How to do what you love and pay back student loans
Paying off student loans may seem to be a daunting task, but it doesn't have to prevent you from accomplishing your goals after college. Here's what you need to know about student loan forgiveness.
You don’t have to make a deal with the devil and take a high-paying job you hate to pay off your student loans. There are federal and state programs specifically designed to help you afford your loan payments as a do-gooder, traveler, volunteer or starving artist. Some will even get you off the hook for part of your loan balance.
Depending on the option you qualify for, you could get your loans forgiven after a period of time, get money to pay your bill or lower the amount you owe every month. All of these programs are free to sign up for, but they take some work to find. We’ll help you with the second part. Check out the basics below.
Student loan forgiveness: Pay back just a portion of your loans
Working in the public interest can pay off in the form of loan forgiveness through these three programs. Your eligibility depends on your job and the type of loans you took out.
Public Service Loan Forgiveness
If you work at a nonprofit or for the government, Public Service Loan Forgiveness should be on your radar. It’s the granddaddy of student loan forgiveness programs because it’s one of the most generous and most widely available. The program went into effect in 2007, which means the first eligible borrowers will receive forgiveness in October 2017.
“It was created to encourage people to do what they want to do, to get into these public service industries and still not be completely burdened with debt,” says Kristin Bastian, financial education manager at Origin SC, a financial counseling nonprofit in Charleston, South Carolina.
You must make 120 on-time loan payments while you work at least 30 hours a week for a qualifying employer, and you can work one full-time job or a few part-time jobs at once. At the end of that period, the government will forgive your remaining federal student loan balance. A big plus is that you won’t pay taxes on the amount you’re forgiven.
Perkins loan cancellation
If you work in certain public service jobs and have Perkins loans, which are for undergrad or graduate students with particularly high financial need, you can get up to 100% of those loans forgiven under a separate program. Perkins loan cancellation generally happens in increments over five years, but you can postpone payments while you’re working if you expect forgiveness. That means no payments, then full forgiveness once you meet the requirements. Score.
Teacher loan forgiveness
Teachers have a few additional forgiveness options. Teacher loan forgiveness is available for federal direct and Stafford loan borrowers who teach in certain schools for five years. If you expect to teach for 15 years or more, you can take advantage of the one-two punch of teacher loan forgiveness and the Public Service Loan Forgiveness program. Several states have their own programs, too. Search for them in the American Federation of Teachers’ funding database by choosing “Loan Forgiveness” in the “Funding Type” drop-down menu. This resource also lists state teacher loan-repayment assistance programs, which we’ll tackle next.
Learn more about each of these programs and how to apply for student loan forgiveness.
Loan repayment assistance: Get money to put toward your loan bill
Some employers, states and universities run loan-repayment assistance programs, which give borrowers money to offset their student loan payments. State and federal programs may require you to work in an area or specialize in a subject in which there’s a critical shortage of workers. Loan repayment assistance can often be applied to private student loans, which can’t be forgiven under the federal programs listed above.
Equal Justice Works has a comprehensive list of loan repayment assistance programs for lawyers. Doctors, dentists and mental health providers can receive up to $50,000 in assistance from the National Health Service Corps if they work for two years in an underserved area. Some states offer similar programs for health professionals. Contact your state for more information.
Income-driven repayment: Pay less each month
You can ease your student loan burden no matter where you work thanks to income-driven repayment plans for federal student loans. These plans cap your bill at 10% to 20% of your income, and the newest plan, Revised Pay As You Earn, is available to all federal loan borrowers regardless of income. If your loan balance is large enough and there’s still some left to repay after 20 or 25 years, it’ll be forgiven.
Current tax law states you’ll pay income taxes on that amount. If you qualify, the big money-saving move is to repay your loans on an income-driven plan while you’re working toward Public Service Loan Forgiveness. You’ll have a lower payment now, forgiveness later and no tax bill to worry about.
Because private student loans don’t offer forgiveness, you can take your savings from income-driven repayment and put the money toward your private loan bill, if you have one. You can also refinance your private loans to cut down on the amount of interest you pay if you meet the requirements.
It’s possible to take that world-saving but low-paying job of your dreams when you have student loans. The key is to take advantage of the opportunities that are available, even if that means spending a few hours filling out tedious paperwork. Your happiness — at work and in life — is worth it.
This article was written by NerdWallet and was originally published by Forbes.
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