Live Debt Free

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How Does Student Loan Forgiveness Work?

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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

The Best Resources to Help You Pay Off Debt

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Many people spend a lot of their time and energy worrying about their debt.

Debt can be a scary thing, but if you plan ahead, and plan wisely, you can easily avoid large doses of worry and devote your energy to something far more exciting.  

There are quite a few resources that you can access with ease and convenience that can help you with paying off your debt.

So what are you waiting for? Let’s go check it out!

Understand Your Debt

Before you can move further, one of the first things you should do is to stop and evaluate the type and amount of your debt.

There are various kinds of debt that either has to be paid back urgently or have a larger rate of interest that needs to be paid. Debts can range from mortgage loans, and student loans, to credit card debts, etc.

Different types of debt have different levels of payback urgency, thus before anything, it is wise to evaluate the urgency of payments due before planning your payment strategy.

Make Your Notes and Plan Ahead

After understanding the type of debt you have to pay back, you can move on to figuring out a solid plan of action that would help you clear your outstanding dues.

Don’t forget or underestimate the importance of good old fashioned planning in your notebook. Write down all the digits clearly and then build an appropriate plan to cater to your needs.

Remember, where a good plan can make your life so much easier, a poorly laid out plan has the potential to blow up in your face and make you end up paying much more than you should have.

Different people have different priorities when it comes to paying off their debt. These priorities depend largely on the individual differences, thus vary across each person.  

If you have debt you need to figure out if you want to pay off the larger debts off first or the ones with the higher interest rates.

Here are several strategies that you can use:

  • Opt for Debt Consolidation: you can consolidate debt through things such as balance transfer cards and even personal loans. These are effective as they can help merge your existing debts into one to help make your repayments much easier.
  • Debt Snowball Technique: when it comes to devising a repayment strategy one of the techniques used is debt snowballing. This indicates making the use of a strategy where you start by the repayment of your smallest debts, and once you get those out of the way you can devote greater resources to paying back the larger debts.
  • Debt Avalanche Technique: this plan is one of the more aggressive plans, which if the planned right can help increase the speed of your debt repayments. For you to save money (and perhaps even time) you can opt to pay the debt which has the largest interest rate the first.

Meanwhile, you can pay the minimum amount for your other debts.

Once you pay off the debt with the highest rate, you can move on to the one with the second-highest interest rate, and so on.

  • Management Plan for Debt: if you feel as if your ability to pay off your debt is at a near standstill, it is always a great idea to opt for external help. Numerous agencies are non-profit and can help cut down interest rates and help you figure out a repayment plan.

These are some of the most commonly used strategies for planning debt repayments. Bear in mind that the best strategy is the one most perfectly suited to your financial situation.

Use the Right Resources

We have spoken in detail about planning and strategizing to have effective debt repayments. However, to increase the efficiency in the overall process it is a great idea to opt for various resources that can help you manage your debts, or even stay debt-free.

You can go ‘old school’ and stick with your notes on a journal as suggested previously, or go for the tech-savvy techniques such as new personal finance apps and computer software.

Use a Notebook

A notebook is one of the most traditional yet effective tools to use for keeping track of your debt. There are several aspects to making efficient use of a notebook.

As it is something that you can carry around and personalize with ease, a notebook can keep an excellent track of your budgeting plan as well as habits.

Here are some ways of how a notebook makes an excellent tool for personal financial management:

  • Keeping Strict Tabs on your Budget: you can jot join and account for every penny in your monthly expenses to make sure none is being spent wastefully or frivolously.
  • Making Grocery Lists: a great way to save money and redirect it towards your debt is to use your notebook to make more grocery lists.

These lists can help ensure that you don’t get tempted to buy unnecessary items from the supermarket every time you visit.

By sticking strictly to your grocery list you can help stay focused on your debt repayment goals.

  • Keep an eye on spending: a notebook is an effective method of organizing and keeping track of your spending habits. You can use it to note down daily instances of you spending your money. The fact that you are writing things down would be sufficient in making sure you don’t stray from your intention to avoid unnecessary expenses.

Notebooks have been used for managing debts for hundreds of years now, and they have been proved time and again for being invaluable resources for debt management.

Get a Debt Management App

It is always a great idea to ask for some support in terms of ideas and information when it comes to managing your debt.

With the wave of modernization and technological advances, there have been numerous apps designed to help you with your debt.

Personal finance technology ranges from tax calculators, spreadsheets for the budget, and now to the newer smartphone apps. The apps are effective tools that have a variety of different uses such as managing your extra money to others which suggest or personalize repayment strategies.

With the advent of the great technological age, there are plenty of app options available for both Android as well as iOS users.

Use a Software Program to Manage Debt

Amongst the new things available to users around the world, technology has seen the development of debt-reducing software that can easily aid in tracking debt.

Modern software has proven itself capable of organizing your financial information by using the information you have fed into it.

Now, you don’t have to worry about entering the correct information, the software program does everything for you. It is capable of tracking multiple debts, while also being able to calculate monthly payments along with the total payable interest.  

Along with these modern software options, some traditional software programs are still far from obsolete. These include multipurpose programs such as Microsoft Excel spreadsheets.

Remember, your convenience and personal comfort matters over everything. You should only opt for the resources that you can use with efficiency to protect and secure your financial safety.

More Tips for Speedy Debt Repayments

Here are some other bits of advice to try out for faster debt repayment:

  • Make a budget for yourself and follow it
  • Try to pay more than the minimum balance for each repayment installment
  • Utilize option for balance transfers
  • Deactivate your credit card to reduce your spending
  • Put in the extra hours, or get a side job for the extra cash
  • Redirect work bonuses towards paying off your debt
  • Sell superfluous home items
  • Sell off the extra car at home (save money on fuel and maintenance)

By careful spending and dedicated saving, you can redirect extra cash towards repaying your debts much faster.

Conclusion

I hope this guide helped you figure out which resources are excellent for your financial obligations and debt repayment responsibilities.

Debt does not have to be something that is threatening as long as it is planned and managed mindfully and wisely. Making a month by month plan can help you plan your budget, savings, and even your repayment strategy.

Personal financial apps have come a long way, and continue to be a great support by helping you keep track of how much debt has been paid, how much is left, etc.

There are many resources available to the modern man to keep tabs on their finances to ensure that their debts don’t get out of hand.

I hope this guide helps you make informed decisions regarding the resources you can use for your debt management plans!

Photo credit: Wilfred Iven

7 Characteristics of Debt-Free Living | Traits and Habits to Know

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It’s not often we come across someone who is truly debt-free. When it comes to things like mortgages, medical bills, student loans, credit cards, and car loans, Americans usually have at least one if not all four of these credit lines open.

Living debt-free is something that we all dream about. And, if you are in debt, know that it is possible to overcome and pull yourself out of it. How? Here are some characteristics and traits of people who live debt-free.

Set Goals

Another fantastic habit of people who live debt-free is they set goals. It is imperative to plan what you want your financial future to look like. If you don’t know what your goals are, you’ll never get to them.

Of course, an important goal for a debt-free person is to bring all your debt to zero.

It is also important to set clear goals after your debt is paid off. This could be setting up an emergency fund, saving for retirement or a vacation, or saving for a new home.

Goals will help you stay motivated and focused as new issues and problems arise in your life. This habit of setting goals goes hand-in-hand with a budget because creating clear goals and plans will help you work your budget correctly.

Make a Solid Budget

This is one of the most defining characteristics of people who live debt-free. Budgets are an incredibly important habit for knowing what bills you have to pay and knowing where your money goes each month. People with no debt set strict budgets and they follow them exactly. 

Making a budget doesn’t mean that they are forcing themselves not to spend any money, it just means that they like to be in complete control of their finances. A budget doesn’t just account for bills, it also considers other expenses like entertainment and new clothes.

Budgets also help you afford to buy what you want when you want. By allowing yourself this, you won’t feel like you need to get a credit card and splurge on wants because you only budgeted for your needs.

Self-Control Is Everything: 7 Traits Typically Seen in People Who Practice Debt-Free Living

In most cases, a budget that works will account for every last cent of your income. Every dollar will have a purpose, making you feel more confident with your spending.

Non-Materialistic

In today’s society, it is so easy to get wrapped up in stuff and things because they are popular, and everyone has them. Another defining trait of debt-free people is the fact that they don’t care about new stuff, and they don’t care what people think about this mindset.

Paying for things like a large house or a fancy car can take up a massive portion of your budget each month, and people who live debt-free choose to pass up on those large monthly payments. They also understand the fact that with interest charges, you will end up paying more for the items than what they are worth. 

Being materialistic means you are more interested in satisfying your wants at the moment than your monthly needs.

Non-materialistic people are the opposite, as they focus more on their needs than their wants. They know it is important to budget for things they want, but it is not their priority.

Not Afraid to Say “No”

It will be impossible to become debt-free if you are always saying “yes” to everybody and everything you come across. This could be a vacation, eating out at a restaurant, shopping, or spending irrational money without thinking it over first. 

One of the most crucial things that people with this characteristic do before making any decisions is they ask themselves a serious question.

They sit back and think: if what they want NOW is more important than what they want MOST. This allows them to put the situation into perspective to make the best decision.

Thinking about this question gives you the ability to see that spontaneous spending is one of the biggest things holding you back from financial freedom. If you always say “yes” and buy anything you want whenever you want, you won’t be able to propel yourself forward financially.

Patient

People who are currently living debt-free knew when they started that it wasn’t going to happen overnight. Paying off all of your debt takes a lot of hard work and a lot of determination. You need to be extremely patient during the process of becoming debt-free.

Patient people also know how great they will feel when they reach the goals they have been working so hard for.

They understand that what they are working towards for their future is more important than what they want right now, and patience is a big part of what works for them.

Save Instead

It is ridiculously easy to get into the mindset of just buying something on your credit card. It is quite simple to pay on a purchase over several months, but this can create a dangerous pattern. 

You have to pay interest on purchases you make on your credit card, so you will end up paying more money for your purchase than it is worth.

You are spending more money than you have AND you will pay more for it in the long run? There is an easier way to do things.

It can be hard to get yourself out of the cycle of constantly buying things on your credit cards, but with determination, you can do it. If you can’t afford to buy it with cash, then just don’t buy it. I know it’s easier said than done, but you can do it.

Focus on saving your money for things you want to buy instead of charging it to your credit card.

Before you know it, you will be able to buy that thing you want with cash and you won’t owe a single penny on it after you purchase it!

Make Sacrifices

Living sacrificially is an extremely common trait in completely debt-free people. They understand that reaching their financial goals will require sacrifices, and they are willing to make them.

They pass up on eating out, watch movies at home instead of going to the movie theater, and they stay in and skip the bar. 

They also cut out unnecessary expenses that they are paying for but they don’t exactly need, such as cable. It saves you money to cut your cable and use streaming services instead.

Debt-free people also understand that these cuts are only temporary, and they will be able to afford them again one day.

Once you are out of debt, you will have room in your budget for all of the luxuries you had to cut out for the time being. You can continue to go out to eat with your friends and go see movies at the movie theater.

It will feel even better knowing that you can do so without putting yourself in financial distress.

A review of our traits

Conclusion

If you want to become debt-free, consider following some of these habits and learning these traits. In the long run, you will be much happier, have more financial freedom, and be able to save properly for the things that you want.

 Living debt-free might seem incredibly hard, maybe even impossible, but it doesn’t have to be. You will be surprised at how easy it is!