Bearing the Burden

Preparing for Student Loan Payments and Forgiveness by Alacias Enger

Evelyn is a 36-year-old school teacher in New York City. She has been teaching for eight years and enjoys many benefits, including a pension, 401k, and a solid health insurance plan which she pairs with a copay program to keep her medical costs manageable. What is not so manageable is the volume of student loans Evelyn has found herself saddled with ever since completing her master’s degree.
Like many Americans, Evelyn has pursued higher education with the understanding that it would be an insurance policy, ensuring her financial security. Little did she realize at the time that a hefty student loan burden would cripple her, and that it would come with a $600 monthly price tag. Besides rent, this is her single highest monthly obligation and makes it difficult for Evelyn to meet other financial goals, like saving for emergencies or increasing her contribution to the city’s 401k program. Evelyn has taken advantage of the Covid-related student loan pause in order to increase her emergency savings; however, she is all too aware that her payments are scheduled to resume as this pause comes to an end (which is scheduled for August 31).

Evelyn is currently enrolled in the Public Student Loan Forgiveness (PSLF) program, which is set to forgive the remaining balance on her student loans after 120 qualifying payments. One of the requirements of the program is that Evelyn must certify her employment annually to prove that she works for a qualifying agency. While recertifying her employment, Evelyn came across information for the Temporary Expanded Public Student Loan Forgiveness (TEPSLF) program, which is available through October 31, 2022.
The Temporary Expanded Public Student Loan Forgiveness (TEPSLF) program has some distinct advantages over the original program. Participants can see more of their past payments become qualified toward forgiveness, including partial payments, late payments, and an expanded list of payment plans. Periods of deferment may even be counted in certain circumstances. These expansions will help borrowers to advance their positions closer to forgiveness, and in some instances, borrowers may find themselves crossing that finish line. While this won’t be the case for Evelyn, there is a substantial opportunity available for her.

As a Special Education teacher in a Title I school, Evelyn is eligible to take advantage of the Teacher Loan Forgiveness program, which forgives up to $17,500 for qualifying teachers (the amount of forgiveness varies based on the teacher’s subject area). To obtain forgiveness under this program, participants need to have five years of qualifying teaching experience. Evelyn has not taken advantage of this program because if she had, that five-year period would become ineligible to count toward her overall forgiveness under PSLF. Under the temporary expanded version of the program (TEPSLF), the five-year periods used toward Teacher Loan Forgiveness can also be counted toward her TEPSLF. This means that Evelyn could receive up to $17,500 of forgiveness now using the Teacher Loan Forgiveness program and then enroll in the Temporary Expanded Public Student Loan Forgiveness program to work toward full forgiveness of the remaining balance. Evelyn will have to apply for both programs separately and would be wise to also apply for an income-based repayment plan in the meantime to ensure that her payment is as affordable as possible as she waits for the other two forgiveness opportunities to be processed and take effect.

Evelyn’s current student loan balance of $64,000 will drop to $46,500 once her Teacher Loan Forgiveness is processed. On an income-based payment plan, this should leave her with a lower monthly payment than she had before the student loan pause began. To prepare herself to begin making student loan payments again, Evelyn should revisit her budget, paying special attention to the “Goals” category, which should comprise 20% of her monthly income. Student loan payments will be placed within the “Goals” category, along with saving for both retirement and emergencies.

While the TEPSLF program might give her credit for even more payments made in the past, Evelyn estimates that she will still have two years remaining until she qualifies for total forgiveness. During that time, she might consider making only the minimum payment each month on her student loans and focusing the remainder of the “Goals” section of her monthly budget on continuing to build her emergency savings and increasing the contributions to her 401k.

By taking the time to reorganize her monthly budget and combine these two student loan forgiveness opportunities, Evelyn will be able to set herself up for maximum success.