Nourishing Your Relationship with Student Loans

February is a great time for nourishing your relationships and growing your financial emotions. As overwhelming of a conversation this may be, it’s important to have an open and honest discussion with your significant other about student loan debt, as well as with any other debt you may have. For many people, debt is a leading cause of stress. That stress not only affects you but also your relationships. If you can get in front of this discussion it can save you money, time, and stress now and later in life.  

We’re at a point in history where student loan debt is at an all time high of nearly $1.6 Trillion. With that horrifying figure it’s safe to say that many relationships begin with a large amount of student loan debt from one or both parties. As a student loan borrower, you should never feel alone in your journey. There are many different repayment options available based on your loan type, occupation, income, and relationship status. Personal finance isn’t an easy thing to openly talk about, especially if you feel like you’re drowning in debt. However, an advantage of having these money conversations is to make sure that you’re both on the same page as to the best way to move forward and overcome your student loan debt. There is strength in numbers and the numbers I’m referring to in this case is a support system.

It’s important to continuously have these money conversations each year as life is always changing. It’s surprising how many life events happen in a matter of a year, whether it be graduating, changing jobs, changing your relationship status, having kids. All of these changes could potentially have an effect on your student loan repayment strategy. Schedule a money date at least annually and reward yourself with your favorite meal and glass of wine.  

Financial Check Up - Student Loan Edition

By: Becky Eason

January is a good month to give yourself a financial check up, and that includes looking into your student loans. This should be done on an annual basis to make sure you are on the most appropriate course of repayment.  

For those of you who are on an income based repayment plan, reviewing your student loans for the year might be to make sure that you’ve re-certified your income. Your loan provider should notify you of when you need to do an income re-certification, but it’s always good to set an annual reminder to confirm that this has been done. If you miss the annual re-certification deadline your interest will capitalize, which means that any outstanding interest will be added onto the principal of your loan. Depending on your repayment plan, this could result in your student loan costing you more in the long run because you will be paying interest on a higher principal balance. Another thing is that if you don’t re-certify your income, your loan payments won’t be based on income anymore so the payment is usually reverted back to what it would be under the standard 10 year repayment. And remember, as mentioned prior, your unpaid interest will capitalize which increases your overall student loan principal balance. This means that you have a higher loan balance to pay off.

Another reason to review your student loans on an annual basis is that you may have changed jobs in the past year. If you changed jobs and were previously working in a private sector but switched to a public sector job then you should see if your new employer is eligible for Public Service Loan Forgiveness. If they are, it could be worth your time to see if your loans are eligible for PSLF and determine what the difference in your payments would be. It’s also important to consider how long you plan on staying in the public sector as you are no longer eligible for PSLF if you enter the private sector. On that same note, maybe you were working in the public sector and changed jobs to the private sector. If that is the case you should evaluate whether you should go for the long term (20 - 25 year) loan forgiveness or enter the standard repayment plan. The 20-25 year loan forgiveness has a “tax bomb” at the end of the period where your forgiven balance is subject to income taxes in the year of forgiveness. This “tax bomb” is something that you want to be aware of and potentially start saving for, depending on how much you expect to be forgiven.

A third reason that you should review your loans annually is to determine if you should refinance based on your current and potential interest rates. If you have federal student loans there are important considerations to take into effect in your decision making, such as the death and disability clauses. But if you have outside coverage for situations like those or plan for those situations and you aren’t going for loan forgiveness you might find lower interest rates if you refinance to a private student loan. If you currently have private student loans it could be beneficial to shop around for lower interest rates on an annual basis. You can refinance your student loans more than just once to take advantage of lower interest rates and/or cash back bonuses. A popular website to refinance your student loans through is the Student Loan Planner website. They have many different companies that they have partnered with to offer cash back bonuses, you just have to click the refinance links that are on their website.

Student loans are very complex so it’s important to take the time to consider all of your different possibilities. If you spend the time every year to give yourself you a financial checkup you will thank yourself for years to come.

Student Loans and Bankruptcy

You may have heard that student loans cannot be discharged in bankruptcy, but……

In order to potentially have your federal student loans discharged as a result of bankruptcy you have to file a separate action, called an adversary proceeding. When you file the adversary proceeding you are asking to have the court determine that repaying your student loans will cause you undue hardship.

Be prepared, when you go to bankruptcy court your student loan creditors might be present and will try to challenge your bankruptcy request.

If you are granted any bankruptcy determination there are three different outcomes.

• In some cases your student loan could be fully discharged, meaning that you won’t have to repay any of your loan.

• Other cases could have a partial discharge, in which case you would have to repay a determined portion of your loan.

• And in the third case you might have to repay your loan with a different term or a lower interest rate. 

Please note that it’s rare for student loans to be discharged in bankruptcy, so don’t depend on this.

Student Loan Discharge - Total and Permanent Disability

Did you know that federal student loans can be discharged if you have a total and permanent disability? Loans that are eligible for this discharge include Direct Loans, FFEL Loans, and Perkins Loans. 

So how do you go about this discharge process? In order to have your federal student loans discharged you will need to complete and submit a TPD (Total and Permanent Disability) application with documentation (from the VA, Social Security Administration or a physician) proving that you’re considered totally and permanently disabled.

This application can be submitted Nelnet as they are the loan servicer that processes TPD discharges. If you apply for TPD and are approved for it you should know that there can be a post-discharge monitoring period during which you will need to meet certain requirements or your loans will be reinstated. In some cases the discharged balance of your student loan may be considered income for both state and federal tax purposes