Live Debt Free

Pay off debt. Save. Give. Live your mission.

How Does Student Loan Forgiveness Work?

by // Leave a Comment

For many people, the student loans they got in school become a burden a few years after college is over. But do you know that it doesn’t have to be so?

Student debts in the U.S. now affect almost 40 million Americans. Average debts are at a whopping $29,000. It’s a tough pill to swallow and one that you are obligated to pay.

That’s why student loan forgiveness is something you should know a little bit about.

What Is Student Loan Forgiveness?

Student loan forgiveness is a process by which you are released from your responsibility to pay off your student debt—either the full debt or a portion of it. Student loan forgiveness generally only applies to loans at the federal level.

Of course, wanting to get student loan forgiveness and qualifying to get it are two very different things. The reality is that you need to meet certain requirements to become eligible for student loan forgiveness.

The requirements will vary depending on the type of loan.

Qualifying for Granted Student Loan Forgiveness

To qualify for student loan forgiveness for reasons “beyond your control”, a borrower must be:

  • The school has closed while they are studying
  • The school has falsified the loan qualifications
  • The borrower has suffered permanent disability
  • Someone has falsified your identity to get the student loan
  • The school failed to refund the loan to the borrower
  • The death of the student loan borrower

How to Earn Student Loan Forgiveness

Generally, there are two ways for you to earn your student loan forgiveness.

Get a Job in Public Service

Getting student loan forgiveness through your work in public service falls under the Public Service Loan Forgiveness Program, also known as PSLF.

This program was created especially for individuals who are employed in public service. This covers both government jobs and jobs with non-government organizations.

To qualify, you will need to show that you have paid 120 payments towards paying off your loan. These payments will also need to have been paid while you were gainfully employed by a government entity including tax-exempt non-profit organizations.

Apply for a Payment Plan with Income Contingency

In case your work is not with a government agency or NGO, you can still apply for student loan forgiveness but through another means.

This type of plan is a long-term one as you will only be eligible for loan forgiveness after at least 20 years. Of course, the terms of the program will vary.

Who owes all that student debt? And who’d benefit if it were forgiven?

It must be noted that only plans through the federal government (also known as the William D. Ford Federal Direct Loan Program) are qualified for forgiveness. If your student loan is a non-federal one then you’re not qualified.

Other Specialized Programs

If you are not duly employed by the government, there are other specialized programs that you can look into that provide other means for you to get student loan forgiveness. Here are some of them.

Loan Forgiveness for Teachers

Teachers are qualified to apply for student loan forgiveness with amounts that could reach up to $5,000 to $17,000. This can be applied on either their Federal Direct Loans or Stafford loans after they have rendered five continuous years of teaching.

Medical Employees

People who have a medical background—for example, doctors or nurses—can qualify for student loan forgiveness if they work in underserved communities. These are initiatives from the state-level so that’s where you should apply.

AmeriCorps. Employees

If you are involved as a volunteer for various programs under AmeriCorps, then you can get an amount that could reach up to $6,195 that you can use to pay off your student loans. This is implemented under the Segal AmeriCorps Education Award.

National Guard

The Army National Guard has also implemented a program to help out its people. The organization has established a Student Loan Repayment Program that can provide qualified applicants up to 50 thousand dollars that can be used to pay off student loans. The loans eligible for this program are Stafford Loans, Perkins Loans, and Federal Direct Loans.

Plans with a Loan Forgiveness Component

If you are not qualified to apply for any of the specialized programs mentioned above there is still one other option.

You can apply for an income-driven repayment plan. These are loan repayment programs that have been formulated to assist people who are having difficulties in paying off their student loans.

These programs are geared towards people who are not employed by the government or the public sector.

https://www.forbes.com/sites/markkantrowitz/2021/02/16/student-loan-forgiveness-myths/?sh=24bca80d50c5

These innovative programs are designed to have two components. First is the facility to provide monthly payments that are lower than the previous premiums for the loan. Second, the possibility of having the rest of the loan forgiven in the future.

Some of the plans to note are:

PAYE and REPAYE Programs

The PAYE (Pay As You Earn) and REPAYE (Revised Pay As You Earn) programs allow you to make monthly payments of up ten percent of your income that is classified as discretionary.

When 20 years’ worth of qualified payments are made, the remaining balance will be eligible for loan forgiveness.

As a bonus, the government itself can also help in paying a portion of the interest on the loan.

Income-Based Repayment Program

This program, also known as IBR, stipulates that you can make monthly payments of up to fifteen percent of your discretionary income. You will be eligible for loan forgiveness after you have made qualified payments for twenty-five years.

Income-Contingent Repayment

In this type of repayment plan, the monthly payment you are required to fulfill is recalculated every year. The calculations will take into account such factors as your total income, the size of your family, and the total amount of the remaining balance on your federal loan. The loan forgiveness component can take into effect after you’ve made 25 years of payments.

Federal Agency Employment

If you are employed by a federal organization, you can be provided with a loan of up to ten thousand dollars every year under the Federal Student Loan Repayment Program. You can get up to $60,000 in total, which is a huge sum that you can use to pay off your student loan.

Possible Disadvantages of Student Loan Forgiveness

While there are definite positives in getting student loan forgiveness, you should be aware that there are some downsides too. Some of these are:

Long Path to Eligibility

While the federal government and other entities provide student loan forgiveness programs. It’s not a fast method.

Oftentimes, you will be required to render years of service to the organization and an equally long number of qualified payments to be eligible for student loan forgiveness. At the very least, you’ll need to work for the organization for a minimum of 10 years just to be eligible to apply for loan forgiveness.

In other programs, you need to pay up to 25 years’ worth of qualified payments as part of the requirements for eligibility.

Your Career Can Change

As mentioned above, you need to work for at least a decade in a government organization to be eligible for loan forgiveness. For many people, that’s a particularly long time to invest for eligibility.

How to Pay for College and Not Drown in Debt

In that amount of time, you’ll likely find other more tempting career opportunities. Even if you tell yourself that you want a career within the government, who knows what the future will hold?

Your Total Balance Could Balloon

Part of the stipulations for loan forgiveness eligibility is that you will have to enroll in an income-driven plan. This could mean that you could lock yourself into a ten-year plan.

Because your terms of payment can then be extended up to 25 years, the extremely long time will mean that the interest rates will pile up on top of your balance.

At the end of the day, it could mean that you’ll have to pay more over the years just because you want loan forgiveness in the distant future.

Student loan forgiveness programs are a boon to many people who want to take care of their student loan debt without having to pay too much money. There are many programs out there and you’ll have to weigh which ones will be the best for you—or if it’s worth looking into it at all.

Image credit: KAROLINA GRABOWSKA

5 Things to Avoid When Buying a Home in Foreclosure

by // Leave a Comment

It’s everyone’s dream to be able to own a house. Many people will look for opportunities to achieve this dream at an affordable cost, and this could sometimes mean buying a home in foreclosure.

For many homebuyers, getting a foreclosed home is an attractive proposition. This is because most foreclosed homes are sold at a low price.

What Is a Foreclosed Home?

A home that is in foreclosure is a house that has been returned to the bank and put up for sale again.

When a homeowner fails to pay the payments on a mortgage and it defaults, then the bank has a right to foreclose on the house.

All mortgages stipulate a lien on the house or property. The lien gives the bank the right to take the property. All of this is perfectly legal.

While the circumstances that lead to a foreclosure can be a sad thing (usually, the homeowner experiences financial difficulties that prevent him or her to pay the mortgage), the bank has the right to take control of the property and sell it to offset any losses on their part.

The Process of Foreclosure

Several significant stages would lead to a home being foreclosed.

Defaulted Payments and Bank Notice

When the homeowner fails to pay the mortgage even just once then it is already recorded as a payment default. When this happens the bank will send the homeowner a notice of default within 90 days after the missed payment is recorded.

Usually, the bank will still allow the homeowner to arrange for a revised payment plan to avoid foreclosure.

Notice of Sale

When the default payment is not resolved, then the bank will begin the process of selling the property. The bank will file the notice of sale with the state and will also publish the details of this sale in a local newspaper.

For people who are looking for a foreclosed home to buy, these announcements are how they find out about properties for sale.

The Sale

The bank now proceeds with selling the property. Sometimes, a public auction is done to sell the property.

Bank Ownership

If the foreclosed property is not sold, the bank will effectively own the property. They will continue to offer it for sale. For foreclosed property buyers, this stage is the most optimal stage to signify interest to buy.

The Benefits of Acquiring a Home in Foreclosure

There are many benefits to buying a foreclosed home, but make sure to avoid some common mistakes.

Really Good Prices

A foreclosed home will most undoubtedly have a very attractive asking price. Most foreclosed properties are sold below market value.

The reason for this relatively low price is because the lender or bank can only get a return on the money that was poured into the loan by selling the home. They need to put an attractive price so that it will sell.

Simple Title Process

A foreclosed home will not necessarily have a clean title because you still need to pay off the property.

But a foreclosed home will mean that the bank will take care of all the title issues and will be the one to clear the title on your behalf.

Pitfalls to Avoid When Buying a Foreclosed Home

While buying a foreclosed home has some attractive benefits, there are also some things you need to avoid. Do watch out for these five things so you won’t have to deal with any headaches.

Issues with the Property

Almost all foreclosed homes on sale are sold on an as-is basis. This means, what you see is what you’ll get.

While there are certain houses in foreclosure that are well maintained, you need to be aware of the reality.

For example, there’s a huge likelihood that the general upkeep of the property has been neglected by the homeowner. If they can’t keep up with mortgage payments, they surely won’t be able to find the money for repairs and maintenance of the house or property.

Another factor here is the emotional state of the homeowner. The homeowner and his family will likely have ill feelings towards the bank for having foreclosed on their home.

It won’t be an isolated case to know that the homeowner will vent his frustrations and ill will on the house. Vandalism of the property itself is not out of the picture.

Unexpected Costs

Be diligent and avoid any sudden costs or expenses that will come up in the process of buying a foreclosed property.

Some costs are something you can anticipate. For example, repairs on the property or any renovations.

But some costs may be unexpected. These costs usually revolve around sudden fees you need to pay. For example, back taxes or liens.

Maintenance

Maintenance issues were mentioned above as a hidden cost but it needs to be emphasized as a serious pitfall that needs to be avoided.

You don’t want to buy a foreclosed home and then, later on, find out that the maintenance needed to make the house livable for you and your family will cost a fortune.

Invest in a good inspection of the house to ensure your peace of mind. You can hire a home inspector who will provide a complete report on the property.

This report will include the mechanical and structural components of the property.

Squatting

The property you’re eyeing may be for sale already but it doesn’t mean no one is living there anymore.

Some foreclosed properties have not been occupied for a while and this could attract squatters.

When you buy a property and then find out afterward that someone has been squatting there, you’ll have to legally evict them. This is the law and applies to everyone, even if the squatter doesn’t have a legal right to live there.

Legal evictions can cost a lot of money if it drags on so avoid this as much as possible.

Security Problems

Security is another thing you need to ensure when you have bought the property. Avoid any security problems that can threaten your safety and that of your family.

Have all of the locks changed immediately. Have a security expert do an inspection of the house and make recommendations on how to secure your property.

Bottomline

Owning a house is an achievement and a dream for many people. A foreclosed home can provide you with your dream property at an affordable price tag.

But avoid the pitfalls associated with homes in foreclosure so you can enjoy your new home without having to worry about anything.

Image credit: BADGSk3Wwk0

The Best Way to Invest a Tax Refund in 2021

by // Leave a Comment

A tax return can be used for more than just buying your girlfriend a Gucci bag. It can be a great way to get yourself financially ahead. All you have to do is make it work for you.

If this is something you are interested in doing, here are a few smart financial investments you can make with your 2021 tax refund.

Pay Off High-Interest Debt

Typically, credit cards have a high interest rate which can make it seem impossible to pay them off.

Instead of booking a vacation or buying a new TV with your tax refund, take a shot at some of your debt instead. And, start with your debt that has the highest interest rate. Getting rid of these debts will save you money every month.

If you don’t have any credit card debt, use your refund to pay down your student loans, car payment, or mortgage.

Max Out Your 401(k) Contributions

Whether you are saving with a 401(k) offered through your employer or you are saving in an IRA, the more you put into your plan the less tax you will have to pay on it.

There are contribution limits, so it is important to keep that in mind. However, maxing out your contributions early in the year can put more money in your pocket each paycheck.

If you are under 50, you can put a maximum of $6,000 into an IRA. If you are over 50, you can put a maximum of $7,000 into an IRA.

A 401(k) has larger contributions, up to $19,500 if you are under 50 and up to $26,000 if you are over 50.

Fund Your Health Savings Account

With a health savings account (HSA), you can set money aside for medical expenses. This money can be used immediately or invested and used in the future.

HSA contributions are made with pre-tax money, so whatever you put in this account will not be taxable by the IRS. 

Eligibility for an HSA depends on your insurance plan. Here are the basics:

  • If your deductible is $1,400 or more as an individual with an out-of-pocket maximum of $7,000, you will be able to qualify for an HSA.
  • If your insurance plan is for a family, your deductible will need to be a minimum of $2,800 and the out-of-pocket maximum will need to be $14,000.
  • An individual can contribute $3,600 if they are under 50 or $4,600 if they are over 55.
  • Family plans can contribute $7,200 when the policyholder is under 50 or $8,200 if they are over 55.

Down Payment or Home Repairs

If you have been saving to buy a house, consider using your refund to increase your down payment.

This can save you money on your overall mortgage amount and your monthly mortgage payments. 

If you are already a homeowner, consider using your refund to fix up some things that have been put off due to lack of finances.

Replace the leaky faucet in the bathroom or replace your roof. Using this money for improvements can also increase your home’s resale value if you decide to sell your home in the future.

Invest in the Stock Market

If you would like to do something for your future besides putting money into a retirement fund, consider purchasing stocks.

https://investorjunkie.com/investing/tax-return-refund/

The market is known historically for providing better returns than both savings accounts and Treasury bonds. However, it is important to know that stocks aren’t secure, and returns are not guaranteed.

Stock prices fluctuate and the market can be risky. Financial advisors often do not recommend investing in the stock market if you are trying to save for the short-term. The market is much better for saving for long-term financial goals. 

You can invest in individual stocks or mutual funds. Mutual funds are bundles of stock, usually purchased through a robo-advisor or a broker.

Robo-advisors can offer low-cost investing options for those who are interested in managing their investments themselves.

It is also important to remember that investments are not under the protection of the Federal Deposit Insurance Corporation like a checking and savings account would be. If the stock market drops unexpectedly, you can lose your money. 

Open a Credit Card with Benefits

If you are debt-free and pay your credit cards off at the end of every month, you might want to invest in a card that gives you the perks you are looking for in a card.

This would be especially beneficial if your other cards do not offer benefits at all, or just not the ones you are looking for.

Some credit cards require you to pay an annual fee, but they will usually supplement that fee with travel rewards or cash-back rewards.

The perfect card should be able to save you more money in the long run, even taking into account the cost of maintaining the credit card.

Donate Money or Goods to Charity

If you are well off financially and can’t think of any use for your refund, consider donating to a charity of your choice.

Before choosing an organization, you should ask the charity questions about how they spend the money you are donating and what the organization is doing to change the world.

There are so many charitable organizations that are worth donating to, so don’t be afraid to ask questions about them and how they use the money for good.

Some charities will also accept donations in the form of goods instead of money. By donating goods to a registered charity, you can help them get things they desperately need quickly. 

Fund Your Child’s College Savings

If you are a parent, you might be interested in ways to pay for your child’s college education. Consider putting your tax refund in a 529 college savings plan.

As long as the money is used for education, you won’t be taxed on it. In some states, you might even be eligible for a tax break for your education contributions. 

With a 529 college plan, you can invest your money for added growth. This is a great way to achieve your savings goals for your child’s future college education. You can even set up recurring, automatic contributions as low as fifteen or twenty-five dollars each month. 

Image credit: Karolina Grabowska