Trying to figure out how to best pay back your loans or get them forgiven can be challenging. Do you listen to your loan servicer or your lender? What if your financial adviser has a different opinion? What are the pros and cons of consolidating your loans?
Here are some questions and answers for borrowers trying to better understand their debt and create a plan for it.
How can I figure out how long it will take to pay off my debt and what I will pay in interest?
There are several student loan calculators available. CalculateYourLoans.com is a handy one created by Madison-based web developer Stephen Burgess.
He created the site initially as an undergraduate student in New York to answer questions he had about his own loans including: how long will it take to pay off the loan with what payments? How much would you have to pay to pay the loan off in five years? Ten years?
Burgess's tool is an amortization calculator and is free to use and aims to "help people understand how much having a loan will cost and the ideal salary range for different amounts of debt," according to the site. It also includes a page of resources, news stories and a quiz to help borrowers see how their chosen career will affect their ability to pay their student debt.
While he was in school, Burgess said he tried to take on as little debt as possible. He went to community college and transferred to an in-state university to earn his degree in math and computer science. He worked while in school, but it wasn't enough to cover living expenses so he took out loans.
"I was living very cheaply... I was living with other people," he said. "Still, between those different things, working and going to school, I still couldn't afford the rent."
Burgess is now paying more than he owes each month on his loans, aiming to knock them out in a few years. He hopes his tool will help others be more financially aware of the debt they are taking on.
"I really believe in the power of education and I think that it's something that anybody can benefit from," he said.
Will my federal loan be taxed if I'm on an income-based repayment plan?
As it stands, yes. Currently, the IRS considers federal loans that are forgiven a type of income. If you are on one of the four federal income-based plans where debt is set to be erased after 20 or 25 years, the IRS will consider that loan amount additional income on that year's tax returns. You will swap your loan for a tax bill, the size of which will depend on other finances for that year.
This means that if you are on an income-based repayment plan that is not the Public Service Loan Forgiveness, or state or federally based health service forgiveness programs, and it is a plan that is not covering the interest as it accrues on your loan, the amount you owe will continue to increase, resulting in a much larger balance after 20 or 25 years that will then be counted as income to be taxed.
No one has gotten to the point of forgiveness yet since income-based repayment plans began in 2009, so IRS policy could change if Congress changes the law. For updates to the policy, borrowers can check here.
What's the latest on President Trump's proposal to eliminate the Public Service Loan Forgiveness Program? Has anyone been forgiven yet?
In Trump's federal budget proposal earlier this year, he proposed eliminating the Public Service Loan Forgiveness Program for borrowers who take out loans after July 1, 2018. But it's still unclear how the government will deal with the first wave of borrowers set to receive forgiveness next month.
According to The Washington Post, "there are at least 552,931 people on track to receive forgiveness through the program, with the first wave of forgiveness set for October. It’s unclear how the proposed elimination would affect those borrowers." Borrowers who have made 120 qualifying payments in the program must officially apply for forgiveness after those payments have been made. The application form to do that was released in August.
The program was enacted in 2007 under President George W. Bush, aimed at encouraging graduates to pursue careers as public defenders, district attorneys, doctors, teachers or social workers at nonprofit or government entities.
As it stands, Public Service Loan Forgiveness remains unchanged. Congress would have to sign off on Trump's proposal in order for it to take effect.
Where can I get information about managing debt, personal finance and student loan issues generally?
The Consumer Protection Bureau watches the practices of private lenders and federal loan servicers and has helpful reports and tools to understand loans.
Green Path Financial Solutions is nonprofit financial wellness organization that offers free debt counseling services. Borrowers can meet with someone in person or online in Madison or Milwaukee. They specialize in helping people eliminate credit card and student loan debt and can also offer insight on mortgages, budgeting and improving your credit score. Their Madison number: (608) 221-1695.
MyMazuma.com, a financial literacy project of the Wisconsin Bankers Association, is a clearinghouse website of articles on personal finance and debt, including student loans.
UW Credit Union has a FAQ help site and representatives available to take calls and answer questions on refinancing and general loan issues whether or not you are a member. Phone: (608) 232-5000.