves and can opt not to have their complaint narrative published, so it’s difficult to parse the top complaints, but they include:

  • Having difficulty getting the loan
  • Problems making payments
  • Problems with the payoff process
  • Being charged interest or fees that aren’t expected
  • Inaccurate information reported to the credit bureau

These problems aren’t unique to P2P lenders, given that borrowers from traditional banks can face similar frustrations. Still, it’s important to know what other borrowers have experienced if you’re thinking of pursuing a P2P loan.

Lending Club and Prosper are the most popular platforms, but experts expect the industry to grow, so it’s worth expanding any comparison shopping beyond the biggest players. Just do your research before providing your personal information.

  • Search for the lender online. Is the platform mentioned in roundups of the best P2P platforms from reputable financial websites? Do your search results include consumer complaints?
  • Check the platform’s rating with the Better Business Bureau.
  • Make sure the platform takes steps to protect your personal data. They should have security and privacy certification from a company like TRUSTe or Symantec.

Alternatives to a P2P loan

It makes sense for anyone interested in a P2P loan to also compare alternatives before committing to a loan:

  • Community banks
  • Credit unions
  • Friends and family

Peer-to-peer lending can be a less expensive alternative to high-interest credit cards and easier to get than a bank loan. But, like all borrowing decisions, it needs to be carefully considered for your individual financial circumstances. The bottom line is that P2P is another option, and more options and increased competition are always good for borrowers.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here

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Loan Forgiveness for Nurses: Who’s Eligible and How to Apply

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

student loan forgiveness for nurses
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While nurses may carry a large burden in terms of patient care, they typically receive good pay, solid workplace perks and plenty of job security in return. Afterall, job openings for registered nurses are expected to increase 15% from 2016 to 2026, according to the U.S. Bureau of Labor Statistics — at a time when the average growth for all jobs is projected to be just 7%. Further, registered nurses reported median wages of $68,450 nationwide in 2016, with the top 10% of nurses earning $102,990.

On the downside, the costs of earning a nursing degree can be overwhelming.

An October 2017 report from the American Association of Colleges of Nursing even noted that 69% of nursing graduate students surveyed took out federal loans to finance their education, and the median amount of debt brought on by graduate school was anticipated to be $40,000 to $54,999 for these students.

If you’re considering a nursing degree or a graduate nursing degree, it’s easy to see why these numbers would be disconcerting. The good news is there are a wide range of forgiveness programs available for nurses on both the state and federal levels.

If you’re struggling with expensive nursing school loans or fear you will be, it may help to become familiar with these programs and how to qualify.

Federal student loan forgiveness for nurses

National Health Service Corps Repayment Program

The National Health Service Corps Repayment Program offers up to $50,000 in student loan repayment in exchange for a two-year commitment at a NHSC-approved work site. Accepted sites may be in primary care medical, dental or mental and behavioral health clinics in high-need areas of the country.

According to the program website, priority consideration is given to eligible applicants whose approved work site has an HPSA (Health Professional Shortage Area) score of 26 to 14, in descending order. In other words, student loan forgiveness goes to those who work in the highest-need facilities first. You can look for eligible job sites in your area on this page.

Are you eligible?

If you’re a licensed health care provider who is willing to work or even relocate to an area with a shortage of qualified health care providers for at least two years, you are eligible to apply for this program.

The application process

While the 2017 application cycle is closed, the next application cycle will open in early 2018. To apply, you’ll need to submit a complete application that includes documentation of your loans and proof of qualified employment. You can find a full application checklist on the NHSC website.

Is this program right for you?

This program could be ideal for you if you’re flexible in terms of where you work for the next two years and you have up to $50,000 in student loans to repay.

NURSE Corps Loan Repayment Program

This federal program aims to help registered nurses, advanced practice registered nurses and nurse faculty by paying off up to 85% of their student loan debt in exchange for a 2- to 3-year commitment in a critical shortage position or facility. This program is available to nurses in the three mentioned professions who graduated from an accredited nursing school and work full time in either an eligible critical shortage facility or an accredited school of nursing.

Are you eligible?

To be eligible for this program, you must work as a registered nurse, advanced practice nurse or as nurse faculty and be a U.S. citizen. You need a bachelor’s degree or associate degree in nursing from an accredited school, and you must work full time (at least 32 hours per week) in an approved critical shortage facility (CSF) or accredited school. You must also have outstanding loans related to your nursing degree.

The application process
The 2018 application cycle hasn’t opened yet, although you can sign up to be notified when it does. NURSE Corps suggests reading the Application and Program Guidance document ahead of time so you fully understand the commitment. This document also offers a list of critical shortage facilities and facility types that would qualify for this program.

Is this program right for you?

This program is ideal for nurses who are willing to commit to working in a critical shortage position for at least two years.

Federal Perkins Loan Cancellation for Nurses

If you have Federal Perkins loans and work full time in the nursing profession, you may be able to have up to 100 percent of your student loans wiped away with the Federal Perkins Loan Cancellation program.

Nurses need to be registered and employed full-time to qualify. They also need to be willing to make a five-year commitment to the program. However, since the Perkins Loan program expired on September 30th, 2017, you must have borrowed money for nursing education before that date to qualify.

Are you eligible?

Nurses with Federal Perkins loans who are willing to make a five-year commitment to the program may have up to 100% of their loans forgiven. Unfortunately, you must have borrowed before September 30, 2017 to qualify.

The application process

According to the U.S. Department of Education, you must apply for Federal Perkins loan forgiveness with the school who made your loan or with the school’s Perkins Loan servicer. Your school or servicer will provide forms and instructions on how to move forward with the process, they note.

Is this program right for you?

This program is ideal for nurses who graduated with Perkins Loans before September 30, 2017. Unfortunately, it won’t be of any help to future generations of nurses – at least for the time being.

Programs for nurses by state

While the federal government supports several national programs that can help nurses shed their expensive student loan debt, some states offer their own programs as well. These programs vary in length and commitment, but most require at least a few years of work in a critical shortage area of nursing in exchange for forgiveness.

The following chart highlights the current programs available, what they offer and who is eligible:

State


Program name


Description of program


Alabama


Advanced Practice Nursing Loan Repayment Program


Alabama residents enrolled full time in accredited nursing education programs and pursuing graduate degrees to become certified registered nurse practitioners (CRNPs), certified nurse midwives (CNMs), or certified registered nurse anesthetists (CRNAs) are eligible to receive $12,000 in loan repayment. Graduates must be an Alabama resident for at least one year before they apply.

Alaska


Alaska’s SHARP Program


Through Alaska’s SHARP (Support-for-Service to Healthcare Practitioners) Program, nurses can receive up to $27,000 per year in loan assistance in exchange for a work commitment in an eligible critical shortage area.

Arizona


Arizona Loan Repayment Program


The Arizona Loan Repayment Program offers loan assistance for health care professionals working in areas of critical shortage. Available to nurse practitioners who work half-time or full time for at least two years, this program offers up to $50,000 in repayment assistance for each year of service in a qualified position.

California


Bachelor of Science Nursing Loan Repayment Program


Registered nurses in California who hold a bachelor’s degree may qualify for this program if they have outstanding student loan debt and agree to serve in a medical shortage area, a prison, or a veteran’s facility. Up to $10,000 is awarded for one year of service.

Colorado


Colorado Health Service Corps Program


Colorado nurse practitioners, nurse midwives, and psychiatric nurse specialists may receive up to $25,000 for part-time work and $50,000 for full-time work in exchange for a three-year commitment in a Colorado Health Professional Shortage Area.

Connecticut


Nursing Education Loan Repayment Program


Connecticut registered nurses and nursing students may be eligible to have up to 60% of their student loans forgiven in exchange for a two-year, full-time commitment at an eligible Department of Mental Health and Addiction Services Facility. A third year of commitment may result in an additional 25 percent of loan forgiveness.

Delaware


Delaware State Loan Repayment Program


Delaware nurse practitioners, nurse midwives, and psychiatric nurse specialists who work full time in a designated critical shortage area may receive between $30,000 and $100,000 in loan repayment assistance in exchange for a two-year commitment.

Florida


Nursing Student Loan Forgiveness Program


Florida licensed practical nurses, registered nurses and advanced practice registered nurses who work full time in a designated critical shortage site may receive up to $4,000 per year in loan forgiveness for up to four years.

Georgia


Advanced Practice Registered Nurse Loan Repayment Program


This program, which is available to advanced practice registered nurses in the state of Georgia, offers up to $10,000 per year in loan cancellation in exchange for full-time work in a rural Georgia county.

Hawaii


The Hawaii State Loan Repayment Program


Nurse practitioners and certified nurse midwives licensed to work in Hawaii are eligible for loan forgiveness after committing to at least two years of full-time work in a healthcare shortage area in the state. Award amounts vary based on grants available.

Idaho


Idaho State Loan Repayment Program


Healthcare practitioners in the state of Idaho can qualify for $2,500 - $25,000 per year in loan forgiveness for working in a critical shortage area designated by the state.

Illinois


Nurse Educator Loan Repayment Program


Licensed nurse educators in the state of Illinois may be awarded up to $5,000 in loan forgiveness for up to four years provided they work as a nurse educator and meet the licensing requirements of the Illinois Department of Financial and Professional Regulation.

Iowa


Iowa Registered Nurse and Nurse Educator Loan Forgiveness Program


Registered nurses and nurse educators who owe a balance on their student loans and have loans in good standing may earn up to $6,858 per year in loan forgiveness for no more than five consecutive years.

Kansas


Kansas State Loan Repayment Program


Certified nurse practitioners may qualify for up to $20,000 per year in assistance for two years and $5,000 - $15,000 per year in assistance for the next three consecutive years. Full-time work in a designated healthcare shortage facility is required for each year of forgiveness.

Kentucky


Kentucky State Loan Repayment Program


Kentucky nurse practitioners, certified nurse midwives and registered nurses can receive $20,000 - $40,000 in loan repayment assistance depending on their designation. A two-year commitment in a critical shortage area in the state of Kentucky is required.

Louisiana


Louisiana State Loan Repayment Program


Certified nurse practitioners and certified nurse midwives can qualify for up to $15,000 per year in loan repayment assistance for up to three years. A full-time commitment in a designated healthcare shortage area is required.

Maryland


Janet L. Hoffman Loan Assistance Repayment Program


Nurses who provide public service in Maryland or local government or nonprofit agencies in Maryland can receive between $1,500 and $10,000 per year in loan assistance depending on their total debt. A full-time commitment in an underserved facility in the state is required.

Michigan


Michigan State Loan Repayment Program


Nurse practitioners who work full time in a not-for-profit facility with a critical shortage of qualified caregivers may receive up to $200,000 in loan repayment assistance with a commitment of up to eight years.

Minnesota


Minnesota Nurse Loan Forgiveness Program


Licensed practical nurses and registered nurses can receive $5,000 per year in loan repayment assistance with a two-year minimum service obligation in a qualified facility.

Montana


Montana NHSC Student Loan Repayment Program


Nurse practitioners, primary care registered nurses, certified nurse midwives, and a variety of other healthcare professionals can receive up to $15,000 per year in loan repayment for up to two years in exchange for full-time work in an NHSC-approved site.

Nebraska


Nebraska Loan Repayment Program for Rural Health Professionals


Nurse practitioners who agree to work in a critical shortage facility for three years can receive up to $30,000 per year in loan assistance to repay commercial or government student loans.

New Hampshire


New Hampshire State Loan Repayment Program


Primary care nurse practitioners, certified nurse midwives, and psychiatric nurse specialists can receive $45,000 in loan repayment assistance in exchange for a three-year commitment in a critical shortage facility. Candidates who want to extend the program up to another two years may also receive another $20,000 in assistance.

New Jersey


Primary Care Practitioner Loan Repayment Program of New Jersey


Certified nurse practitioners and certified nurse midwives can receive up to $120,000 in loan repayment assistance over a four-year period of service in an underserved facility with a critical shortage of healthcare providers.

New Mexico


Health Professional Loan Repayment Program


In exchange for a two-year commitment in a designated medical shortage area in New Mexico, advanced practice nurses can qualify for up to $25,000 per year in assistance.

New York


New York State Nursing Faculty Loan Forgiveness (NFLF) Incentive Program


Registered nurses or advanced practice nurses with graduate degrees who teach nursing in the state of New York can receive up to $8,000 per year in loan forgiveness for up to five years through this program.

Ohio


Nurse Education Assistance Loan Program (NEALP)


This program was created to incentivize Ohio students in accredited nursing programs to continue their studies. Awards of up to $1,500 per year are offered and students need to be enrolled in programs with at least half-time study to qualify.

Oregon


Oregon Partnership State Loan Repayment


Registered nurses and primary care nurse practitioners can qualify for loan repayment assistance in exchange for a two-year commitment in a health care shortage area. Awards vary based on the shortage level of the facility of employment and funds available.

Pennsylvania


Pennsylvania Primary Health Care Loan Repayment Program


Certified registered nurse practitioners can receive up to $60,000 in loan repayment assistance for a two-year commitment in a facility with high need.

Rhode Island


Health Professionals Loan Repayment Program


Rhode Island nurse practitioners and registered nurses can receive loan repayment assistance in exchange for a two-year or four-year commitment in a high-need or critical shortage area. Loan amounts vary.

Tennessee


Graduate Nursing Loan Forgiveness Program


Nurses who are enrolled in a nursing graduate program may be eligible for loan forgiveness. Nursing students must work full time as a nurse educator for at least four years to qualify.

Texas


Rural Communities Healthcare Investment Program


Texas healthcare professionals other than physicians can receive up to $10,000 in loan repayment assistance after working one year in a designated shortage area in the state.

Vermont


Educational Loan Repayment for Health Care Professionals


Licensed practical nurses and registered nurses in Vermont can receive an annual award of up to $10,000 for working at least 20 hours per week in an underserved area as defined by the program.

Virginia


Virginia State Loan Repayment Program


Nurse practitioners, nurse midwives and registered nurses working in designated shortage facilities in Virginia can receive up to $140,000 (not to exceed their total loan balances) for a minimum four-year commitment.

Washington


Health Professional Loan Repayment Program


Nurses who agree to a three-year commitment in an eligible healthcare shortage site can receive up to $75,000 in loan repayment assistance. A minimum 24-hour work week is required for this program.

West Virginia


West Virginia State Loan Repayment Program


Nurse practitioners and nurse midwives who agree to a two-year commitment in a facility with a healthcare shortage can receive $40,000 in loan repayment. An additional $25,000 per year in assistance is available for an additional two years of work.

Wisconsin


Health Professions Loan Assistance Program


Nurse practitioners and certified nurse midwives can receive up to $50,000 in loan repayment assistance through this program. Eligible providers must work at least three years in a qualified high need facility to qualify.

Alternatives to student loan forgiveness for nurses

If federal or state nurse loan forgiveness isn’t suitable for your situation for any reason, there are several alternative ways to get your student loans reduced or forgiven. Here are some of the main options to consider:

Hospital tuition reimbursement

Some hospitals offer tuition reimbursement to working nurses and nursing students who work in their hospital or hospital system. While some of these programs offer tuition assistance as an ongoing perk for existing employees, others offer loan repayment as an incentive to earn an advanced nursing degree.

The UNC Medical Center in Chapel Hill, N.C., for example, offers tuition assistance for permanent working nurses who dedicate at least 20 hours per week to working at one of their facilities. With this program, hospital employees can attend nursing school or nursing graduate school and receive $316.99 per undergraduate credit hour or $589.62 per graduate credit hour. Limits per class are set at $1,870.24 for undergraduate courses and $3,478.76 for graduate-level courses, at a maximum of 20 credit hours per fiscal year.

Duke University Hospital in Durham, N.C., is another institution that offers tuition reimbursement for nurses. This program promises up to 90% tuition reimbursement for nurses who pursue a master’s degree, post-master’s degree certificate or doctorate of nursing practice degree. Nurses must work for the Duke University Hospital system full time (at least 30 hours per week) with a positive record to qualify.

If you’re interested in pursuing tuition assistance, check hospitals in your area to see which ones, if any, offer this type of program.

Student loan refinancing

Another way to reduce the ongoing costs of excessive student debt is to refinance your student loans with a private lender who may offer a lower interest rate or better loan terms. This strategy won’t make your loans go away altogether, but it may help you save on short-term and long-term interest costs or lower your monthly payment.

While this strategy can be advantageous, keep in mind that it doesn’t always make sense to refinance your student loans. If another lender won’t grant you a lower interest rate or lower your payment, for example, it may be hard to justify the hassle or expense of refinancing.

Not only that, but refinancing federal loans with a private lender can result in losing access to important federal benefits like deferment, forbearance and income-driven repayment plans.
Before you refinance your student loans, make sure to use a student loan refinancing calculator to see how much you might save. Only then can you decide if it would be worth it.

Income-driven repayment options

Income-driven repayment plans allow nurses with federal loans to pay only a percentage of their income toward their loans for 20-25 years. These programs can be especially advantageous for nurses with large debt loads and low incomes since your monthly payment is determined based on how much you earn and a percentage of your discretionary income. Not only that, but each of these plans leads to forgiveness of your remaining student loans once you make payments for the duration of the program.

Several different income-driven repayment programs are available for nurses:

Program name

Payment Amount

Repayment Period

Eligibility

Pay As You Earn Repayment Plan (PAYE Plan)

10% of your discretionary income but never more than your payment on 10-year Standard Repayment

20 years

Nurses can qualify if their payment on this plan would be less than the payment on a standard ten-year repayment plan

Revised Pay As You Earn Repayment Plan (REPAYE Plan)

10% of your discretionary income

20 years for undergraduate loans and 25 years “if any loans you’re repaying under the plan were received for graduate or professional study”

Nurses with federal student loans can qualify

Income-Based Repayment (IBR)

10% of your discretionary income if your loan originated after July 1, 2014, but never more than the 10-year Standard Repayment Plan; generally 15% of your discretionary income if you’re not a new borrower on or after July 1, 2014; either way, you’ll never pay more than the payment on a standard, 10-year repayment plan

20 years if you’re a borrower after on or after July 1, 2014; otherwise 25 years

To qualify, your payment under this plan must be less than what you would pay under standard, 10-year repayment

Income-Contingent Repayment (ICR)

20% of your discretionary income, or what you would pay over the course of a fixed 12-year repayment plan

25 years

Nurses with federal student loans qualify

Public Service Loan Forgiveness (PSLF)

The Trump administration has made it no secret that they’d favor ending the Public Service Loan Forgiveness (PSLF) program, which forgives the balance on your remaining Direct Loans provided you make 120 consecutive, on-time payments and work full time for a qualifying employer.

But so long as this program is still available, it’s worth checking out.

According to the education department, “qualified employment” can entail working for a government agency, a not-for-profit or serving full time in Americorps or the Peace Corp. Candidates must work full time (at least 30 hours per week) to qualify, and only Direct Loans are eligible for PSLF.

Since nurses can find work in not-for-profit organizations, the Peace Corp and government agencies, this is typically seen as a feasible loan repayment option for nurses and other healthcare professionals.

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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