City Year: Student Loan Questions

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1 City Year: Student Loan Questions Please note, a number of questions were repeated on the initial question submission, so we have consolidated like questions together. Loan Consolidation When is it inappropriate to consolidate loans? There are many pros and cons to consolidation of federal loans into a Direct Consolidation Loan. Here are a few to consider. First, your new consolidation loan will have an interest rate that is the weighted average interest rate of your loans, rounded to the nearest 1/8th percent. This could be a pro or a con depending on the mix of interest rates and loan amounts of your loans. You do not have to consolidate all of your loans. So, you can pick and choose which loans to consolidate and how they will impact your overall payments and terms. Pros You will have one payment and one servicer. Fixed interest rate for the life of the loan. If your consolidated loan balance is greater than $30,000 you may be able to extend your repayment out to 30 years. A trade-off of higher overall cost of the loan may be worth it to obtain a lower payment and longer repayment term. Consolidating can remove you immediately from student loan default when you agree to pay on an income-based plan Consolidating loans may make you eligible for repayment plans or loan forgiveness options your original loans were not eligible for. Cons You may lose some of your borrower benefits that were available on your original loan once you consolidate it into a Direct loan. If you consolidate, the new loan may not be eligible for some programs and repayment plans, depending on the types of loans that you consolidated together. If you consolidate you may impact the timeline of teacher loan forgiveness or public service loan forgiveness if you have already begun service that qualifies for forgiveness. Remember, a consolidation loan is a new loan. Past service as a teacher or in public service may not count towards repayment/forgiveness of the new loan. Private Loan Consolidation If you consolidate your federal Direct or FFEL loans into a private consolidation loan, you lose all of the borrower benefits and protections of the federal loan program as well as eligibility for forgiveness and cancellation programs. Read your loan documents carefully before consolidating federal loans with a private consolidation loan. Money Management International 2016 Page 1

2 If you have private student loans, you may find better interest rates or loan terms by consolidating with another lender. You can shop online for private student loan financing and consolidation. Private loans are governed by the Truth In Lending Act (TILA) so make sure you read all the fine print and know what loan benefits are included such as the interest rate, any modification options if you have trouble repaying, income-based repayment plans, borrower protections for loan discharge and cancellation due to death or disability, deferment or forbearance. Remember, a private lender is not under obligation to give you any of these borrower benefits, but some are starting to do so. Whatever terms are in your loan agreement are the ones you will have to live with. Read all loan documents before signing. Also, private loans have a creditworthiness component, and your terms and interest rate may be based on your credit score or that of your co-signer. A co-signer is legally obligated to repay the loan in the event that you cannot. If your loans were consolidated years ago, is there any way to un-consolidate them? Ideally, I would like to make min. payments on all but be able to put more toward the loan with the highest interest rate to get it paid off quicker. You cannot un-consolidate a consolidation loan. A consolidation loan is a new loan, and it pays off your old loans. Your consolidation loan has its own interest rate that is the weighted average of the loans that went into the consolidation. You can determine what that interest rate is by logging on to the NSDLS website and reviewing your loan information. Loan Repayment Do the Income based repayment plans end up costing you more money in the long run? While income based repayment plans are great for getting payments that work within a budget, the lower payment and longer repayment time does increase the overall total cost of the loan. To find out how much you would pay under each plan, and what your payment would be, you can review the student loan repayment estimator available on the studentloans.gov website. There are always tradeoffs, and sometimes the overall higher cost of the loan may be the best option to maintain an affordable payment. Also, loan forgiveness programs such as Public Service Loan Forgiveness may be used with an income plan to lower the overall cost of the loan. What should each monthly payment be considering that I want to pay off my loans wisely and considering how to write my taxes? The standard 10 year plan will cost the least overall. If you can afford it, it is your best option. You can consider an income-based plan if you cannot afford the standard plan. Considering the tax implications, there are a few tax credits that have filing limits of 1-2 years including the Hope Tax Credit. After that, you are able to deduct the interest paid on student loans using the 1040 or 1040A form. The amount you can deduct is based on your Adjusted Gross Income (AGI) and tax Money Management International 2016 Page 2

3 brackets so paying as quickly as possible and deducting the amount from your taxes sooner rather than later is generally your best option. Should I pay minimum payments or more than minimum payments for my student loan debt? How do I pay down a mortgage sized student loan on a budget? If you can afford to make payments on the standard 10 year plan or more, you will be paying the least for the total cost of the loan. Paying off principal early will reduce the length of time paying the loan and reduce the overall interest paid. If you cannot afford the standard 10 year plan, find a payment plan that does work with your budget, including income based plans, and try to pay down the principal when you can. Check the specific rules of your payment plan to see how additional payments would affect your loan balance and payment plan arrangements. When paying on your student loans, there is a trade-off: lower payments mean higher overall cost of the loan. You should weigh the benefits of either making additional payments to principal on your student loans to save money on interest payments or putting those funds toward another debt or savings account. Don t overlook the impact on your long term retirement savings. If you have a 401K at work, most employers match your deposits up to a certain percentage. This is a 100% return on your money. It s free money your employer is giving you in a tax advantaged account. We recommend taking advantage of this benefit. The advantage of investing early is called the time value of money. Using various investment and 401K calculators you can see the difference that delaying a few years can make in your long term retirement savings balance. If you don t have access to a 401K, you can still save in a tax advantaged IRA account. Our suggestion is to run simulations on 401k or other retirement savings calculators with various returns and monthly amounts saved, and also review the overall cost of your student loans through the student loan repayment estimator. You may find that while you save a few thousand dollars in student loan interest by paying aggressively, you forego much more in retirement savings by delaying your savings by 5-10 years. Of course, earnings on investment accounts are not guaranteed, and individual returns will vary based on the investments chosen. But, looking at historical market returns, make sure you understand the trade-off of delayed retirement savings. Are there options or resources to reduce your debt before you start repayment? Can you start paying back your loans while they are in deferment? Yes, you can make payments on loans while they are in deferment. You can make payments just on the interest or you can also pay on the principal. You can make regular payments or one time lump sum Money Management International 2016 Page 3

4 payments such as a gift or tax refund that comes your way. You will need to tell our servicer how you want the payments applied. This is a smart move if you have unsubsidized loans and are able to pay towards the interest to prevent capitalization. You will need to contact your servicer to make payment arrangements I will be starting my medical education next year do you have any suggestions as to how I can keep my loan debt down while still be able to survive on virtually no income for at least 4 years. I am going to medical school so I would like to hear about the federal direct loans and repayment options, including how we can maximize our Segal Education Award and earn loan forgiveness through public service. While in medical school, you will likely qualify for deferment. If you have subsidized loans, the government will pay the interest while in deferment. If you have unsubsidized loans, you can pay the interest if you have resources to do that. It will help hold down the overall cost of the loan. After medical school, look at programs that will help you pay back or forgive your loans. These include Public Service Loan Forgiveness as well as several federal and state programs for those in the medical field. Look at: National Health Service Corps Working in a Health Profession Shortage Area (HPSA) for 2 years can receive up to $50K in repayment, with a third year as an option. National Institute of Health For research oriented medical/scientific positions, it is a three year commitment but can pay up to $35K per year towards student loans. Navy The military has an excellent option for paying down medical loans. Joining the Navy during the last year of residency or after school can mean a benefit of up to $40K per year in loan repayment. State programs: Nearly every state has a state level program to attract medical personnel to rural areas. I am currently repaying federal and private loans, undergraduate and graduate loans. My federal loans have been consolidated and are in a repayment program to be relieved after 120 consecutive payments. But what do you do with private loan debt? Private loans have limited options. They are governed by the Truth In Lending Act (TILA) and their terms and conditions were set when you signed the loan documents. Some lenders are beginning to offer loan modifications and alternative payment arrangements for private loans, but they are not obligated to do so. If your lender is not willing to make payment arrangements, your option would be to look for a private consolidation loan with better terms. There are banks, credit unions, and many online lenders who have gotten into private loan consolidation. One of them may offer more favorable terms for you. Read all loan documents carefully before signing so you understand the repayment options, whether Money Management International 2016 Page 4

5 interest is fixed or variable, what protections the loan has if you become disabled or die (called loan discharge) and other loan options. Are there any programs that will help or assist with student loan repayment when one is having financial hardship beyond the types of repayment methods? Most of the income based repayment options allow for a very low payment, some as low as $0. If you are having difficulty beyond what a repayment program offers, the other options you can talk to your servicer about are temporarily suspending or reducing payments through deferment or forbearance. If you have loans that total more than $30,000 you can also consider a Direct loan consolidation. In such situations you may be eligible to extend your payments out to 30 years, which might help lower the payment enough to help you meet your obligations. How do you manage private loans? How can one manage student loan debt that is over $40,000 when the person makes less than $30,000 a year? Private loans have fewer options than federal loans. Talk to your private loan lender about modification options. If your lender will not modify your loan terms, you can look at private consolidation loans that may offer more flexible payment terms or lower interest. Private loans are a contract between the lender and the borrower, so ultimately you are responsible for the terms you agreed to when you signed the loan documents. If your $40K in student loans are federal loans, you can look to income based repayment options as well as loan consolidation. Loans that are consolidated into federal Direct loans over $30,000 may be able to extend repayment out over 30 years. Is it better to focus on paying down the loan with the smallest balance or the higher interest rate? These approaches are commonly known as the snowball and avalanche approach, respectively. The common feature of both approaches is that you have an a consistent payment, and all extra money goes towards a chosen debt. When Debt A is paid off, you put its payment and any other extra money toward Debt B and so on. You never decrease your consistent payment amount even as debts are paid off. Which method you choose will depend on what types of loans you have, what type of payment plan you are on, the interest rates, and size of loans. The snowball method focusing on the smallest balance first is used most with consumer credit cards where perhaps you have one card with just a few hundred dollars on it, and when you pay it off, your free up that minimum payment to go towards the rest. That may not be a good strategy with the student loans where most of the balances are going to be similar in size. The avalanche method tackling the highest interest loan first may be a better approach, particularly if some loans have higher interest rates such as Grad PLUS or Parent PLUS loans. Money Management International 2016 Page 5

6 The real key is consistency and putting all extra money towards your principal balance of one or more loans. Remember, you will have to tell your servicer you want the extra payment to pay down the loan principal rather than pay ahead. It is best to give instructions in writing and follow up by reviewing your loans regularly on the National Student Loan Data System (NSLDS) site. Another key is putting any extra money such as a bonus, tax refund, gifts, etc., towards the snowball or avalanche, and if you get a raise to do the same. If you have both consumer debt and student loan debt, look at using one of these method with all debts combined. What is APR? APR stands for Annual Percentage Rate. It is the interest on your loan expressed as an annual rate. The current interest rate for Direct loans is 4.29% and for Perkins Loans it is 5%. The interest rate is set by Congress, and varies from year to year. To review the interest rate on each of your loans, log in to the NSLDS website. How can the student help pay off the Parent PLUS loans if it is under the parent name? The parent borrower remains responsible for Parent PLUS loans, although the student on whose behalf the parent took out the loan can certainly make the payments once they become employed. The only income plan that currently allows Parent PLUS loans is the income contingent plan (if the parent borrower consolidates their Parent PLUS loan first). Parent PLUS loans can qualify for Public Service Loan Forgiveness, but it is based on the parent borrower s occupation, not the occupation of the dependent student on whose behalf they took out the loan. If your parent works for a qualified employer, have them check into the PSLF program benefits. However, to benefit from PSLF, your parent would also need to be on an income-based plan (see above, income contingent repayment is currently the only income plan for Parent PLUS borrowers). What are my financial options if I am in private student loan default? Your options are limited with private loans. These are a legal contract between the borrower and lender, governed by the Truth in Lending Act (TILA). Your lender may have a program or modification available to help you get back on track with your loans, but ultimately they are not obligated to make changes to your loan terms. You should definitely communicate with your lender or their servicer and attempt to find payment arrangements that are agreeable to both parties. Private lenders will use the same collection tools as for other types of loans and debts typically after payments are missed, they will turn your account over to a collection agency and will possibly seek legal action. Do not ignore letters from your private student loan lender. You may be able to refinance your private loans into a consolidation however this is usually based on creditworthiness. You may want to seek legal advice if you are in default on private loans. Money Management International 2016 Page 6

7 I don't know where to start with my payments! Since I owe so much it has been very intimidating - any suggestions on how to manage payments would be helpful. Sign on to NSLDS and review all your federal loans, the current balance, the interest rates, and the status (in deferment, forbearance, etc.) and also review whether your loans are subsidized or unsubsidized. Contact your lender or their servicer for a review of your private loan terms and balances. If you don t know who that is, look at your original loan documents or go to annualcreditreport.com and request your credit report. You should be able to get address and phone information from your credit report. Next, review your current and future payment options for example, if you have unsubsidized federal loans in deferment can you afford to pay the interest to prevent capitalization later? If you plan to pursue a government or public service career, review your options for income based repayment and public service loan forgiveness. Look at deferment and forbearance as tools to help postpone or temporarily reduce payments if necessary. Also, look at the pros and cons of loan consolidation, if you have greater than $30,000 in loans, you may be able to get an extended repayment period up to 30 years. If you have private loans, review consolidation and refinance options to see if you can get better terms or a lower interest rate. But, be sure to read all loan documents before signing them. Avoid delinquency and default no matter what. Look for the best income plan for you, even if it means an overall higher cost of the loan in the long term. There are always trade offs. But, delinquency and default have long lasting consequences. If you are in default, look at loan rehabilitation and loan consolidation to recover from default. I'm a CY Alum graduating from grad school in May. I'll be starting TFA in the fall, should I put off my loans for my two years of service with TFA or will interest accrue? Ultimately the strategy you employ is up to you. The best source of information on Teach for America benefits is TFA. We can give you a few things to consider. First, TFA may qualify for Public Service Loan Forgiveness. You should ask a representative at TFA or contact your loan servicer to inquire. If they do, you may be able to go on an income plan with a low payment and work towards your 120 qualifying payments under PSLF during your two years with TFA. Also, you may qualify for deferment or forbearance while working for TFA. You can ask TFA or your servicer about that. Whether interest will accrue on your loans depends on whether they are subsidized or unsubsidized loans. Log on to NSLDS to determine whether your loans are subsidized. TFA may also qualify for Teacher Loan Forgiveness or Perkins Loan Cancellation, although you would have to remain teaching full time beyond the two years of TFA commitment. Money Management International 2016 Page 7

8 You may also be eligible for forbearance and additional AmeriCorps education award benefits through TFA, depending upon your total prior service in AmeriCorps. Again, it is best to discuss these options with TFA directly. How to have ongoing structured support on my loan??! It is in the $270,000 range. It is difficult to give specific advice without knowing more about the types of loans you have. Here are some general things to consider. For federal loans, look at the income based plans, public service loan forgiveness, and the loan forgiveness benefits that may be available to you. If you are not going into public service, the loan forgiveness under income plans may be taxable income, so consider them carefully. Use the NSDLS website to review what your forgiveness benefit would be on the various income plans. Which plans you qualify for will depend on the types of loans you have. Also consider federal Direct loan consolidation, for loans above $30,000 you may be able to stretch repayment out to 30 years. For private loans, your options are limited. You may be able to refinance to loans with lower interest rates or better terms. You will need to contact your lender or their servicer directly about these options, or shop around for another lender with better terms. Don t overlook programs for those with professional degrees such as the military (particularly the Navy if you are in the medical field) and programs for medical and legal professions there are a number of programs that offer repayment assistance at the federal, state,,or local level. Loan Forgiveness How do we go about finding information and documents to apply for loan forgiveness and keep track of these opportunities? How do we go about applying for them? There are two Department of Education websites that have this information: Studentloans.gov and studentaid.ed.gov. Studentloans.gov allows the borrower to sign into their personal account, populated with all of their loan data from the National Student Loan Data System (NSLDS). This website personalizes any forgiveness options that may be available to the borrower based on their current financial situation. This is also where you can find documents to apply for loan forgiveness. The important thing is to have your employer complete the certification form, and then send it in to the student loan servicer who handles public service loan forgiveness, currently FedLoan Servicing (PHEAA), annually. Studentaid.ed.gov is a resource for finding more information on what each of those payment plans and forgiveness options entail. Money Management International 2016 Page 8

9 How does teacher loan forgiveness work once you begin graduate school? Since, teacher loan forgiveness is based on consecutive years of teaching, grad school would only affect your ability to qualify if you stop working to attend school full time. The timing of those years will start over if there is a break in employment. Public Service Loan Forgiveness, on the other hand, does not require consecutive experience only 120 qualifying payments while in public service which does include teaching. There are several options for teacher loan forgiveness for undergraduate and graduate school loans. Federal Teach Loan Forgiveness Teacher loan forgiveness is available for Direct and FFEL borrowers who meet certain eligibility criteria related to the type of school and teaching field. Graduate loans (PLUS loans) may be eligible if you also have undergraduate Direct and FFEL loans. You must complete five consecutive years of teaching to qualify for Teacher Loan Forgiveness, and you have to originate the loans prior to completion of the five years. When considering graduate school, factor in whether you want to complete graduate school before, after, or part time while completing the five consecutive years of teaching. If you stop teaching to attend graduate school, you may have to start over with your five consecutive years of service once you resume teaching. Perkins Teacher Cancellation If you have undergraduate or graduate Perkins loans, you fall under the Perkins teacher cancellation program. Your loans may be forgiven on a prorated basis for each year of teaching: 15% years one and two and 20% years three and four, and 30% the fifth year of teaching. You do not have to teach for any specific length of time, but the longer you teach, the more forgiveness you earn. There are eligibility requirements for the type of school or teaching field that can receive this benefit. Public Service Loan Forgiveness If you do not qualify for Federal Teacher Loan Forgiveness or Perkins Teacher Cancellation, you may qualify for Public Service Loan Forgiveness (PSLF) while teaching if you have Direct loans or consolidate other loans into a Direct consolidation loan (review the pros and cons carefully as you might lose other benefits by consolidating). With PSLF, your loan balance will be forgiven after 120 full, on time payments while teaching or working for another non-profit, government, or certain other public service employers. You need not work for the same employer or in the same field during this time. You can combine PSLF with one of the income-driven plans to establish an affordable payment and receive a benefit of loan forgiveness at the end of 120 payments. Those paying on the standard plan may not have a balance to forgive. Direct PLUS loans for graduate school can be included in PSLF. To make sure your employment qualifies, you should complete the PSLF certification form annually, including your employer s certification of employment, and submit it to FedLoan Servicing (PHEAA), the PSLF servicer. State or Local programs Many states and some cities and individual school districts offer benefits and loan assistance programs. The American Federation of Teachers has a searchable database of state programs. You should also inquire with your school administration regarding local programs. Money Management International 2016 Page 9

10 What are the exact types of occupations that qualify for the forgiveness plans? The best place to find the current list of the exact occupations that qualify for PSLF is at the studentaid.ed.gov website. This FAQ document gives extensive information, see page 7 for qualifying employment. You should send in the annual certification each year to ensure there are no surprises at the end of your 120 qualifying payments. Is it worth paying more monthly if you are eligible for public service loan forgiveness? For example, if I'm working in non-profit and plan to for the 10 years required for forgiveness, and have $25 extra dollars/month, should I put it toward my loans? Only you can determine the best course of repayment for your loans. In general, we can tell you that the PSLF program will only have a forgiveness component at the end of 120 qualifying payments if you are on an income program and have low monthly payments. Paying extra towards your loan could reduce or eliminate the forgiveness component. Not all loans will have a forgiven amount at the end of repayment. The best way to review your loans is through the NSLDS website and the student loan repayment estimator available at studentloans.gov. Saving on Loan Interest What are some strategies for reducing interest rates? Although there is no way to reduce your interest rates on federal student loans through any federal program, you can reduce the amount of total interest you pay by paying on the standard ten year plan, and/or making additional payments to your loans. The only way to reduce your interest rate would be to seek a consolidation loan. The federal consolidation loan uses a weighted average interest rate of all your loans, so that may or may not lower the overall interest rate for you. Another option is a private consolidation loan that would use your credit history in factoring a new rate. If you consolidate into a private loan you will lose all federal forgiveness and income based repayment options and other federal benefits and protections. Therefore, we urge caution when considering this option. How do you find loans with low interest rates Federal student loans, also called Direct or Stafford loans, have a fixed rate each year. Currently that rate is 4.29% for undergraduate federal loans. It may be possible to get a lower rate through a private loan based on your own credit history, but you will not be eligible for any federal loan benefits including income based repayment, deferment, forbearance, or forgiveness options or discharge/cancellation for death or disability. Private loans are governed by the Truth In Lending Act (TILA) so read all loan documents carefully before signing them to understand the terms and conditions. Money Management International 2016 Page 10

11 What loans should we try to avoid when taking out loans for grad school? What loans are cheaper to pay back? Graduate PLUS loans typically have higher interest rates than the Direct loans available for undergraduate studies. Maximize employer benefits such as tuition reimbursement and consider working and going to school part time. Remember, you don t have to accept the full amount you might be awarded for a graduate school loan. Only take as much of the award as you really need. Parent PLUS loans also have higher interest rates, and they have fewer repayment options. Parent PLUS loans cannot be consolidated or signed over to the student. They remain the responsibility of the parent borrower. Using Loan Benefits Is forbearance bad to do? Forbearance is a great tool if a borrower is trying to avoid delinquency or default when they are unable to make their loan payments. It is a critical component of the AmeriCorps service year, it is one of the reasons servicers must grant mandatory forbearance. For AmeriCorps members, the Corporation for National and Community Service (CNCS) will pay the interest that accrues during mandatory forbearance. You must apply for forbearance. Use the My AmeriCorps website for more information on payment of forbearance interest. Remember, this payment becomes taxable income for you the year you receive the interest payment. If you use forbearance at other times, it is important to remember that any interest accrued during this time will capitalize and be added to the principal balance of the loan. This increases the total interest paid and the total paid for the loan. Does loan deferment start again while attending graduate school? What happens to paying the loans you have accrued during undergrad, when you go to grad school? It is very common for your existing loans to be placed into automatic in-school deferment when you return to school at least half time. You can decide whether you want to use that deferment or not. If you have subsidized loans, the government pays the interest while you are in deferment. Paying at least the interest on your unsubsidized federal loans will keep your loan interest from capitalizing and increasing your loan balance on existing loans. Also, each federal loan only has one grace period, so when you graduate or stop going to school less than half time, your loan payments resume immediately. Money Management International 2016 Page 11

12 Scholarships What scholarships are available for current teachers pursuing their master's in education? Are there scholarships available for graduate school? For scholarship information the best resources are your school s financial aid office and the federal website Finding scholarships and applying for them takes some effort, but can really pay off in the long run. Other Questions Any resources or information on refinancing private loans? Private loans are proprietary, so each lender will have their own products. If you consolidate your federal Direct or FFEL loans into a private consolidation loan, you lose all of the borrower benefits and protections of the federal loan program as well as eligibility for forgiveness and cancellation programs. Read your loan documents carefully before consolidating federal loans with a private consolidation loan. If you have private student loans, you may find better interest rates or loan terms by consolidating with another lender. You can shop online for private student loan financing and consolidation. Private loans are governed by the Truth In Lending Act (TILA) so make sure you read all the fine print and know what loan benefits are included such as the interest rate, any modification options if you have trouble repaying, income-based repayment plans, borrower protections for loan discharge and cancellation due to death or disability, deferment or forbearance. Remember, a private lender is not under obligation to give you any of these borrower benefits, but some are starting to do so. Whatever terms are in your loan agreement are the ones you will have to live with. Read all loan documents before signing. Also, private loans have a creditworthiness component, and your terms and interest rate may be based on your credit score or that of your co-signer. A co-signer is legally obligated to repay the loan in the event that you cannot. Does being married change how a couple should pay off loans, i.e. Should they pay off the lesser amount first and then the higher? In general, as a couple, you should look at all your loans, the various benefits and plans available for those loans, and your overall budget when deciding how to tackle your loans and/or your spouse s loans. For the income plans, being married could impact your overall eligibility for and payment amounts on these plans. Some of the eligibility depends on whether you file your taxes jointly or separately. These decisions can have an impact not only on your student loan payments but on your taxes as well, so consult a tax advisor if you are not sure of the best way to file your taxes. You are each responsible for your own loans, so sit down together, come up with your budget, and then look at which loan repayment plans and forgiveness options are best for your situation. Currently, you cannot consolidate your student loans into a joint consolidation loan with your spouse. Prior to July 1, 2006, couples could consolidate into a joint consolidation loan. While this sounds like a Money Management International 2016 Page 12

13 good idea, you cannot de-couple a joint consolidation loan so a couple who did a consolidation both remain 100% responsible for the joint debt even if they legally divorce. Joint consolidation loans also present some challenges when you want to apply for public service loan forgiveness, income based plans, or if the loan goes into delinquency or default. There are special rules that apply to these joint consolidation loans, and it is best to get help directly from the Department of Education or your servicer if you have a joint consolidation loan taken out prior to July 1, Deferring a federal Perkins loan during a gap year while working for City Year between undergrad and graduate school. If you mean working for City Year through AmeriCorps service, that qualifies for mandatory forbearance through the AmeriCorps program and the CNCS will pay the interest at the end of your service. This benefit is taxable income, but it does reduce the amount you will owe on your loan. You can also use your Segal Education Award to pay down your loan principal or pay additional schooling costs. If you mean you want to work for City Year outside of your AmeriCorps service, Perkins loans are subsidized loans. If you qualify for deferment, the government will pay the interest. If you do not qualify for deferment, you can request a mandatory or discretionary forbearance depending on your reason for request. If granted, the interest will accrue while you are working for City Year and will capitalize (be added to the loan balance). You can pay on the interest while in forbearance to keep it from increasing. You may not qualify for forbearance or deferment. City Year is a non-profit so even if you don t qualify for deferment or forbearance, you may qualify for Public Service Loan Forgiveness after 120 qualifying payments. You can also use one of the income-based plans while working for City Year to obtain a manageable payment. The payment might be as low as $0 depending on your marital status, income, location, and family size. How will using my entire Segal Education Award affect my standing in terms of how I file for taxes the following year? Your award is taxable income in the year you use the award. You can use the award all at once, or you can use it in several years. We can suggest you go to the IRS website and review the tax tables to determine if using the award in one year would push you into another tax bracket. The decision on how to best use your award is up to you, and if you are unsure of the tax consequences consult a tax advisor. You can also review IRS Publication 970 for information on education benefits and taxes. How do I recover from delinquency on my student debt? I almost hit default before starting grad school this past January. Will I still qualify for a federal loan if paying out of pocket becomes overwhelming? You definitely want to prevent your loans from going into default. Delinquency means you have missed one or more payments (but not more than 270 days without a payment) or have paid less than the full amount due. Once in default (270 days without a payment) you will not qualify for deferment, forbearance, or for additional financial aid. Money Management International 2016 Page 13

14 When delinquent, your loan will not be brought current until you have made up the missed payments. Contact your servicer to put your loans into deferment or forbearance, and then work on making up the missed payments to get back in good standing. You can also look at loan consolidation or one of the income based plans to help you avoid delinquency or default. Your servicer can help you find a plan that is right for you and will help you get back on track. The best course of action is to contact your servicer immediately and ask for plans that will help you overcome delinquency. If you have Perkins Loans, contact your school as soon as possible to ask about options for your Perkins loans. How does tuition reimbursement work? Employers can establish a tuition reimbursement plan under section 127 of the IRS code. These plans are tax advantaged plans, meaning that it is not considered income for you and the company can deduct the tuition as a business expense and they do not pay payroll taxes on the money. The maximum benefit per year is currently $5,250 per employee. This can be an excellent way to pursue additional study either for a degree or as continuing education in your field. In general, employers can establish their own criteria for the reimbursement plan. Some employers establish criteria for reimbursement such as grade achieved in the class, allowing only courses pertaining directly to the job, having waiting period such as being employed for one year with the company, and/or agreements related to repayment should the employee quit within a certain period after receiving the benefit. Each employer is different, so it is best to ask the human resources department for a copy of their tuition reimbursement plan/policies when interviewing or upon hire. After school, when starting to work at a job, should I be putting money in IRA/Savings while paying off loans, or only loans first? If both, what ratio to aim for? This is always a personal decision. In general we can say a few things about investing versus delaying investment. If you have a 401K at work, most employers match your deposits up to a certain percentage. This is a 100% return on your money. It s free money your employer is giving you in a tax advantaged account. We recommend taking advantage of this benefit. The advantage of investing early is called the time value of money. Using various investment and 401K calculators you can see the difference that delaying a few years can make in your long term retirement savings balance. If you don t have access to a 401K, you can still save in a tax advantaged IRA account. When paying on your student loans, there is a trade-off as you are aware. Lower payments mean higher overall cost of the loan. Our suggestion is to run simulations on 401k or other retirement savings calculators with various returns and monthly amounts saved, and also review the overall cost of your student loans through the student loan repayment estimator. Money Management International 2016 Page 14

15 You may find that while you save a few thousand dollars in student loan interest by paying aggressively, you forego much more in retirement savings by delaying your savings by 5-10 years. Of course, earnings on investment accounts are not guaranteed, and individual returns will vary based on the investments chosen. But, looking at historical market returns, make sure you understand the trade-off of delayed retirement savings. Best options for individuals pursuing student loans for the first time. I'm going through this process currently and I could use resources to find the best types of loans, or resources to compare different loans and understand the benefits and negatives. In general, federal loans Direct or Perkins for undergraduates are going to have the best terms and protections. Parent PLUS loans have some protections but fewer repayment options and your parents will remain responsible for those loans. Private loans have the least protections and repayment options, but some lenders are starting to offer loans competitive with federal loans so read all loan paperwork before signing. You can find out about the different federal loans at The best way to get the most comprehensive picture of your options is to fill out the Federal Application For Student Aid (FAFSA) as soon as possible. You can now fill it out earlier than in prior years starting in October 2016 for the school year. The earlier you apply the more aid may be available. Look at grants as well as loans, and don t forget about scholarships money that doesn t have to be paid back. Contact your school about scholarships or research them online. Be aware that some websites require you to pay a fee to apply for scholarships this could indicate a scam. Scholarships should not require a fee to apply. Lastly, take out only the amount of loan that you need. When you receive your award letter you will see how much you are eligible for. You are not required to take that full amount. This will help keep your loans to a minimum. Money Management International 2016 Page 15