New year, same old student loan. Or is it?
Your burden may feel virtually unchanged from the second you took it on (though hopefully it’s gotten lighter over time). But these recent policy changes and other developments could affect you, and alter what repayment plan would be best for you in 2018.
1. Shady student debt relief operators are out in force.
About 44 million Americans are carrying $1.4 trillion worth of student debt. That’s a pretty big pool of people for scammers to target—and many are. (See Nerdwallet’s running list of student loan relief companies to beware.)
The Federal Trade Commission is cracking down on a growing list of businesses for deceitful practices—from collecting illegal upfront fees (often $700 or more) to falsely promising to help reduce or forgive loans—that’s cost hopeful debtors an estimated $95 million.
If you’re working with a company that charges application fees, promises fast loan relief or requests your Department of Education login information, cut ties and contact your loan servicer immediately. Remember, you can directly manage your loans—and apply for deferment and forbearance, repayment and forgiveness programs—through the Department of Education or your loan servicer, for free, without third-party help.
2. If you're getting married this year, your income-based repayment plan could be affected.
Don’t worry; vows “to have and to hold” do not package student loans into the deal, and you and your spouse remain independently responsible for debts you took on before marrying. However, getting married does affect your household’s modified adjusted gross income if you file taxes jointly—and that can change your repayment plan.
Federal loan borrowers can use one of the four income-driven repayment plans, which tether monthly payments to your earnings—a great way to manage debt and ensure your budget works. That means raising your reported income with your spouse’s paycheck could also increase your monthly payments.
You may be able to sidestep this by opting to file taxes separately, but do the math first. “If you file separately, you may not be eligible for certain tax breaks available for those who file jointly, including the ability to deduct student loan interest,” says Certified Financial Planner Tyler Dolan.
3. Increasing interest rates could up your variable-rate-loan payments.
The Fed is expected to continue raising interest rates this year. That doesn’t affect you if you have fixed-rate debt, like a federal loan, but you can expect higher monthly payments for variable-rate debt.
Each hike is unlikely to be significant, but it doesn’t hurt to check out refinancing deals anyway. “Just remember that the loan term resets with a new refinanced loan,” Dolan says. “So if, for example, you’re a year away from paying off your loan, you may end up paying more over time if you sign up for a new, five-year loan.”
4. You can still deduct student loan interest under the new tax bill.
After all the huffing and puffing, Congress did not blow down the student loan interest deduction. You can still deduct up to $2,500 if you’re within the income limits to do so.
But you may still want to keep tabs on the evolving tax code. “Previously when we had big tax legislation, we saw some modifications because either the IRS couldn’t enforce [certain provisions] or they had too many unintended consequences,” says Certified Public Accountant Bryan Koslow. “I suspect we may see something similar in 2018.”
5. You may not actually qualify for Public Service Loan Forgiveness.
The PSLF program sounds awesome: If you work for the government, certain non-profits or in AmeriCorps or the Peace Corps, you can get your loans forgiven after making 120 qualifying monthly payments. Unfortunately, after submitting those 10 years of payments, some people have found out they don’t actually qualify for forgiveness. Nightmare.
Now some loan servicers are facing lawsuits because borrowers allege that they were given false information about their loans and eligibility. So be sure you check into whether all of your loans and payments qualify before you count on kissing the rest of your student debt goodbye.
January 19, 2018