Tackling Student Loan Debt

Whether you graduated years ago or just celebrated your graduation last week, your student loans may feel like they are looming over your future. Student loan debt can be a tricky subject, especially in recent years. If you have student loans, it’s essential to understand whether or not you are tackling your student loan liability most effectively. The good news is, Your Money Line can help you navigate this topic, and questions like:

• What repayment plan is the most effective?

• How do you balance your own liability against saving for your children’s education?

• What is this new repayment plan all about?

If you have student loans, particularly in the federal landscape, your primary goal should be to repay them 10 years after graduation. There are two ways to achieve this goal.

1. Qualify for Public Service Loan Forgiveness (PSLF)
   If you work for a government organization or a 501(c)3 nonprofit organization, you might be eligible for student loan forgiveness. In order to qualify, you must work full-time for your qualifying employer and repay your loans on an income-driven repayment plan for 10 years. If you would like to learn more about this opportunity or whether you qualify, please reach out to a financial guide with Your Money Line. If qualifying payments are made consecutively, you will be student loan-free after 10 years.
   
2. After graduation, enroll in the 10-Year Standard Repayment Plan
   The “default” student loan repayment program will naturally ensure your student loans are repaid in 10 years.

Ensuring you are student debt-free in a timely manner can help you reach your other financial goals. One of the most difficult goals to achieve while in loan repayment is saving for the education of a future generation. Carrying this liability into a second decade reduces the amount of time available to save for your child’s college. Unfortunately, this often leads to an improper balance between saving for retirement and saving for college. If you are reviewing this blog and thinking to yourself, “But my payment is not affordable on the 10-year timeline…” there are other options.

For borrowers with low(er) incomes or high student loan balances, it can be nearly impossible to repay this obligation in a 10-year timeframe. There are options for repayment that are based on your income; however, there are pros and cons to pursuing these repayment options if you’re not working toward PSLF. While there are several options, for the purposes of this article, we will focus on one of these options in this space. If you would like to learn more, you can always reach out to a Your Money Line Financial Guide to look at other options.

Income-Based Repayment

Pros:

• It can reduce the percentage of income required to be pledged toward your student loans.

• Your monthly payment will be based on your income and your household size.

• Allows income to be freed to pay other high-interest liabilities, such as credit card debt or personal loans.

• If your loan is not repaid in 20 or 25 years (depending on when you first took out your loans), the remainder of your loan will be forgiven.

Cons:

• A lower monthly payment will result in higher total costs over the life of the loan.

• If you experience an income increase, your monthly payment will also increase. This can be problematic for borrowers with high amounts of outstanding debt other than their student loans.

• You may have to pay income tax on any amount that is forgiven (if you are not under PSLF).

The repayment plan decision might seem trivial, as your choice can be made in a matter of minutes via your student loan servicer. However, it is essential to understand the weight of this decision on your short-term, intermediate-term, and long-term financial health. This is particularly important now, coming out of a period of extended forbearance due to the COVID-19 pandemic. If you have questions about your student loan repayment journey, a member of the Financial Guide team with Your Money Line is prepared to help. You can schedule an appointment to speak with a member of the team 9:00 - 9:00 ET, Monday through Friday.