Minki: Hey WINers! Welcome to WINii's Episode 3 of Money Bites where we explore money, mindfulness and everything that comes in between in bite sized discussions. Today we'll dive into what many of us feel is the bane of our personal finance: student loans.

Now this can be a complex issue with lots of misguided information out there, which are sometimes told by the servicers themselves. Ugh, this gets me so riled up! I can go on for days on how frustrating I find the system! But we have to start somewhere. So, I'd like to start with the Public Service Loan Forgiveness Program or (PSLF) for those of you working full time at various government and not-for-profit organizations. What gets me so frustrated is due to misinformation, we have at least a handful of teammates at every Challenge who find out that they've been paying back their student loans for years but because they were enrolled in the wrong repayment program none of that qualifies for the loan forgiveness. It just breaks my heart when we have to break the news and this happens.

So today, we're going to get to the bottom of this and figure out what you actually need to do to meet the qualifications for PSLF. I'm going to be playing back a recording from one of WINii's webinars. I'm super excited to have with us today Jan Miller.

Hey Jan, always good to have you back. Do you want to start with the short intro?

Jan Miller: Sure. My name is Jan Miller. I'm the president of the Miller Student Loan Consulting where we help individuals with their personal student loan situation.

Minki: Awesome. So to start off, private loans VS federal loans. Quite a lot of our users, or team members as I like to call them, are on different kinds of programs such as Income Based Repayment (IBR), Revised Pay As You Earn (REPAYE), etc. Now, that's only for the federal loans right? 

Jan Miller: That's right. Private loans don't qualify for any of the federal programs such as Income Based Repayment (IBR) or deferments, etc. The private lender themselves may have their own version or payment arrangement options but it's usually much more limited. For example, Navient has what's called a Rate Reduction Plan where they will lower your payment based on your income to debt ratio. They'll take a financial statement and they may even lower your interest rate temporarily in fifteen month increments. But it's not a federal program. It's at their discretion and they either grant it or they don't and you have to live with their response. Where with federal loans, all the federal programs are governed by federal regulations and subject to that. So, the servicer doesn't have a discretionary decision as to whether you qualify. It's based on whether or not you fit within the requirements of the program or not.

Minki: Okay.The next thing I'd like to ask is, our teammates are in different industries with quite a number of them working in the nonprofit sector. So, lets start there. If you are working in the nonprofit sector, the Public Service Loan Forgiveness Program also is only for your federal loans right?

Jan Miller: Exactly. Just federal loans. There are three main criteria that are important with the Public Service Loan Forgiveness Program. Number one, the first thing you want to do is make sure you have qualifying loans. A very easy way of confirming that is to go to this website, National Student Loan Database. You can see a list of all your federal loans and literally the word "Direct" should precede everything: Direct Consolidation, Direct Grad Plus, Direct Stafford and so forth. If it does not have the word "Direct" or at least the letters "DL Sub" or "DL Unsub" (DL obviously standing for Direct Loan) in the actual title of the loan, that loan does not qualify for the Public Service Loan Forgiveness Program. For example, it could qualify for IBR but not for their 10 year forgiveness. So, if that is the case (if your federal loan does not have "Direct" listed on the title of the loan), that's when you want to consolidate your loans because the very process of consolidation will convert all of your loans that are included in the consolidation into a Direct Loan. So, that's kind of consolidation is a quick fix for that. 

Minki: When you consolidate in this case, you want that to be for federal not into a private consolidation right?

Jan Miller: Yeah, that's a good point. When I use the term consolidate, I'm really referring to federal student loan consolidation within the federal program. So you'd actually execute it at studentloans.gov. It would be processed with by fedloan servicing, or one of the major federal lenders or servicers. When I refer to refinance on the private side, that's a totally different thing. That's where you actually base on credit worthiness are refinancing a loan and paying off the federal loans and moving them into a private loan, forfeiting all of your federal program rights. So when you hear me talking about consolidation, just know I'm talking about federal loans and if I say "refinance" I'm referring to a private loan refinancing.

So, within the federal system you can consolidate your loans. It's often just a great no brainer way of making sure that you have qualifying loans. That's the first of three requirements. The second requirement, is that you must qualify for a lower payment under one of the four Income Driven Plans. Based on your income, your payment needs to be, under these programs, lower than your 10 year standard. So, your 10 year standard is the payment that if you don't do anything right when you come out the grace period, whatever their payment is that's on a ten year loan. Basically that's just a standard term of 10 years. Those payments will pay off the loan in 10 years and you'll be done with it - interest and principal. If your payment is lower than that, in other words if you make too much money and even under IBR, or whichever program, your new payment is at that amount or greater, then there's not going to be anything left to forgive after 10 years. Because after 10 years of qualified payments, your balance is going to be zero therefore there's nothing left to forgive. As a result, you're not going to qualify for any forgiveness.

So, again the second qualifier is to make sure you qualify for a lower payment based on the Income Driven Plans qualifications. The third is of course that you actually work for a qualifying nonprofit or government agency, 501c3, and so forth. If you do, you have to work at least 30 hours a week to be considered full time. So, all payments under one of the Income Driven Plans made while you are working for a nonprofit or government agency that qualifies as Direct Loans. Then once you get 120 payments or equal to 10 years of payments, the rest of the loan will be forgiven and taxed at that time. Those are the main three requirements.

Minki: For the ten qualifying payments, do they have to be consecutive? For example, say you work for a nonprofit, then for a year or two you go work in the for-profit sector, and then return to nonprofit. Can I still qualify?

Jan Miller: Yeah you can. Good question. They do not have to be consecutive and it doesn't have to be with the same employer. You could work for five year at a nonprofit, and then go work as a fry cook at McDonalds for two years, come back and work for a different nonprofit for another five years. After 12 years total, get 10 year forgiveness at that time because you have a total of 10 years of qualifying payments. So, they don't have to be consecutive. Every payment that you make, as long as you have Direct Loans and every payment that you make under a qualifying plan like IBR or Pay As You Earn you make while working for a nonprofit full time counts towards your forgiveness.

So, when you hear the 10 year forgiveness it's a little bit misleading in that it's really 120 qualifying payments. Which in best case scenario is going to be done in 10 years because 120 payments equals 120 months, which is 10 years. Usually it's probably going to take a few months or maybe even longer than 10 years to actually qualify because you may have changed jobs, you may have missed the deadline for re-enrollment, etc. Those types of things. You'll never lose what you gain but there may be hiccups in there that interrupt the continuity of the program. In which case it'll just take a couple more months to be approved but once you get to 120 then the rest of the loan is forgiven at that point.

Minki: Gotcha. That's great to know.

Hope that was helpful and also hope you can join us for our next episode where we swing to the other side of the spectrum and meet an entrepreneur and her unorthodox ways of going from $30k under in student loans to $30k in her savings account in just 18 months. Hope to see you soon!

You can find Jan Miller at Miller Student Loan Consulting.
Our theme music was played and produced by Luna Lee.

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