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How to Set Up IBR, PAYE, and ICR Student Loan Repayment Plans

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How to Set Up IBR, PAYE, and ICR Student Loan Repayment Plans

Does the amount you earn on a yearly basis pale in comparison to your monthly student loan payments? Do you have federal student loans? Then you might benefit from setting up an income-based repayment (IBR) plan, income-contingent repayment (ICR) plan, pay as you earn (PAYE) repayment plan or revised pay as you earn (REPAYE) repayment plan.

These repayment programs are only available to those with federal student loans, and they’re collectively referred to as income-driven repayment plans. Setting your federal loans up under an income-driven repayment plan reduces your monthly payment amount because your payment is based on your income and family size. Your payment adjusts annually according to these factors.

Payment amounts are calculated from a percentage of your discretionary income. According to studentaid.ed.gov, for IBR and PAYE, discretionary income is “the difference between your income and 150% of the poverty guideline for your family size and state of residence.” For ICR, it’s 100% of the poverty guideline. (If you’re interested in looking at the poverty guidelines, those can be found here.)

Want to find out how to apply for an income-driven repayment plan? Read on for information on how the process works.

[Learn how to track down all your student loans here.]

Getting Started With Income-Driven Repayment Plans

Generally, if you want to set your student loan account up with an income-driven repayment plan, your best bet is to first contact your student loan servicer. (Not sure which loan servicer you have? You can check in the National Student Loan Data System.)

If you log into your account online, you should see a section for changing your repayment plan. At the very least, your servicer should address the issue in a FAQ section of its site.

It’s your loan servicers job to help you find the best plan for your situation, but you need to contact them as soon as you know you’re experiencing difficulty in making payments. You don’t want to miss any payments and end up delinquent (or worse, in default) because you couldn’t pay. Plus, loans that are in default aren’t eligible for income-driven repayment plans.

The application process is actually very simple and straightforward.

Income-Driven Repayment Application Process

The first step of the process is to request an income-driven repayment plan. You need to fill out the “Income-Driven Payment Request” form to do that. This can be done online by yourself, or you can apply with a paper application supplied by your student loan servicer.

When you make your request, you have to choose the specific plan you’d like to go with. You can select one yourself, or you can ask your loan servicer to choose the best plan for you. It will choose the one with the lowest monthly payment amount.

Since you’re applying for a repayment plan based on your taxable income, you do need to provide proof of income.

The easiest way to provide proof of your adjusted gross income (AGI) is with your most recent tax return, as long as your income hasn’t changed significantly from the last date you filed. You also need to have filed a federal income tax return for the past two years.

The online application makes it easy to find your AGI. You can just use the IRS Data Retrieval Tool to import your income information.

If you apply with the paper application, you’ll need to supply a paper copy of your most recent federal tax return, or an IRS tax return transcript.

If your income has changed a lot since you last filed, or if you haven’t filed two federal tax returns yet, there are other ways of proving your income.

First, if you don’t have any source of income at all, you just need to indicate that on your application. Only taxable income counts, so if you receive any government assistance or any other income that’s not considered taxable, you don’t need to report it here.

If you do earn an income, you’ll need to provide your most recent pay stubs or other alternative documentation that shows your salary.

Additionally, if you have federal loans with multiple loan servicers, you must request income-driven repayment for each individually. There’s a section of the application that asks if you have eligible loans with more than one servicer, so you can indicate that there.

Wondering how your payments are determined when you owe multiple lenders? First, your income-driven repayment plan amount is calculated. This amount is then multiplied by the percentage of total debt with each servicer.

For example, if you have loans with two servicers, and your income-driven repayment amount is $120, and 50% of your outstanding debt is with Loan Servicer 1, and the other half is with Loan Servicer 2, then you’d have to pay $60 toward each. (50% of $120 is $60.)

The application shouldn’t take very long to complete, but the entire process can take a few weeks depending on which loan servicer you have.

If you have an immediate need to lessen your payments, your loan servicer may apply a forbearance to your federal loans while the process wraps up. That’s why it’s important to contact your servicer as soon as you can’t make your payments.

You Have to Reapply Annually

You’ll be required to submit your proof of income on an annual basis after you apply the first time. As your income changes, so does your payment, so you need to provide this information continuously.

However, there’s no income limit for income-driven repayment plans. If you start earning more, your payment amount is simply capped at the amount you’d be paying under the standard 10-year repayment plan. It will never exceed that amount.

Technically, your loans will still be under your chosen income-driven repayment plan, but your monthly payment is no longer based on your income. You can still have your outstanding loan balance forgiven after your repayment term ends (if you don’t pay your loan off before then).

Who’s Income is Taken Into Consideration?

If you’re married and wondering if your spouses income will be taken into consideration, it depends on how you file your taxes.

Filing separately means only your income and loans will matter.

Filing jointly means your monthly payment will be based off of your joint income.

If you and your spouse file jointly and both have eligible federal student loans, both loans will be taken into consideration, but your spouse doesn’t have to choose to enter into an income-driven repayment plan.

Income-Based Repayment Plan Overview

You don’t qualify for IBR unless your payment amount will be less than what you’re paying under the standard 10-year repayment plan.

A good baseline for determining whether or not you’ll qualify is if your total student loan debt is much higher than your annual discretionary income. If your debt-to-income ratio is really high, you’ll probably qualify.

New borrowers (those that borrowed after July 1st, 2014, and didn’t have any loans outstanding prior to that) have a maximum of 20 years to pay back their loans, while old borrowers (those that had outstanding loan balances after July 1st, 2014) have a maximum of 25 years to pay back their loans.

Pay As You Earn Plan Overview

For PAYE, your monthly payment will be around 10% of your discretionary income, and never more than what you’re paying under the standard 10-year payment plan.

You have a maximum of 20 years to pay back your loans under this plan.

The qualifications for PAYE are the same as IBR – you must be paying less under PAYE than you were under the standard 10-year plan.

However, PAYE is only available to those who were new, first-time borrowers as of October 1st, 2007, and they also must have received a disbursement in the form of a Direct Loan on or after October 1st, 2011.

Income-Contingent Repayment Plan Overview

From studentaid.ed.gov, your monthly payment is the lesser of these two: 20% of your discretionary income, or “what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.”

Under this plan, you have a maximum of 25 years to pay back your loans. There are actually no initial guidelines you must qualify under – anyone can choose to repay their student loans under this plan.

However, the Federal Student Aid office warns that payments tend to be more expensive under this plan than IBR and PAYE – and possibly even more than the 10-year repayment plan. Make sure you’re going to be paying less if you want to go this route.

Benefits of Income-Driven Repayment Plans

A big bonus for all three of these repayment plans is that your outstanding balance is forgiven after your repayment term is complete. The Federal Student Aid office notes that if you qualify for forgiveness after 10 years through the Public Service Loan Forgiveness program, that takes precedence.

How can you still have an outstanding balance at the end of your repayment period? The monthly amount you owe will fluctuate with your income. You could end up repaying your loans before your term is up, or you could end up with a balance.

Under IBR and PAYE, if your monthly payment isn’t enough to cover any interest that accrues monthly on your subsidized loan, the government will pay the difference for the first three years. So if $30 in interest accrues every month, and your monthly payment under IBR and PAYE only pays for $15 of that, the government will cover the other $15.

You might want to use the estimated repayment calculator to see which plans offer you the lowest monthly payment. Income-driven plans aren’t guaranteed to give you the lowest monthly payment – all situations are different. There are still other repayment plans that aren’t reliant upon your income that could lower your monthly payment, such as the graduated or extended repayment plans.

Check With Your Loan Servicer First

Before applying for an income-driven repayment plan, it’s best to check with your loan servicer to get its input. You don’t want to end up owing more per month than you do now. These repayment plans are designed to help you, not hurt you. You may find that forbearance or deferment is a better option for you, especially if you’re only experiencing a temporary economic hardship.

 

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Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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College Students and Recent Grads

The 2019 Guide to Student Loan Forgiveness

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The numbers are mind-boggling. In mid-2018, American collectively carried $1.53 trillion in outstanding student loan debt, according to the Federal Reserve Bank of New York. Even worse, one million Americans default on their student loans every year, and 40% of borrowers are expected to default by 2023.

If you’re paying off student loans, you know full well what the reality behind these statistics feels like. Repaying student debt 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 after 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 generally come with 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.

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 (though you might need to pay taxes on the forgiven amount).

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. In some cases, you may need to follow strict reporting protocols throughout the program until you become eligible, while other programs may require you to work in a certain industry or live in a certain state.

Because the different student loan forgiveness options vary 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. In this guide, we’ll discuss which student loan forgiveness plans are available and the main details of each program.

At a glance: Student loan forgiveness programs

Forgiveness TypeWho is eligible?Amount that can be forgivenWhich loans are eligible?‘Time served’ RequirementTax implications
Public Service Loan Forgiveness*People who make a commitment to a public service career.No capFederal 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 ForgivenessFull-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 LoansFederal Direct loans, Federal Direct Consolidation and Federal Stafford loans.Must work full time for five years.Forgiven amount is not taxable
Perkins Loan CancellationTeachers and some other professionals, AmeriCorps VISTA or Peace Corps volunteers.Up to 100% of the loan balanceFederal 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 PlansGraduates 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 NursesNurses 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 DoctorsDoctors 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 LawyersLawyers 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 forgivenessMembers 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 may be taxable — check with a tax professional.
Segal AmeriCorps Education AwardAmeriCorps volunteersUp to $6,095Federal 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 for this program is murky: In 2017, Republicans introduced the PROSPER Act that would eliminate PSLF. Although this proposal was never passed, the outlook for PSLF remains uncertain.

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% to 20% of your discretionary income.

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) and Revised Pay As You Earn (REPAYE)

The PAYE and REPAYE programs each 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 10% or 15% of your discretionary income, depending on if you’re a new borrower or not on or after July 1, 2014. 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 20 or 25 years (again, depending on whether you were a new borrower on or after July 1, 2014), regardless of what type of federal student loans you have, you will be forgiven. The lone exception are Federal PLUS loans made to parents, which need to be on the ICR plan listed below.

Income-Contingent Repayment (ICR) plan

If you’re enrolled in ICR, you’ll potentially 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

The Perkins Loan program expired in 2017, but many graduates still carry this type of debt. It works a bit differently than 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 TypeWho is eligible?Which loans are eligible?Tax implications
Closed school dischargePeople whose school closed while enrolled, or within 120 days of withdrawing from class.Federal Direct loans, FFEL loans and Federal Perkins loans.Forgiven amount may be taxable — check with a tax professional.
Total and permanent disability dischargePeople who become “totally and permanently disabled.”Federal Direct loans, FFEL loans and Federal Perkins loans.Forgiven amount is usually taxable.
Discharge due to deathPeople 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 DischargePeople whose school falsely certified their eligibility for loans (this also includes victims of identity theft).Federal Direct loans or FFEL loans.Forgiven amount may be taxable — check with a tax professional.
Unpaid Refund DischargeStudents 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 be taxable — check with a tax professional.
Borrower Defense to Repayment DischargeStudents whose schools “misled them or engaged in other misconduct.”All Federal student loans.Forgiven amount may be taxable — check with a tax professional.

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/Federal Stafford loans.

Unfortunately, this loan program won’t cancel the full remainder of your balance. After spending five years teaching full-time in a low-income school, most teachers will only have $5,000 of their remaining loan balance forgiven.

If you’re a math, science or special education teacher, the deal is sweetened: 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 (though for the latter, it doesn’t have to be at a low-income school).

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.” Or 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 federal and 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 (but you’re still on the hook for the other 80%, and any other income tax).

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 award is not considered taxable income.

Repayment assistance for other health professionals

In addition to doctors and nurses, many 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 LRAP in advance.

Loan forgiveness for lawyers

Student loan forgiveness programs for lawyers are 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, so check with your financial aid office to find out.

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), several branches of the military offer their own 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 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 drawn to a life at sea, 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. 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 $6,095 for 2019), 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.

If you need help, look for a fee-only Certified Financial Planner who 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.

But 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 — applying now could get you in the door permanently.

“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 $39,475 and $84,200 for a single person in 2019), 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 Investments 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. Speed up your repayment

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.

Looking to refinance your student loans to a lower rate? Check out our top picks for student loan refinancing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Lindsay VanSomeren
Lindsay VanSomeren |

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

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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College Students and Recent Grads, Student Loan ReFi

Best Private Student Loan Companies in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Taking out private student loans can be a relatively expensive ways to borrow for school, yet many college students make the mistake of turning to private loans too quickly. From 2015 to 2016, more than half (53%) of undergraduates borrowed from private lenders before maximizing their federal loan allotment, according to the Institute for College Access and Success.

On the other hand, federal loans can only go so far, especially if you are pursuing a postgraduate degree that requires more schooling. Once you’ve tapped out your federal aid, a private student loan could help you fill the gap.

While federal loans offer a relatively uniform application process and loan terms, private lenders’ terms can vary widely. If you’re thinking about paying for school with a private student loan, it’s vital to compare lenders’ offerings to find the one that’s best for you.

How we ranked the best private student loans

There’s a lot to review when you’re shopping around with private lenders. Your annual percentage rate (APR), fees and loan repayment term could impact how much you pay in interest over the lifetime of the loan. Other features — such as a straightforward application process and the option to request that a cosigner be removed from the loan — could also affect your repayment.

We started the search for the best private student loan companies by identifying the 10 largest national private lenders. Each lender’s undergraduate student loan was graded on eight critical factors:

  • Private lenders offer loans with varying interest rates depending on the applicant’s creditworthiness — or that of the applicant’s cosigner. Lenders advertise an interest-rate range that you can use to compare one with another.
  • In this case, each lender was assigned grades based on its lowest and highest APRs compared with the average lowest and highest APRs for all 10 lenders. Each lender received four scores (as they all offer variable-rate and fixed-rate loans), and the lenders with below-average APRs received top marks.
  • Lenders could charge application, origination and prepayment fees based on your loan balance.
  • Although fees are becoming a thing of the past, one of these 10 lenders (CommonBond) still charges a federal-like origination fee when the loan is disbursed.
  • All of the top 10 lenders offer an online application, but the clarity and ease of use can vary. The lenders with intuitive processes, plus pre-qualification offers, got the best grades.
  • Many private student lenders, including all 10 of the lenders we compared, offer a 0.25% interest rate discount if you enroll in autopay. A few lenders earned extra points for also extending a 0.25% interest rate discount to borrowers with a related bank account.
  • Most of the private student loans we compared offered several repayment terms with a maximum of 15 or 20 years. Lenders that feature fewer loan-term options didn’t score as well because they offer less flexibility to borrowers.
  • Most undergraduate students qualify for private loans thanks to a creditworthy cosigner, who can also help reduce the interest rate. Some private student loan lenders let you apply to release your cosigner after you make a given number of consecutive, on-time full principal and interest payments and pass a credit check. Setting the bar for a top score of only 12 payments was the shortest option available among the lenders we compared.
  • You may be able to choose from different repayment plans, such as making interest-only payments while you’re in school or fully deferring payments until your post-school grace period ends. Lenders that offer full interest and principal deferment received top marks.
  • A few lenders earned extra credit because they offer unique perks, such as a principal rate reduction or cash back when you graduate.

After assigning each lender a grade, we ranked them and selected the top five for our “Best Private Student Loan Companies” list.

Our top picks for private student loan companies

 

Sallie Mae

CommonBond

College Ave

Citizens Bank

Wells Fargo

Ranking12345
Variable APR4.62% to 11.47%3.95% to 9.81%4.20% to 11.44%4.47% to 12.34%5.25% to 10.24%
Fixed APR5.74% to 11.85%5.29% to 9.83%5.29% to 12.78%5.74% to 12.19%5.24% to 9.99%
Rate discount0.25% for autopay0.25% for autopay0.25% for autopay0.25% for autopay, 0.25% for having a Citizens Bank account 0.25% for autopay, 0.25 to 0.50% for having a Wells Fargo banking or investment account
Origination feeNo Origination FeesYesNo Origination FeesNo Origination FeesNo Origination Fees
Repayment terms5 to 15 years5, 10 or 15 years5, 8, 10 or 15 years5, 10 or 15 years15 years
Cosigner releaseAfter 12 months of timely paymentsAfter 24 months of timely paymentsAfter half your term has elapsed and after 24 months of timely paymentsAfter 36 months of timely paymentsAfter 24 months of timely payments
PerkReceive study support, plus credit score trackingPause your repayment for up to 12 months after leaving school via economic hardship forbearanceReceive $150 bonus upon graduationReceive approval for multiple years of loans at onceN/A

Learn More Secured

on Sallie Mae Bank’s secure website

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on CommonBond’s secure website

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on College AVE’s secure website

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on Citizens Bank (RI)’s secure website

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on Wells Fargo Bank’s secure website

*Rates are current as of Jan. 24, 2019, and may include a 0.25% autopay discount.

#1 Sallie MaeSmart Option Student Loan

Sallie Mae offers a wide range of student loans to undergraduate, graduate and professional students, as well as their parents. That may not come as a surprise though, since Sallie Mae is one of the most widely known private student loan companies. It opened its doors in 1972 as a government-sponsored company before privatizing in 2004.

  • Why it’s our top pick:
    • The undergraduate Smart Option Student Loan has a few standout benefits, such as the option to release a cosigner after making 12 consecutive monthly payments.
    • You can also choose from three in-school repayment plans: full deferment, $25 monthly payments or interest-only payments. And if you’re having trouble making payments after graduation, you can also request to make 12 interest-only payments.
    • Borrowers also get non-loan-related perks, such as quarterly access to one of their FICO credit scores, plus four months of academic support from Chegg.
  • Room for improvement:
    • Overall, Sallie Mae serves borrowers a variety of choices and benefits. However, it doesn’t offer as many potential discounts as some of the other top lenders. Still, if you find you qualify for a lower pre-discount rate with Sallie Mae than another lender, Sallie Mae could indeed be a smart option.
  • Fine print to watch out for:
    • Sallie Mae says it offers repayment terms between 5 and 15 years, but your repayment term depends on a variety of factors, including your loan amount. Unlike with other lenders, you can’t independently choose your repayment term.

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on Sallie Mae Bank’s secure website

#2 CommonBond

Founded in 2012, the student loan refinancing and lending firm CommonBond is perhaps the most giving among competitors. For every loan it funds, it pays for the education of a child abroad. That could among a number of factors that push CommonBond over the top when you’re considering where to borrow for college.

  • Why we like it:
    • Aside from its do-good ways, CommonBond also saves money for its borrowers. It offers for the most part, the lowest rates of any lender under consideration, plus the benefits found at most online-only lenders: a straightforward loan application, flexible repayment terms and responsive customer service.
    • Although it’s not the only lender to offer you the ability to pause your payments once you leave school, it’s also worth noting that CommonBond gives its members up to 12 months of forbearance. That could come in handy if you lose your job or fall on hard times once you’re out in the real world.
  • Room for improvement:
    • CommonBond offers low rates, but it also charges a 2% origination fee. Aside from matching Sallie Mae’s 12-month path to cosigner release, eliminating the fee is CommonBond’s biggest bugaboo. If you decide the lender is right for you, ensure you calculate the added cost of this 2% fee, which is a one-time charge based on your loan amount.
  • Fine print to watch out for:
    • Unlike federal student loan options for deferment and forbearance, CommonBond (like other private lenders) isn’t mandated to grant you a pause on your repayment. You would need to prove that your circumstances are dire enough to be considered.

LEARN MORE Secured

on CommonBond’s secure website

#3 College Ave

Founded by former Sallie Mae executives, College Ave is another online-only lender looking to disrupt the student loan industry. It lends to undergraduates, graduate students and parents, plus students attending career schools.

  • Why we like it:
    • College Ave is the only lender among the 10 we surveyed that offers four repayment term options (5, 8, 10 and 15 years). Interestingly, the company says 79% of its borrowers choose plans of 10 years or less, keeping additional interest from accruing during the life of repayment.
  • Room for improvement:
    • We penalized College Ave in our rankings for its slow path to cosigner release. If you agree to borrow on a 10-year term with the lender, you won’t be eligible to apply to remove your cosigner until after the five-year mark. All the other lenders we reviewed offer release within 12 to 48 months.
  • Fine print to watch out for:
    • College Ave contends it takes just three minutes to apply for a loan, but that merely determines whether or not you (and/or your cosigner) are eligible. After prequalifying, you could proceed to the more detailed application process.

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on College AVE’s secure website

#4 Citizens Bank

Citizens Bank is a large traditional bank with over 1,100 branches across 11 states. It offers student loans to undergraduates, graduate students and parents, as well as student loan refinancing.

  • Why we like it:
    • You might need to apply for a student loan at the start of each term. With Citizen Bank’s multi-year approval, however, you could choose to borrow additional money for another term without having to fill out a new application.
    • Also, if you or your cosigner have a qualifying bank account or loan from Citizens Bank, you could be eligible for a permanent 0.25% interest rate reduction on your student loan.
  • Room for improvement:
    • The primary drawback is the 36-payment requirement to apply to release a cosigner. Aside from that, Citizens Bank offers competitive rates, a variety of loan terms and interest-rate discounts that are in line or possibly better than many of the other private student loan companies.
  • Fine print to watch out for:
    • To qualify for cosigner release, you must also submit income statements to prove you can handle repayment on your own.

LEARN MORE Secured

on Citizens Bank (RI)’s secure website

#5 Wells Fargo

You’ll likely recognize Wells Fargo, as it’s one of the largest banks in the U.S., but you may not have realized that it offers student loans. It has several different programs, with offerings for community college students, undergraduates, graduates and professional school students.

  • Why we like it:
    • Like many other lenders, Wells Fargo offers a 0.25% interest rate discount if you enroll in autopay. Also, you can get a permanent 0.25% to 0.50% interest rate reduction if you or your cosigner have an eligible Wells Fargo student loan, consumer checking account or Portfolio by Wells Fargo relationship.
  • Room for improvement:
    • Put simply: You’re put in a box. You have to choose a 15-year term for your student loan. If you stick to making your required payment amount, you could wind up paying more in interest than if you took out a shorter loan elsewhere.
  • Fine print to watch out for:
    • Be sure that you make your first full payment on time. If it’s late, you’ll need to make 48 consecutive full payments (rather than 24) before you can apply to release a cosigner.

LEARN MORE Secured

on Wells Fargo Bank’s secure website

Determine if a private student loan is right for you

Using our rankings, you might be able to identify the private lender that offers you the best overall loan. However, it’s worth taking a step back to consider all your options before committing.

To do this objectively, come up with the list of criteria that matter most to you. They could vary from the eight criteria that we employed above — your list might emphasize a lender’s customer service, for instance.

When you’re comparing lenders with your criteria in mind, be prepared to weigh them as you see fit. You might not have a cosigner and therefore don’t care if a lender offers a fast path to cosigner release. In that case, you might look past top-ranked Sallie Mae — and its industry-best 12-month policy — to prioritize a lender that offers the lowest rates to independent borrowers.

Finally, confirm that you’re eligible to borrow from most private student loans banks, credit unions and online companies. You might find yourself disqualified, for example, if you’re an international student without a U.S. permanent resident cosigner. Lenders also generally require undergraduates to be 18, to attend school at least half-time and to have solid to strong credit — or to apply a cosigner who does.

Alternatives to private student loans

Almost always, federal student loans should be a borrower’s first choice if he or she has to borrow money. In part, this is because federal loans give you access to forgiveness programs, special repayment plans and guaranteed options to defer payments or put your loans in forbearance.

Also, if you haven’t built credit of your own and don’t have a creditworthy cosigner, federal student loans could be your only option. Most don’t have a credit requirement, and the federal loans for graduate or professional students and parents that do have a credit check don’t vary their interest rate based on your credit.

By contrast, even with a creditworthy cosigner, you may wind up with a higher interest rate if you take out a private student loan. Advertised interest rates can climb into the double digits, while 2018-2019 undergrads could access federal direct subsidized and unsubsidized student loans at 5.05%.

However, there may be times when a private student loan makes sense or could be a necessity. For example, undergraduate federal student loans have annual ($5,500 to $12,500) and aggregate (up to $57,500) borrowing limits that may not be enough to cover all your educational expenses.

Even if your unsure about whether you’re going to take out federal or private loans, complete the Free Application for Federal Student Aid (FAFSA) annually. In addition to being a requirement for federal loans and work-study aid, you may need to submit the FAFSA to qualify for some grants and scholarships.

Secure as much gift aid as you can before resorting to loans of any kind. After all, grants and scholarships don’t need to be repaid.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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