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How To Get $700 Million Of Student Loan Forgiveness

There’s $700 million of student loan forgiveness up for grabs on a first-come, first-served basis.

Here’s what you need to know and how to apply.

Student Loan Forgiveness

See if you can follow this story. The federal government offers a student loan forgiveness program. Student loan borrowers who think they qualify apply. 99% are rejected. Congress creates an expanded student loan forgiveness program. Student loan borrowers who think they qualify for the expanded program apply. 99% are rejected.

Yes, really.

A new government watchdog report, first obtained by NPR, says a confusing student loan forgiveness program and process resulted in 99% of the 54,184 completed requests for student loan forgiveness being denied. From May 2018 to May 2019, Congress only spent $27 million of the $700 million on 661 requests for this new student loan forgiveness effort, according to the Government Accountability Office.

“The Department has taken steps to help borrowers better understand the complex eligibility requirements, application process, benefits, and other information related to the PSLF and TEPSLF programs,” Angela Morabito, U.S. Education Department press secretary told NPR. The Department agrees with the GAO’s recommendations about how to improve the programs; a number of our efforts are already underway.”

Today In: Money

What happened and what you can do about it?

In May 2018, the U.S. Department of Education announced the details of the Temporary Expanded Public Service Loan Forgiveness program. This program provides for student loan forgiveness for borrowers who previously chose an ineligible repayment plan as part of the Public Service Loan Forgiveness program. The Public Service Loan Forgiveness program is a federal program that forgives federal student loans for borrowers who are employed full-time (more than 30 hours per week) in an eligible federal, state or local public service job or 501(c)(3) non-profit job who make 120 eligible on-time payments over 10 years.

Here’s the important part that many of these applicants – including the 71% who were rejected for this reason – missed. To apply for this expanded student loan forgiveness program, you had to meet all the requirements for the Public Service Loan Forgiveness program, but you mistakenly enrolled in an ineligible repayment plan (such as the graduated or extended repayment plans). You with me?

How To Apply For Temporary Expanded Public Service Loan Forgiveness

Ok, so how do you avoid the fate of the 99% who were rejected from this expanded student loan forgiveness program?

Here’s what you need to know to ensure that you qualify:

1. You must work for a qualifying public service employer in a qualifying public service role

Typically, there are two types of employers: a) state, local and federal government; and b) 501(c)(3) non-profit.

2. You must have direct, federal student loans

The Public Service Loan Forgiveness program does not forgive private student loans – even if you work in public service. If you’re not sure what type of student loans you have, check with your student loan servicer or through Federal Student Aid. If you have FFEL loans, you need to consolidate your student loans into a Direct Consolidation Loan with the federal government to qualify for Public Service Loan Forgiveness.

3. You must be enrolled in a federal repayment plan

You also must be enrolled in an income-driven federal repayment plan, and make the majority of your payments under the plan. You can determine which student loan repayment plan works best for you with these student loan calculators.

4. You must have applied for Public Service Loan Forgiveness

This is critical. Do not skip this step. You must have applied for the Public Service Loan Forgiveness program and made some or all of your payments under a repayment plan that did not qualify. Then, you were rejected solely because you enrolled in an ineligible student loan repayment plan.

How do you apply for Temporary Expanded Public Service Loan Forgiveness?

There are two easy steps:

  1. Email FedLoan Servicing at TEPSLF@myfedloan.org to request that the Education Department reconsider your eligibility for Public Service Loan Forgiveness.
  2. Include the same name under which you submitted your Public Service Loan Forgiveness application and your date of birth in the email.

Sample Email Template

Here is a sample template email that you can use:

To: TEPSLF@myfedloan.org

Subject: TEPSLF request

I request that the U.S. Department of Education respectfully reconsider my eligibility for public service loan forgiveness.

  • Name: [Enter the same name under which you submitted your Public Service Loan Forgiveness application]
  • Date of Birth: [Enter your date of birth in MM/DD/YYYY format]

Thank you for your consideration.

Sincerely,

Your Name

You will receive a response from FedLoan Servicing once your request has been reviewed. Separately, you can contact FedLoan Servicing at 1-855-265-4038 from 8 a.m.– 9 p.m. Eastern time, Monday through Friday.

What if you don’t work in public service?

While you could try for student loan forgiveness through an income-driven repayment plan, it may take 20 to 25 years to receive forgiveness and your student loans may be paid off by then. There’s a more proactive approach.

Student loan refinancing can lower your interest rate, which can save you substantial money in interest payments. With student loan refinance, you can combine your existing private student loans, federal student loans or both into a new, single student loan with a lower interest rate and one monthly payment. This student loan refinancing calculator shows you how much you can save.

You won’t have access to federal repayment plans and benefits, but many private student loan lenders now offer forbearance and deferral programs for economic hardship. The higher your student loan balance, the more you can potentially save.

Follow me on LinkedIn. Check out my website.

Zack Friedman is the bestselling author of the highly-anticipated, blockbuster book, The Lemonade Life: How To Fuel Success, Create Happiness, and Conquer Anything. Zack is the founder and chief executive officer of Make Lemonade, a leading personal finance company that empowers you to live a better financial life. He is an in-demand speaker and has inspired millions through his powerful insights. Previously, he was chief financial officer of an international energy company, a hedge fund investor, and worked at Blackstone, Morgan Stanley, and the White House. Zack holds degrees from Harvard, Wharton, Columbia, and Johns Hopkins.

Source: How To Get $700 Million Of Student Loan Forgiveness

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Financial Advice For Young People Isn’t Always Right – Erik Carter

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One of the things I most often hear from people about personal finance is how much they wish they had learned about it when they were younger. In talking to younger people, I do see a lot of awareness about the importance of financial wellness. Unfortunately, there are also a lot of myths and generalities circulating around about how young people should manage their money. Here are three of the most common:

1) Focus on paying off your student loans early.

I get it. No one likes paying student loans and we’d all like the day to come as soon as possible when we no longer have to make those payments. However, student loans typically have relatively low interest rates (at least for undergrads) so any extra cash you have would probably be better off used to pay down higher interest debt like credit cards or invested for a greater expected rate of return (especially if you can get matching contributions in your employer’s retirement plan).

A good rule of thumb I suggest is to pay down debts early if the interest rate is above 6% since you may not earn as much by investing extra savings instead. If the interest rate is below 4%, you should probably just make the minimum payments since you can likely earn more by investing the extra money. If it’s between 4-6%, you can go either way depending on how comfortable you feel with debt vs. your risk tolerance with investing. (The more conservative you are, the more it makes sense to pay down debt vs investing.)

So, what should you do with your student loans? First, see if you can refinance your debt to get a lower interest rate. (Just be careful about switching from government to private loans since you lose a number of benefits.) If the rate is low, you might even want to switch to an extended payment plan since the lower payments will free up savings you can use for other goals like saving for emergencies, buying a home or retirement. If the rate is high, try to pay it down early after building up an emergency fund, getting the full match in your retirement plan and paying down any higher interest debt.

2) Roth accounts are better for young people.

Unlike traditional pre-tax accounts, Roth accounts don’t give you any tax break now, but the earnings can grow to be withdrawn tax-free after age 59 ½ as long as you have the account at least 5 years. The argument here is that young people have more time to grow those tax-free earnings. They’re also early in their careers so they may be in a higher tax bracket in retirement.

However, if you’re trying to save for emergencies or a home purchase and are just contributing to your retirement plan to get the match, you may want to make pre-tax contributions and use the tax savings for your other goals. Even if you’re focused on retirement rather than more immediate goals, a traditional pre-tax account may still be better for you if you’ll end up paying a lower tax rate in retirement.

If you plan to go back to school full-time, you can also convert those pre-tax dollars to Roth at a time when you’re in a fairly low tax bracket. If you’re not sure which makes sense, you can split your contributions between pre-tax and Roth or contribute to your employer’s plan pre-tax (it may even be the only option) and to a Roth IRA (which has additional benefits).

3)  Invest aggressively while you’re young.

There is some truth in this. The longer your time frame, the more aggressively you can generally afford to invest your money and young people tend to have long time horizons before retirement. There are a couple of important caveats here though.

The first is that not all of your money has a long time frame. For example, financial planners generally recommend that one of your first goals should be to accumulate enough emergency savings to cover at least 3-6 months of necessary expenses. This is especially important for young people who are more likely to change jobs and haven’t had as much time to accumulate other assets like home equity or retirement plan balances to tap into.

You may have other short term goals to save for like a vacation or home purchase. Any money you may need in the next 5 years should be someplace safe like a savings account or money market fund since you won’t have much time to recover from a downturn in the market.

Speaking of downturns, the second problem is that this advice ignores risk tolerance. Many young people are new to investing and may panic and sell at the next significant market decline. If this sounds like you, consider a more conservative portfolio (but not TOO conservative). If you have access to target date funds, you may want to pick a fund with a year earlier than your planned retirement date. You can also see if your retirement plan or investment firm offers free online tools to help you design a portfolio customized to your personal risk tolerance.

Of course, there are plenty of young people who should pay down their student loans early, contribute to Roth accounts and invest aggressively. The key is to figure out what makes the most sense for your situation. If you want help, see if your employer offers free access to unbiased financial planners as an employee benefit or consider hiring an advisor who charges a flat fee for advice rather than someone who sells investments for a commission or requires a high asset minimum that you may not be able to  meet. In any case, you don’t want to make the wrong choice now, and regret it when you’re older.

 

 

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