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With the Fate of Public Service Loan Forgiveness Uncertain, Here are Tips for Confused Borrowers

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More than half a million Americans are working toward Public Service Loan Forgiveness (PSLF), a program that eliminates federal student loan debt for people with jobs in the public sector. But the proposed 2018 White House budget reportedly calls for ending PSLF for future borrowers — and even current participants’ status could be in doubt, with a lawsuit claiming the government has reversed previous assurances given to certain borrowers that their employment qualifies.

Final decisions have not yet been made in either scenario. But even with this uncertainty, there are steps both current borrowers and interested potential future PSLF participants can take to make themselves as secure as possible.

First, a quick primer on PSLF: The program began in October 2007 under George W. Bush, and it wipes clean the remaining federal student debt for qualifying borrowers who have made 120 payments, or 10 years’ worth (more information is available at StudentAid.gov/publicservice). So the earliest any public service worker could receive loan forgiveness under PSLF is October 2017.

“The idea is to avoid making debt a disincentive to choosing public service,” explains Mark Kantrowitz, a student loan expert and publisher at college scholarship site Cappex.com. “Think about a public defender. They might make $40,000 a year, but they’ll incur $120,000 in debt for law school. That debt-to-income ratio is impossible, so PSLF makes that career path possible — and attracts people who might have otherwise taken high-paying private-sector jobs.”

Public Service Loan Forgiveness — on the chopping block?

At this time, the biggest threat to the future of PSLF is President Donald Trump’s 2018 White House education budget proposal. The budget proposal would eliminate PSLF — citing costs — and replace all current income-based repayment/forgiveness plans with a single income-driven system. While existing borrowers would be grandfathered into PSLF, any new students who take out their first federal loans on or after July 1, 2018, would not qualify. Still, all of this can happen only if Congress passes the budget — and it remains to be seen whether this section will pass as currently written in the proposal.

If you’re one of the more than 550,000 borrowers who is already working toward forgiveness — that is, you have already taken out at least one federal loan and/or you’ve completed school and are working in public service — the proposed cancellation of PSLF won’t affect you. Again, if the program is cut, it will impact only students who take out their first federal loans on or after July 1, 2018.

But even existing borrowers working toward PSLF can’t fully relax. As first reported by The New York Times, the Department of Education added a serious wrinkle by sending letters to people saying their employment was no longer eligible for PSLF, after the borrowers had confirmed with their loan servicer that they qualified. Four borrowers and the American Bar Association have filed a lawsuit against the department, and the case is currently in progress.

That may leave many workers questioning whether or not they will ultimately be eligible for loan forgiveness after all — even if they work in the nonprofit or public sector. MagnifyMoney has spoken to experts and reviewed the rules of the program to help.

How Can I Be Sure I Qualify for Public Service Loan Forgiveness?

Qualifying for PSLF depends on meeting several specific requirements, so the first step in determining your eligibility is to make sure your loans and employment check all the boxes.

1. Your student loan must qualify for forgiveness.

PSLF provides forgiveness only for federal Direct Loans:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans—for parents and graduate or professional students
  • Direct Consolidation Loans

Note that loans made under other federal student loan programs may become eligible for PSLF if they’re consolidated into a Direct Consolidation Loan, but only payments toward that consolidated loan will count toward the 120-payment requirement. And, according to ED, parents who borrowed a Direct PLUS Loan “may qualify for forgiveness of the PLUS loan, if the parent borrower—not the student on whose behalf the loan was obtained—is employed by a public service organization.”

2. You must be enrolled in the right type of repayment plan.

You must be enrolled in one of the Direct Loan repayment plans, some of which are income-based. The umbrella term for these plans is income-driven repayment plans, which include the Pay As You Earn and Income-Based Repayment plans. While payments under other types of Direct Loan plans, like the 10-year Standard Repayment Plan, do qualify and count toward your 120 payments, you’ll want to switch to an income-driven plan as soon as possible — because if you stick with a standard 10-year repayment, you’ll have paid off your loan in full after 10 years with nothing left to be forgiven under PSLF. Check the official PSLF site for more details. And note that private loans, including bank loans that are “federally guaranteed,” do not qualify.

3. You must make 120 on-time payments while employed full time by an eligible employer.

If you drop to part-time work, those payments won’t qualify. You must also be employed full time in public service at the time you apply for loan forgiveness and at the time the remaining balance on your eligible loans is forgiven. After you make your 120th payment you’ll need to submit the forgiveness application, which the Department of Education says will be available in September 2017.

4. Your employer must count as a public service organization.

This is the big one, and the most complicated step of the process for some borrowers to figure out. While the Education Department does address types of employers that fit under the PSLF program, there are some gray areas. Broadly, the types of employers that qualify include governmental groups, not-for-profit tax-exempt organizations known as 501(c)(3)s, and private not-for-profits. That last category includes military; public safety, health, education, and library services; and more.

Pro tip: Certify that your employer is included in the program every year.

Each year and whenever you change employers, you should fill out and send an Employment Certification form to FedLoan Servicing. The form isn’t required to be submitted on an annual basis, but it’s highly recommended to fill it out annually so there are no unhappy surprises down the road. It also helps you keep track of progress toward your 120 payments and gives you a chance to find out whether there is any change to your eligibility status.

What if you fear your job’s eligibility is unclear?

The validity of that FedLoan Servicing certification form is at the center of the lawsuit against the Department of Education. Although it’s important to have your employer’s eligibility certified by the department, the Education Department has said the form isn’t necessarily binding and the eligibility of employers can possibly change. As The New York Times put it, the department’s position implies “that borrowers could not rely on the program’s administrator to say accurately whether they qualify for debt forgiveness. The thousands of approval letters that have been sent … are not binding and can be rescinded at any time, the [DOE] said.”

That puts existing borrowers in a tough spot, says Joseph Orsolini, CFP and president of College Aid Planners: “[PSLF] is sort of an all-or-nothing in that you can’t apply for the forgiveness until you’ve already done your 120 payments. So to have someone choose this career path and work for years only to be told, ‘never mind, you no longer qualify even though we said you did,’ it would be hard for them not to see that as reneging on a deal.”

That possibility is “terrifying” for Frances Harrell, 35, a preservation specialist who works for a nonprofit that supports small and medium-size libraries in caring for their collections. She completed a library graduate school program in 2013 and emerged with a total of about $125,000 in debt, including her undergraduate loans.

“Everyone I know is in public service, and we all saw the Times article [about the PSLF lawsuit] and flipped out,” says Harrell, who currently lives in Gainesville, Fla. “I felt like I had been dropped in a bucket of ice. We’re making life decisions based on this understanding, and it feels so precarious not to have any true confirmation that we’ll get the forgiveness in the end.”

Christopher Razo, 22, who this month will begin classes at Chicago’s John Marshall Law School, plans to take advantage of PSLF while working toward his dream of becoming a state attorney. (Photo courtesy of Christopher Razo)

Harrell has also dealt with confusion from loan servicers and other experts — and based on incorrect advice, she nearly consolidated her loans in a way that would have reset the clock on her years of payments.

Christopher Razo, 22, who this month will begin classes at Chicago’s John Marshall Law School, is relieved that he is enrolling before the 2018 uncertainty begins. Razo is one of Orsolini’s clients, and he plans to take advantage of PSLF while working toward his dream of becoming a state attorney.

“[PSLF] is complex as it is, so my initial thought was, ‘Wow, great timing for me that I’m starting in 2017,’” Razo says. “But I understand the program affects way more than just me. [PSLF] gives you comfort to pursue public-service goals without having to make your employment about the money. I’m optimistic that [lawmakers] will see the good in the program so it can continue.”

When in doubt: Follow the ‘3 phone call rule’

While borrowers may think their loan servicer has all of the answers, Harrell’s situation isn’t uncommon, says Orsolini. He recommends “the three phone call rule”: Call three times and ask the same question, documenting whom you spoke to and when.

“These programs are complicated — which is one of the issues that critics [of PSLF] bring up — and you don’t always get the right information,” Orsolini says. “Before you plan your whole life around the [first] answer you get, you have to double- and triple-check that it’s right.”

If you’re taking out your first qualifying loan on or after July 1, 2018, Orsolini says “there’s not much to do besides hurry up and wait” to see what happens with the White House budget as it relates to PSLF.

“The important thing to remember is that a proposal is just a proposal, and these don’t always see the light of day,” Orsolini adds. “It doesn’t do any good to be overly worried, but you’ll want to keep a close eye on the news.”

Other types of loan forgiveness, cancellation, or discharge:

PSLF isn’t the only option. But not all types of federal student loans offer the same forgiveness, cancellation, or discharge options. See the chart below and check out StudentEd.gov pages here and here for more details.

Still, borrowers should know Trump’s desire to streamline federal programs into a single option means some of these loan types and forgiveness plans could be changed or canceled as well.

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.

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Julianne Pepitone is a writer at MagnifyMoney. You can email Julianne here

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Study: More Men Received Pay Raises, Promotions Than Women Last Year

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The 2018 household income growth numbers released by the United States Census Bureau revealed that the median earnings of all workers grew over 3% last year. Sounds like a win, right? But the research also revealed that the 2018 median earnings of men was $55,291. Women, on the other hand, only made a median of $45,097.

MagnifyMoney by LendingTree wanted to investigate this pay disparity further. They conducted a survey of Americans who work at least 30 hours a week about their pay raises, promotions and career moves.

Key findings:

  • 59% of working Americans received a pay raise within the last year. Of those who got a bump in salary, about half said the raise came with a promotion, too. Additionally, 36% said the boost in pay resulted from a new job.

  • More men received pay increases and promotions than women: 64% of men reported a raise, compared to just 52% of women. To make matters worse, 54% of men said their raise came with a promotion, versus 37% of women.
  • Millennials reported more raises than older generations: 64% of millennials received a raise, compared to 61% of Gen Xers and 47% of baby boomers. Millennials were also more likely than other age groups to say their raise came with a promotion.
  • Approximatly 62% of those whose earnings increased also raised their retirement savings contributions. Men were more likely than women to increase their savings level.
  • Around 47% of working Americans think they’ll receive a raise next year.
  • Women are more likely than men to say they probably won’t get a raise next year: 21% of women doubt their pay will increase within the next 12 months, compared to just 8% of men. The more respondents made, the more likely they were to think they would receive a pay raise next year.

Gender pay gaps

You know the old saying: Men are from Mars, women are from Venus. We know it’s not true, so why are women and men being paid like they live on different planets? In the past year, 12% more men reported receiving pay increases and promotions than women. Even more disappointing news: 17% more men than women picked up a promotion with their raise.

These figures strongly suggest that women had fewer opportunities for financial and career growth than men in the last year. These occurrences have a ripple effect. Men were 21% more likely than women to increase their retirement savings after they got a pay raise. It makes you wonder whether men are receiving larger pay raises than their female counterparts, considering women have been found to save a higher percentage of their money than men.

This difference in retirement saving contributes to a worrying trend. A 2018 study by Prudential found that on average, women save 43% less for retirement than men. And almost half of the women surveyed admitted to having no retirement savings at all.

Generational pay gaps

Gender may not be the only divide in the workplace. Millennials get a lot of flak, but they’re moving up in the workplace. Millennials reported earning more raises last year than Gen Xers and baby boomers.

While Millennials are more likely to be in the growth stage of their career, it’s also worth noting that in 2016, Millennials became the largest generation in the workforce. Millennials were also the most likely of any generation to report that their raise came with a promotion. Not bad for the generation everyone likes to laugh at for being “lazy.” To top it off, they were also the generation most likely to increase their retirement savings after receiving a raise.

How Outlook Varies

It’s fair to assume that the life and work experiences of each individual surveyed mold their view of the world around them. Because the women surveyed reported receiving fewer raises than men, it’s clear why they would be more pessimistic about their odds of receiving future raises.

While 47% of working Americans believe they’ll receive a raise next year, more of those Americans are men than women. Twenty-one percent of women doubt their pay will increase within the next 12 months, whereas only 8% of men feel that way.

Confidence seems to come easier to those with higher incomes. The more the survey respondents made in wages, the more likely they were to think they would be getting a pay raise in the next year. In their defense, the group with the highest income did in fact receive the most pay raises in the past year.

Tips on asking for a raise

When it comes time to ask for a raise, prepare yourself by following these steps. Coming to your boss with evidence regarding why you deserve a raise and how you will increase your contributions to the company will help you work toward your professional and financial goals.

State the facts

Even though you think your boss has a pretty good idea of your accomplishments, they don’t know them as well as you do. A successful request for a raise can take lots of prep work. Keeping track of your accomplishments, tasks and the changes in your role throughout the year will help you remember the triumphs you’re likely to forget a few months later.

Did a thrilled client sing your praises in an email? Flag it. Did the CEO comment on how impressed he was with your presentation? Write down his feedback. If you helped make your team more productive by introducing a new software, saved your department money or increased sales, keep notes of those occurrences somewhere you can easily reference them.

When the time comes to ask for a raise, you’ll have plenty of solid evidence at your fingertips as to why you deserve it. And remember, the more cold hard proof you have of your success (like web analytics or sales growth), the better.

Be strategic

Your boss shouldn’t feel blindsided when you ask for a raise. It’s important to give them notice that you want to speak to them about something important. Ask to schedule a meeting with your manager. Generally, they won’t be able to give you a firm yes or no during this meeting — that’s okay, they also have a boss to report to.

Make sure you set a meeting to follow up on your conversation. This holds your manager responsible for following through and tempers your expectations so you aren’t on pins and needles until you get an answer.

Don’t take no as a final answer

You won’t walk away from every request for a raise successfully, that’s just a fact of life. But it’s important to remember that getting a no now doesn’t mean no forever.

Ask your manager to elaborate on why they said no and how you can work towards a goal of a raise. Maybe there is an area of your performance you really do need to improve upon. Or perhaps your company doesn’t have the money for a raise in their budget. Agree on a time to circle back to this conversation later in the year, and in the meantime, take your manager’s feedback to heart. If they don’t give you a clear path for working toward a raise, it may be time to move on.

Methodology

MagnifyMoney by LendingTree commissioned Qualtrics to conduct an online survey of 543 Americans who work at least 30 hours per week. The survey was fielded September 5-9, 2019.

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.

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Jacqueline DeMarco is a writer at MagnifyMoney. You can email Jacqueline here

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How Much Does the Average American Have in Savings?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

  • The average American household has $183,200 worth of savings in bank accounts and retirement savings accounts as of June 2019.
  • The median American household currently holds about $12,330 across these same types of accounts.
  • The top 1% of households (as measured by income) have an average of $2,630,760 in these various saving accounts. The bottom 20% have an average of $9,190.
  • Roughly 83% of savings are in located in retirement accounts like IRAs and workplace-sponsored retirement savings plans like 401(k)s.
  • Millennials, who have just started their savings journey, have currently socked away an average of $24,570 retirement savings. Gen Xers have $127,550 in retirement savings. Baby boomers and those born before 1946 have an average of $279,250.
  • 29% of households have less than $1,000 in savings.
  • 30% of Americans deplete their savings an average of $14,230 every year.

You often read or hear stories about how Americans aren’t saving enough for college, for retirement, for a rainy day — for anything, really. But how much do they currently have in their bank, credit union or online brokerage?

MagnifyMoney used data from the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) to estimate the average and median household balances in various types of banking and retirement savings accounts. 2016 household data from the Fed’s Survey of Consumer Finances was adjusted to 2019 levels by using March 2019 market values and fund flows.

Of course, these are very broad numbers, and very few of the 127 million U.S. households will be average. As of 2016, about 78% of households had at least one of the following: a savings account, a retirement savings account, a money market deposit account or certificates of deposit.

Average account balances

As of June 2019, among all households (including those with no account):

  • The average American household savings account balance is $17,750
  • The average American household has $6,220 in certificates of deposits (CDs)
  • The average American household has $9,430 in money market deposit accounts
  • The average American household has $9,820 in checking accounts
  • The average American household has $149,790 in one or more retirement savings accounts, including individual retirement accounts (IRAs), 401(k)s and other types of retirement accounts

Note that all households won’t necessarily own each type of savings account. For example, only about 7% of households currently have savings in some type of CD, meaning that the 93% without one will necessarily drive down the average.

Here are the average balances among savers, regardless of the kinds of savings vehicles they use. The averages below only exclude the 22% of households without any of these savings accounts. Households that have some savings vehicles but not necessarily all of the savings vehicles below were factored into each average.

Across all “saver” households:

  • The average savings account balance is $24,290
  • The average money market deposit account balance is $12,210
  • The average amount held in one or more CDs is $8,520
  • The average balance of all retirement accounts is $205,020
  • The average checking account balance is $11,970

 

When you look at the average balances of those who own the particular account, the averages are even higher:

  • 51% of American households have a savings account, and the average balance among them is $34,730
  • 18% have money market deposit accounts, and the average balance is $74,970
  • 7% have one or more CDs with an average toal value of $95,600
  • 52% have one or more retirement accounts, and the total average balance is $287,736
  • 83% have checking accounts and the average balance is $11,970

 

Median account balances

Median balances are considerably lower than the averages. For example, the median savings account balance (among those with savings accounts) is $4,960, significantly lower than the $34,730 average American savings account balance. Fifty percent of households have more than $4,960 in those types of accounts, while 50% have less. (The median figures below only include households that have that type of account.)

  • The median American household savings account balance is $4,960
  • The median American household money market deposit account balance is $12,680
  • The median American household amount in one or more CDs is $25,280
  • The median retirement account size in American households is $75,480
  • The median American household checking account balance is $2,480

 

Demographics and savings

Who are the above-average saving households? Wealthier households comprise most of them, but less-well heeled households can have healthy levels of savings as well. When you look at households who have saved more than the national average of $183,200, 59 percent of them are top income earners– those households in the top 20 percent of annual income. But 41 percent of above average savers are in the bottom 80% by income.

    • Millennial households have saved an average of less than $25,000, Gen Xers have about $128,000 saved, while baby boomers have saved nearly $280,000.
    • Regardless of income or age, 29% of households have less than $1,000 saved.

When savings is viewed through certain demographic prisms, like age, income and education, the average and median savings account balances start making more sense. For instance, it won’t surprise anyone that households with higher incomes save more than those of more modest means.

 

So although the average American household has saved roughly $180,000 in various types of savings accounts, only the top 10%-20% of earners will likely have savings levels approaching or exceeding that amount. Indeed, and as the chart above shows, the bottom 40% of American households are more likely than not to have any savings whatsoever. Conversely, the top 10% of the population by income is likely to have many times the national household savings average.

Similarly, millennials will have saved less than boomers, as the latter has had a 35-year head start, among other factors. Currently, the average boomer has roughly 11 times the amount saved as the average millennial.

 

How much does the average American have in savings for retirement?

Of course, many American households store much of their savings in retirement accounts, like 401(k) plans from their employers and IRAs, both of which are tax-advantaged accounts that can hold not only “liquid” savings but also investments like financial securities and, in some cases, other types of assets like real estate. Fifty-two percent of households have some sort of retirement account, according to a 2016 survey by the Federal Reserve.

Among all households (including those with no account), the average retirement savings account balance as of June 2019 is $149,800.

But among households with an account (about 52% of all households):

  • American households with a retirement account (accounts like employer-sponsored 401(k) plans and IRAs) have an average of $287,740 in such accounts.
  • The median household balance as of June 2018 is $75,480 among those with retirement accounts.

For those households with retirement accounts, here’s how retirement savings break out among the different generations:

  • Millennials have saved an average of $34,570
  • Gen Xers have an average of $168,480 in retirement savings.
  • Baby boomers and those born before 1946 have an average of $386,110 in retirement accounts.

Nearly one-third of Americans deplete their savings by an average of $14,230 every year

According to data from the Federal Reserve Bank of New York, while nearly half of households grew their savings, 30% of households depleted their savings accounts at least once over the past five years. As might be expected, those with lower incomes (which may include working families as well as retirees) were more likely to draw down their savings an average of $14,230.

  • 49% of people with savings and investment accounts reported that they contributed to their balances over the course of the previous year, while 30% dipped into their savings, and 21% kept contributions and withdrawals even
  • Households with incomes of $25,000 averaged a net year-over-year withdrawal of $2,834. Net withdrawal for households between $25,001 and $50,000 was $792
  • 64% said they depleted their accounts to pay bills and 57% said they did to pay for general living expenses. (Respondents were allowed to choose more than cause.)
  • 15% said their voluntary decision to stop working was a cause, which suggests their savings were planned for that reason
  • 27% blamed reduced health and 16% said involuntary job loss was a factor
  • 24% of respondents said they didn’t have savings or investment accounts

Recent trends in deposit accounts

Here’s a closer look at how customers of banks and credit unions are allocating their deposits:

CDs are finally getting attention

The amount of savings in FDIC-insured banks have grown by nearly $4 trillion since the recession.

 

But until recently that deposit growth wasn’t going into CDs. Collectively there’s still less savings in CDs than ten years ago, while $2 trillion more have gone into savings accounts, and $2.2 trillion in Money Market Deposit Accounts (a type of savings account that typically allows checkwriting).

 

CD yields

As you may suspect, the primary culprit behind declining CD deposits are the accounts’ low yields. As illustrated in the chart below, the popularity of CDs has waned as banks paid relatively little interest for all CDs, even those with longer maturities. For much of the past decade, the average yield for locking up savings in 1-year CD barely exceeded the average yield on a money market account, which is more liquid than a CD.

 

Longer-term CDs haven’t been yielding much more, until recently. Although the Federal Reserve began its most recent series of short-term rate hikes in early 2017, CD yields only started to climb from rock bottom in spring 2018. And as you might expect, as the yields for CDs increased, the deposits from savers have followed. Over the past year CDs at commercial banks grew by 17%, to $1.86 trillion in June 2019.

 

Credit unions: A smaller pool with slightly better yields

While savings have also increased in the much smaller credit union universe, CD deposits have remained steady.

 

While there are multiple explanations for the steady share of CDs at credit unions, such as the institutions’ not-for-profit status (members are the shareholders), one obvious reason is the competitive rates they offer customers relative to banks. According to the National Credit Union Administration (NCUA) quarterly survey, credit unions usually offer consistently higher rates on savings than commercial banks.

 

Fortunately, savers (or would-be savers) are not consigned to improving-but-still-meager average savings yields. The best yields for savings accounts,CDs and money market accounts well exceed the average APY by at least one percentage point and often more.

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.

Chris Horymski
Chris Horymski |

Chris Horymski is a writer at MagnifyMoney. You can email Chris at [email protected]