"Ask Heather" student loan blog

Widely recognized by school professionals and media representatives as an expert source of information, Heather Jarvis has trained thousands of students and professionals and is sought after for her sophisticated legal knowledge and accessible teaching style. ​Now, OSBA members can get the inside track on managing student loan debt wth Heather's blog.


Picture courtesy of http://askheatherjarvis.com/themes/site_themes/default/images/headshot-interior.png.Heather Jarvis graduated cum laude from Duke University School of Law in 1998. Her plan was to become a criminal defense lawyer, but her student loans coerced her otherwise. Like so many young lawyers, Jarvis faced an enormous amount of student loan debt that was to be paid off in $1,200 monthly payments over 30 years. 

Jarvis deviated from her criminal defense track to pursue a facet of public interest with which she could personally resonate
advocating to reduce financial barriers for young professionals and striving to prepare graduates for successfully undertaking their own financial circumstances.


Federal Public Service Loan Forgiveness 

Federal Public Service Loan Forgiveness​offers generous debt-relief for those choosing a career

in government or nonprofit work. To qualify for loan forgiveness, you must make monthly loan

payments for ten years (120 payments) while working full-time in qualifying public service employment.


To earn for Public Service Loan Forgiveness you’ll need to make 120 qualifying payments.

1. Make the right kind of payments,

2. on the right kind of loans,

3. while working in the right kind of job,

4. 120 times, and

5. prove it.


The right kind of payments

Qualifying monthly payments include payments made under an income-driven repayment plan like Income-Based Repayment or Pay As You Earn. Qualifying payments do not need to be consecutive but you can only earn forgiveness if you make the full number of qualifying payments. Be cautious about due dates because late payments don’t count toward forgiveness.


The right kind of loans

Only Federal Direct Loans are eligible for Public Service Loan Forgiveness. If you started borrowing student loans (like Stafford loans and GradPLUS loans) before July 2010, you might need to consolidate before your older loans can be eligible. Unfortunately, private student loans are never eligible fo r Public Service Loan Forgiveness.


The right kind of job

Qualifying public service employment is full-time paid work in the government, a 501(c)(3) nonprofit, and a few additional non profit positions. “Full-time” is an annual average of at least 30 hours per week, unless your employer requires a greater number of hours for full-time status. You can work more than one part-time position if your combined hours are at least 30 hours a week. Complete and submit an Employment Certification Form annually.


Learn more about your loans, consolidate, choose income-driven repayment and try out the

Repayment Estimator at studentloans.gov​.

Finding the right financial planner 

Financial planning professionals can help you protect yourself and your family by advising you about a full range of money matters such as insurance, investments and retirement planning.  

 

If you are considering getting some professional advice, start by deciding what services you are looking for.  Ask about the services the planner provides, how much those services cost, and how the advisor or planner gets paid.   If you have student loan debt and you are interviewing a prospective advisor, be aware that not all financial professionals have education and experience in managing complex student loan portfolios.  If managing student debt is a priority for you, ask specifically about any prospective advisor's knowledge of student loan repayment plans and forgiveness provisions.

 

It's smart to ask:  

  • What experience do you have with people in my circumstances? Do you have a particular area of specialization (student loans, investments, retirement planning, etc.)?
  • What products and services do you offer?
  • What licenses do you hold? Are you registered with the SEC, a state, or the Financial Industry Regulatory Authority (FINRA)?
  • How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
  • Have you ever been disciplined by any government regulator or sued by a client?

 

Beware of unscrupulous "debt relief" companies  

Watch out for companies claiming to provide debt relief charging fees for basic transactions that you can do yourself for free.  For example, some companies charge upfront consolidation fees as high as $999 or 1 percent of the loan balance (whichever is higher); "enrollment" or "subscription" fees up to $600; or monthly account "maintenance" fees as high as $50 per month.  Student loan borrowers can consolidate for free through www.studentloans.gov (and consolidation isn't even a good strategy for many of today's law students.

 

More information:

Consumer Financial Protection Bureau (CFPB)

Federal Trade Commission (FTC)​

National Association of Personal Financial Advisors (NAPFA)

Student loan interest deduction

Did you pay interest on a student loan in 2014?  You may be eligible to deduct up to $2,500 on your tax return.


Interest paid on loans you took out to pay "qualified higher education expenses" for yourself, for your spouse (if you file jointly), and for your dependents can be deducted.  Qualified higher education expenses include tuition, fees, room and board, books and supplies.


How to I take the Student Loan Interest Deduction?

Your loan servicer should send you a Form 1098-E showing the interest you paid.  The student loan interest deduction is a so-called "above the line" adjustment to income, which means it reduces your Adjusted Gross Income and your tax liability. You can take the student loan interest deduction on the tax Form 1040 or 1040A even if you don't itemize, or in addition to your itemized deductions, but you can't take it if you file the Form 1040EZ.    


How do I know if I qualify for the full $2500 deduction?

Use the IRS Student Loan Interest Deduction Worksheet to calculate your deduction.  In addition to the $2,500 cap, the amount of the student loan interest deduction is limited according to income.  For the 2014 tax year, if your modified adjusted gross income is less than: $80,000 (or $160,000 for married people filing jointly), then you can deduct the full $2,500 in student loan interest.  

How do Income-driven repayment plans work?

You can minimize the total cost of your debt by repaying your student loans quickly.  That's a great strategy if you have the cash flow to do it.  But federal student loans have lots of flexible repayment options to consider and if you need a lower monthly payment, the income-driven repayment plans can help you manage your student loans. 


Here's how the income-driven plans Pay As You Earn and Income-Based Repayment work:

 First, determine if you are a "new borrower."  You only meet the definition of "new borrower" if you 

  1. borrowed your first federal student loan on or after October 1, 2007, and you
  2. borrowed a student loan on or after October 1, 2011. 


If you meet this definition of "new borrower", you may be eligible to choose the Pay As You Earn plan.

Not a new borrower?  Forget about Pay As You Earn for now and check out Income-Based Repayment. Income-Based Repayment is available for those of us who got our first student loan before October 1, 2007.  


Pay As You Earn

  • You must have a partial financial hardship.
  • Your maximum monthly payments will be 10 percent of discretionary income (the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence).
  • Your payments change as your income changes.
  • If you have not repaid your loan in full after you made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven (but you may have to pay income tax on the amount that is forgiven).
  • Your payments may count towards Public Service Loan Forgiveness.


Income-Based Repayment

  • You must have a partial financial hardship.
  • Your maximum monthly payments will be 15 percent of discretionary income (the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence).
  • Your payments change as your income changes.
  • If you have not repaid your loan in full after making the equivalent of 25 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven (but you may have to pay income tax on the amount that is forgiven).
  • Your payments may count towards Public Service Loan Forgiveness.


Check out the Department of Education's Repayment Estimator calculator for estimating monthly and total repayment amounts under the different repayment plans.​


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