All across the country, graduates are taking advantage of various loan repayment programs to help lower their monthly payments and improve their lives. If you plan to work for a nonprofit or in the public sector, it’s smart to explore all of the loan repayment options in front of you – including loan forgiveness.
When Michelle Argento graduated college with $25,000 in student loans, she knew the path forward wouldn’t be easy. As a music education major with little earning potential, she was right to worry about her new $290 monthly payment.
Fortunately, Argento started learning about the federal income-driven repayment programs available right away. And once she qualified for Income-Based Repayment (IBR), she watched her new payment shrink to just $27 per month.
While Argento’s situation has changed over the years, she still benefits on a sliding scale. A marriage and a toddler later, she and her husband pay $350 per month towards their $40,000 in combined student loans. If the couple were on the Standard Repayment Plan, she would owe more like $690 per month, she said.
Instead, the $340 per month they save has meant less stress and more opportunity.
“Having been on IBR for now six years, I have never, ever felt crushed or overwhelmed by my loans,” said Argento. “That flexibility also means being able to take risks in my career by moving to owning my own business, being able to splurge a bit on experiences such as traveling to Europe, and considering going back to school while continuing paying down debt.”
The icing on the cake, however, is that income-driven repayment plans like IBR will forgive any remaining after 20-25 years of payments (assuming there’s any debt left over). The only downside is that once the debt is forgiven, you’re on the hook for income taxes on that amount that same tax year.
Of course, IBR isn’t the only income-driven plan out there. Borrowers can also benefit from plans such as Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR). While each plan works in its own unique way, they all base your monthly payments on your discretionary income and eventually lead to student loan forgiveness.
By and large, income-driven repayment plans were created for graduates just like Argento – people with large amounts of debt and lower-than-average earnings. That’s why many people who work at nonprofits flock to income-driven repayment plans; instead of struggling to afford huge monthly payments, they can enjoy reasonable out-of-pocket expenses and continue working in jobs that let them give back.
Another Option: Public Service Loan Forgiveness (PSLF)
In addition to income-driven repayment, students interested in working for the public good can look into Public Service Loan Forgiveness (PSLF).
With PSLF, graduates can have their student loans forgiven after working in a qualified public service position and making 120 consecutive payments on their loans. Payments made after October 1, 2007 qualify and the first round of PSLF participants will receive forgiveness beginning this October.
Ginger, a psychotherapist who blogs at Girls Just Wanna Have Funds, uses PSLF to make her student loan payments bearable. Thanks to the reasonable loan payment she has achieved through PSLF, Ginger figures she’ll save 15 years of payments and at least $100,000 on interest if she sticks with it.
And she should. Unlike other income-driven plans that require you to pay taxes on forgiven debt, PSLF wipes your slate entirely clean. If Ginger is able to stay on her current program for 10 consecutive years, she’ll have zero debt – and no trace of a tax bill – once it’s over.
Although she’ll need to work in public service the entire time, this is a huge benefit for her and others like her to look forward to.
Picking a Repayment Plan
With the right plan, you can settle on a monthly payment you can actually afford and move on with your life. Here are some steps that can help:
Step 1: Explore loan forgiveness options. While we touched on the main loan forgiveness programs in this article, you should research more on each before you sign up. There are also many state- and school-based repayment and forgiveness programs. Check out this comprehensive guide on forgiveness programs to find the right fit.
Step 2: Consider your long-term career plans. While income-driven repayment and PSLF can drastically reduce your monthly payments now, that can change quickly if your income surges or your career changes course. Before you sign up, consider how your future decisions might affect your loan payments.
Step 3: Determine how comfortable you are with debt. While loan forgiveness programs can lower your monthly payment and lead to total debt forgiveness, they also leave you in debt for a longer stretch of time. If you don’t like the idea of debt, you might be better off making extra payments and paying off your loans early instead.
Step 4: Sign up for a plan and stick with it. If you decide you’re okay with debt as long as it’s eventually forgiven, you’re a good candidate for loan forgiveness plans. To get the most out of them, however, you should stay the course and see them to the end. Ten to 25 years might seem like a long time, but it will be worth it when you’re finally debt-free.
If you’re worried how you’ll handle your loans as a non-profit worker, it’s smart to explore all of these opportunities to see if one might fit your needs.
With the right repayment plan, you could score an affordable monthly payment and complete forgiveness in the end. If you’re in debt and struggling, that’s the best thing you can hope for.