public service loan forgiveness and IDR issues

Mega-Mailbag: PSLF Issues and Income-Driven Repayment Considerations

Michael Lux Blog, Mailbag 0 Comments

In this giant mailbag we will be covering a range of student loan questions: everything from Cost of Attendance issues to the timing of an Income-Driven Repayment Plan request.  We also have a few Public Service Loan Forgiveness questions to cover as well.

If you have a question for the Student Loan Sherpa, send us an email.  Before sending an email, we do suggest first checking out our basic articles on Student Loan Forgiveness, Federal Student Loan Repayment Plans, and Student Loan Refinance Options.

Now for your emails…

Overtime and Income-Driven Repayment Plan Calculations

Our first reader question comes from Chris who is worried about how the overtime on his most recent paycheck will affect his Income-Driven Repayment Plan certification.  He also is curious about potential Public Service Loan Forgiveness Eligibility.

Chris writes:

I am due for a renewal of my IBR plan, my income has changed and as such I am opting to not link my IRS return but send in a pay stub.

My base pay is state min wage. I do have overtime on my current stub. Will this affect my payment?

I served as a volunteer fire fighter and EMT from 1991 to 1997 and a paid paramedic from 1998 to 2012,  can my loans be discharged on part or fully given my public service?

Thank you for your time and this site.

Chris

Overtime on pay stubs for IDR Certification: When calculating income based upon paychecks, the loan servicer will assume that the paycheck is representative of all other paychecks for the year.  That means if you have overtime on the pay stub submitted, your payments will be calculated assuming that you get overtime on every paycheck.  Loan servicers won’t just ignore extra income assuming that you don’t always earn that money.

If the overtime doesn’t accurately represent your income, it is always possible to submit another income-certification long before the one year deadline is up.  A new monthly payment can be calculated based upon the updated and more accurate pay information available.

Old Work and Public Service Loan Forgiveness: Prior employment can potentially qualify for Public Service Loan Forgiveness (PSLF), but there are a few major limitations that could cause issues.  The first problem is that the PSLF program was not created until 2007, so work done before this time will not qualify.  The second issue is that working for an eligible employer alone is not enough.  A borrower must work for an eligible employer, have eligible loans, and be on an eligible repayment plan.  To see if prior employment will meet the requirements to qualify for PSLF, borrowers should complete submit an employer certification form.  A completed employer certification form will trigger a review of your loans and repayment plan at that time.  If deemed eligible, you may be able to get credit for that prior work.

Money Needed for More than the Cost of Attendance

Jeff is a concerned medical student who would like to know whether or not credit card debt is factored into Cost of Attendance and ways around the Cost of Attendance cap on financial assistance.

Jeff writes…

Hello, I am a fairly non-traditional student who changed career paths after about 8 years after receiving my bachelor’s degree. After working for several years in my original career I decided to go back to school and see if I could get into medical school.

Long story short, I am going to be entering my first term of medical school this August. I was originally working as a school teacher and ended up accruing a fairly large balance on my credit card. Now I am entering a program where I have no time for a part time job and with the the CoA provided my credit card bill will take up more than a quarter of the funding I would have left over after tuition and fees and books.

In the past I have been able to take out private student loans to cover the excess. Knowing this I applied for additional funds, through a private loan. I received an email from my financial aid advisor stating that the loan would not be allowed by the school based on it’s CoA. Unfortunately this doesn’t change the fact that I still l need to cover my financial obligations. Now I’m not sure what to do. Any recommendations or suggestions would be greatly appreciated.

Respectfully,

Jeff

Cost of Attendance Limitations: The Cost of Attendance (CoA) is calculated by a school’s financial aid office and includes potential college expenses such as housing, books, transportation, and even health insurance.  Most students find that the CoA is far more than attending school actually costs.  Living in more modest housing is a great way to keep actual expenses far below the C0A.

Unfortunately, many students have expenses that go beyond the CoA.  One common issue is childcare, which can be very expensive and does not enter the equation.  In Jeff’s case, his large credit card debt is causing the issue.

What Jeff is essentially trying to do is convert existing credit card debt into student loan debt.  The school’s CoA will prevent this from happening.  Jeff will either have to find a way to reduce his expenses so that he can also afford his credit card bills or he will have to find funding outside of the student loan sector.  One option might be to try to get a personal loan.  Without an income, qualifying for a personal loan will be difficult.  However, with Jeff in medical school, a local bank or credit union may be willing to work something out.  It is far from a sure thing, but a more realistic option than taking on additional student loan debt.

If things really get desperate, Jeff might also be able to reach out to the credit card companies to work out some sort of payment plan that will allow him to continue school and stay current on the debt.  This again is an option that companies will handle on a case to case basis.

In short, there isn’t a simple or straightforward solution.  However, there are a few ways where getting creative might make the situation workable.

Spousal Income and Signature on Income Driven Repayment Requests

Kevin’s wife is working towards Public Service Loan Forgiveness.  In order to lower he monthly payments, they file their taxes separately.  Kevin is worried that he is still required to sign the form and submit his financial information.

Kevin writes:

My wife has student loans. She is working towards this public service loan forgiveness plan — 17 months credited, the rest under review for a year – I think she has 50 or 60 months total right now.  She needs to file form 1845-0102 IDR plan request now.   This form has an expiration date of 10/31/2018 so we assume it’s the correct one.  

We file taxes separately since we have a huge gap in income.  This saves us thousands a year. The form asks for my tax data and my signature.  Is this really needed?  Can she just fill this out and send in her information without my information?  Since we file separately AND I am not on her loans — we’ve never cosigned, consolidated together, etc. Our finances are completely separate — no joint credit cards, etc.  I had student loans which are completely paid off.

We make a point of doing everything in paper, keeping copies, and trying to send things certified mail if possible. Our nightmare is she gets to her 120 months and they lose it.  In this PSLF deal they tell her that her payment is zero AND that those months of zero payments count towards the 120 months. Our assumption is that, eventually, at the end of 120 months they write off the entirety of the loan — as we understand it.  Are we wrong?  It’s a great deal for us — assuming they don’t eliminate the whole thing and make us pay.

Kevin

Student Loan Documents: Before we jump into Kevin’s question, it is worth taking a quick moment to compliment him on his detailed record keeping.  Making hard copies of the required documents can be tedious, but if issues ever arise, having the documents on file will be very valuable.

That being said, with most electronic documents, it is possible to print out a hard copy of the documents submitted.  This route can lead to faster form processing but still allow detailed records.

Public Service Loan Forgiveness and Required Documents and Signatures: Kevin and Mrs. Kevin seem to be well on their way towards Public Service Loan Forgiveness.  While the program is a great deal, the required paperwork can be quite tedious.

In reviewing the required form, it does clearly require Kevin’s signature and tax information.  The only time this form does not require that information would be if Kevin and his wife were separated, or she certified that she was not able to “reasonably able to access information about your spouse’s income and able to have your spouse sign this application”.

The background on this information being required is that one of the federal repayment plans, REPAYE, includes spousal income even if taxes were filed separately.  If Mrs. Kevin isn’t on REPAYE, Kevin’s income should not enter into the calculations, even though he is still required to submit his tax info.

The bottom line for Kevin is that he will have to sign the form and send in his tax information.  He should also very carefully keep an eye on the end result of the loan servicer calculations.  If they factor in his income, the monthly payments will end up being much higher than expected and it will be important to place a few calls to get the calculations corrected.

It is silly that these steps must be taken, but if it leads to student loan forgiveness, it is almost definitely worth the effort.

Refinance or Chase Loan Forgiveness

Earnie is an employee of the state of California and trying to decide whether to refinance his student loans at a lower interest rate or to go after Public Service Loan Forgiveness (PSLF).  He is worried that his loans might be too old to qualify for PSLF

Earnie writes:

Hi!

I’m contemplating consolidating an 8.25% loan fed student loan of $49k with navient. I am considering consolidating with SoFi or CommonBond to get a lower interest rate (5.23%). I have paid my loan for the last 12 years without fail, and also have worked for the State of California for the last three years.

Under the terms of Federal Student Loan Forgiveness it seems like my situation may apply in the present, given the length of my good payment standing for more than 10 years, or in the future once I reach the 10 year milestone working for in public service for the state of CA. I am understanding the qualifying recs correctly?

My questions is this – I heard that the Federal Student Loan Forgiveness only applies to loans taken out since 2002.

Mine was taken out in 1998. If this is the case then I would not have the option for the Forgiveness plan. Is that correct?

Earnie

Loan Age and Public Service Loan Forgiveness: The age of the student loans might make the student debt ineligible for certain repayment plans, such as Pay As You Earn, but it does not preclude the debt from being eligible for Public Service Loan Forgiveness.  (One other think to keep an eye on is the type of loan… certain federal loans need to go through federal direct consolidation into order to be eligible).  Our breakdown of the fine print on Public Service Loan Forgiveness should help explain the various requirements, but the short version is that a borrower needs an eligible employer, eligible loans, and an eligible repayment plan.  It is possible that Earnie may already have 3 of the required 10 years for PSLF.  The only way for Earnie to determine his status would be to complete an employer certification form.  Submission of this form will trigger a full review of his loans and a calculation of the number of qualify payments that he has already made.

Refinancing Federal Loans: If Earnie refinances his federal student loans, he could save money due to the lower student loan refinance interest rates.  Unfortunately, by refinancing, Earnie’s federal student loans will become private loans and ineligible for PSLF.  The private loans will need to be paid in full.  Earnie will have to decide which route will cost the least money in the long run.  Some borrowers will find that paying off the debt in full at a lower interest rate costs less than chasing PSLF while others will find that forgiveness is the route to go.  The best path will depend upon present and future income, employer eligibility, interest rates, and debt size.

Timing an Income-Based Repayment Application

Our final email comes from Julie who is curious about the best time to submit her income-driven repayment plan application.

Julie writes:

I finished school in June and my loans are due for payment in November but I have noticed interest being put on each of my loans.  Should I sign up for the income based plan before my loans due date?  I am working retail jobs part-time and supporting my family.

Any information is helpful.

thanks!

The Best Time to Complete the Forms: Julie is smart for noticing that even though she isn’t required to make payments, her balance is still growing.  As far as timing the form application, the sooner it gets submitted, the better.  Based upon the information Julie shared in her email, it is likely that the lender calculations will show that she has little to no discretionary income and it is very possible that her monthly payments will be $0 on an income-driven repayment plan.  Julie may also benefit from the Revised Pay As You Earn plan because of the favorable way it treats the interest that accumulates during repayment.

Because the payment calculations can be delayed at times, especially for first time applicants, getting things filed as soon as possible is the safest route.  This will also allow Julie time to fix any potential errors with her application.

As with most things student loan related, the longer you wait, the worse things usually get.