Graduate and professional students face quite a bit of debt early on in their careers. As a parent, you may be tempted to pay some or all of the debt to ease your child’s financial burden.
Before volunteering this option, ensure your child has leveraged all their options to efficiently pay down their debt.
Is Your Child in Public Service? Understand the Public Service Loan Forgiveness (PSLF) Program and it's Recent Change
The government created the Public Service Loan Forgiveness program (PSLF) in 2007 to help professionals in public service with their student loans. After completing the program’s requirements, the government will forgive any remaining loan balance.
So, how can your child qualify?
Basic Qualifications For the PSLF Program
According to studentaid.gov, to qualify for PSLF, you must:
Be employed by a U.S. Federal, state, local, or tribal government or not-for-profit organization;
Work full-time for that agency or organization;
Have Direct Loans (or consolidate other federal student loans into a Direct Loan);
Repay your loans under an income-driven repayment (IDR) plan; and
Make 120 qualifying payments
It is important to note that there has been a recent change to PSLF where loans may be forgiven sooner than expected—a welcomed reprieve for many borrowers.
On October 6th, 2021, the U.S. Department of Education announced a temporary expansion to provide more borrowers access to loan forgiveness and ideas on how else to help borrowers.
The Limited PSLF Waiver allows borrowers who have made prior loan payments that did not qualify for PSLF to submit a new PSLF application before October 31, 2022. Those payments may now be countable towards loan forgiveness. Because one of the requirements for PSLF eligibility relates to being on an income-driven repayment plan (IDR), this waiver looks to retroactively remedy any past miscommunication. Given its complexity, we suggest reading the full details on the waiver and eligibility here and seeking help from a student loan professional.
“During this unprecedented time of uncertainty and confusion for student loan borrowers, it is critical that borrowers gain a complete understanding of their options and obligations when it comes to federal student loan repayment and forgiveness programs.”
Student Loan Repayment Options for Professionals
Did your child graduate from professional or graduate school?
It can certainly give your child a leg-up on their career prospects, but it can also mean having that much more debt.
Specific Loan Forgiveness Programs For Doctors Or Those In The Medical Professions
Doctors and other healthcare professionals can qualify for student loan forgiveness on their medical school debt.
In addition to PSLF, there are many other programs that doctors with debt should consider, like state-specific programs, the National Health Service Corps programs, National Institutes of Health programs, Military programs, COVID-19-related options, and many others.
Evaluating all available options can help your child pay down their debt more efficiently.
Did you know if your child still has any lingering funds in their 529 plan they can take up to a $10,000-lifetime maximum toward repaying student loans?
Look into Additional Loan Forgiveness Opportunities
Income-Driven Repayment (IDR)
Graduates may have the most difficult time repaying student loans in their early years, when they’re just getting started. Or in the midst of a career transition that has them sacrificing income for opportunities.
Luckily, the government offers flexible repayment options on federal loans. There are four income-driven repayment plans, each capping payments at certain income levels. Let’s take a closer look at each.
Revised Pay As You Earn Repayment Plan (REPAYE Plan): You’ll often never pay more than 10% of your discretionary income for either 20 or 25 years.
Pay As You Earn Repayment Plan (PAYE Plan): Generally 10% of your discretionary income, but never more than the 10-year Standard Repayment Plan amount.
Income-Based Repayment Plan (IBR Plan): Generally 10% or 15% (if you’re NOT a new borrower on or after July 1, 2014) of your discretionary income, but never more than the 10-year Standard Repayment Plan amount.
Income-Contingent Repayment Plan (ICR Plan): The lesser of (1) 20 % of your discretionary income or (2) what you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.
We’ve put together a helpful flowchart to assess whether or not you are eligible for an IDR plan for your federal student loans.
For more details and a deep dive into Income-Driven Repayment, visit studentaid.gov (IDR).
What else do grads Need to know about student loans?
Repaying student loans shouldn’t be the only focus as your child navigates their first big paychecks. It’s important for them to manage competing financial priorities, like investing for the future. Here are some other considerations that will need to be balanced out against loan repayment:
Building a strong emergency fund.
Setting up a cash flow plan that supports their financial commitments.
Understanding and taking advantage of employee benefits.
Setting up SMART goals for home buying, new car, new baby, retirement, etc.
Hiring professionals, as needed, for proper tax preparation, estate planning, investment management, etc.
Did you know there are professionals, like Adam Minsky, devoted to helping students find the best route to repay existing student loan debt?
We wish your graduate much success! Please feel free to share with them our student loan guide: What Issues Should I Consider when Paying Off My Student Loans?
And if you’re still considering paying off your child’s loans, ensure this gift doesn’t derail your own financial plan. At Wingate Wealth Advisors, we routinely incorporate goals like this, and others, into our client’s retirement plans. Call us at 781-862-7100.