Believe it or not, Uncle Sam has a lot of free programs that are your best overall bet to beat his own rule set by federal law that all school debt must be repaid with interest. Below is an outline of steps to keep student debts from growing so high while you sleep to creep back and bite harder than bulldogs teeth on hounds’ necks when you least expect.
SEEK FREE MONEY FIRST
Best known as backbone of Uncle Sam’s extended hands ready to help students who maintain steady progress in school stay ahead, this gift can pay your entire way to higher education success. Perhaps the biggest fly in this otherwise optimistic ointment lies in wait for a dependent student who still relies on parents and thus must list their assets as income on FAFSA.com. This can greatly reduce or totally negate Pell grant eligibility. One nice flipside is that it won’t happen twice in a row if you go about living right your first year in college. Away from home in a dorm or your own pad. That way you can tell Uncle Sam I’m independent next time and he’ll recalculate Pell amount accordingly. After all, what’s less than 1,000 bucks for room and board, plus a bit of hassel to move compared to almost $6000 toward your coveted tassel when 2017-18 fall session begins. little hassle worth compared to $6,000 toward your coveted tassel when 2017-2018 Fall Semester begins. Isn’t it worth a little hassle to use worth a bit of hassle to help earn your tassel by prepaid tuition when 2017-18 fall semester starts?
This grant is the next best thing to Pell going on for students who can demonstrate exceptional financial need to fulfill extra ambition to succeed at their academic mission. But it’s highly advised to begin well in advance for best chance to receive a Federal Supplemental Educational Opportunity Grant. Unlike Pell, schools award FSEOG funds that comes from Uncle Sam. Once the money runs out, it’s gone until next year. So, it pays to the tune of up to $4,000 to be first in line every July 1 when it’s time for the new fiscal year to begin at FAFSA.gov.
- MS State Programs
- Institutional – Holmes offers a variety of grants from various funding sources. An especially valuable award is [DISCUSS FULL TUITION & PARTIAL TUITOIN ‘PRESIDENT’S SCHOLARSHIPS’ FOR HIGH ACT SCORES AND MENTION IT’S WORTH A FEW BUCKS TOWARD GOOD PREP, ETC. *DON’T FORGET TO SAY THE FSA OFFICE AWARDS IT AUTOMATICALLY FOR ALL QUALIFIED STUDENTS, SO NO FORM TO FILL OUT OR EXTRA DEADLINE TO FRET ABOUT
LEARN TO EARN YOUR OWN STUDENT LOAN
- Work-study jobs
- (Create one if necessary). Drop that dunce act and don your best thinking cap for a test by performing high-gear brainstorming here, kiddo! List everyone you know who may help you get on as an intern to repay all resources invested when you return with a credential so essential to prove your right to fly solo one night after graduation.
- Don’t reject unpaid work ops out of hand as an outright scam. Believe it or not, some volunteer gigs can offer greater long-term value than low-wage grunt labor that will never learn a skill in high demand later.
- Academic credit for part-time e-internships let you get a foot in the door by long-distance networking to make contacts for higher leverage prior to your job search that might last no longer than a split nanosecond to logon to a new employer’s website to begin full-time e-telecommuter duties online.
- Need & merit-based So, cover your bases with early steps that turn all stones for a big worm before late comers far behind enter races to find no bait but small loans
- Build A Pretty Portfolio
- Community service & volunteerism
- Demonstrate Group leadership activities
- Unique Personal Demo Features
- Low income Showcase Wins First Place Financial Aid Free!
- Discuss how to make lemonade from lemons by persistent dedication to pursue education despite extreme financial hardships of working p/t jobs, etc.
- First Generation College Graduation
- Stress this in your application for prior consideration over a long family history of higher education. (HINT: Your advantage is presumed disadvantage from no familial examples for positive inspiration in college)
- Single Parenthood Worth Neighborhood Watch
- Minority Group Affiliation Gets Majority Education Grants
- List various organizations that award minority group scholarships based on need and merit. *BUT add some little known trick to boost odds of success like combined interest in specific academic discipline AND minority affiliation. Ex: Financial pros of color are rare finds; there is an acute shortage of diversity in all STEM majors, etc. Another variation is to emphasize age and minority group for nontrad student scholarship eligibility. *NOTE: Prepare for a bit of creativity to fit ideal candidate profiles on every square; i.e.; psychology and political SCIENCE both fall within a STEM realm, etc. Another strategy is a high-demand major and minor in a related area of special interest or degree concentration with similar emphases.
LEARN MORE FROM YOUR RICH UNCLE WITH GREEN TO BURN
Anywhere students begin their quest for the best financial aid, they can rest assured in having made a high grade to pass this first test by just one call to Uncle Sam. The reason why is quite simply beautiful. Unlike banks, old Unc owns all the gold in private lenders, old Unc owns his own personal mint to print unlimited greenbacks
SECRET WAYS TO GET STUDENT LOAN FORGIVENESS
Some estimate 50 percent of all borrowers qualify for student loan forgiveness. But this stat is deceiving, as it misleads borrowers into believing they qualify for outright discharge of part or most their outstanding debt. WRONG! However, most borrowers do qualify for ‘indirect’ loan forgiveness through one of the plans outlined below. That’s because any sum left unpaid is forgiven upon expiration of repayment term. Even better news is that monthly payments can be as low as $0, based on your adjusted gross income (AGI) or disposable income (DI).
Income Based Repayment (IBR)
Under this plan, monthly payments never exceed 10 percent of DI for loans originated before July 1, 2014. All unpaid sums are also forgiven after 20 years.
Pay As You Earn Repayment (PAYE)
Very similar to IBR, this variant is widely dubbed as “Obama Studetn Loan Forgiveness,” that limits monthly payments to 10 percent of DI, with forgiveness after 20 years. But the key PAYE distinction is eligibility of loans originated back to 2007. For either an IBR or PAYE plan, it’s often best to select a tax status of “Married Filing Separately” to qualify under AGI guidelines.
Revised PAYE (RePAYE)
This modified PAYE plan may be a great option, as eligibility is not restricted by loan originate date. Instead, RePAYE rules let all Direct Loan student debt incurred at any point be included, with monthly payments capped at 10 percent of DI and forgiveness after 20 years.
Another huge RePAYE fringe benefit is an extra subsidy from Uncle Sam that can negate 50 percent of extra charges for interest that may accrue while you attend school. But income must be insufficient to cover both interest and principal due.
Income Contingent Repayment (ICR)
The main benefit of ICR is no initial AGI or DI level required to qualify for lower payments. By official ICR guidelines, monthly installments will be the lesser of:
- 20 percent of DI; or
- Fixed repayment plan monthly payments for 12 years, based on AGI Public Service Loan Forgiveness (PSLF)
- PSLF is the most popular direct route to school debt forgiveness from Uncle Sam. Although he requires no specific DI or AGI to qualify, smart debtors take advantage of his generous income-based plans outlined above while working for qualified employers. But one more huge benefit is that ‘qualified’ is defined very broadly in this instance. Any organization such as those below fits within PSLF eligibility guidelines:
- ICR plans end in forgiveness of any unpaid sums after 25 years. But it’s vital to note that payments could end up higher than for a standard 10-year repayment plan, as you must recertify eligibility each year based on AGI reported by IRS tax returns.
- Government (Federal, State, Local)
- Emergency management
- Military service
- Public safety or law enforcement
- Public health service
- Public education
- Public libraries
- School library and other school-related services
- Public interest legal services
- Early childhood education
- Disabled and elderly client services
- This leads to two last but not least helpful insider tips that are little known but highly effective legal ‘cheats’ proven as guaranteed methods that beats high student debt.
- Please note that above-listed positions are provided for sample illustration purposes. Those are not the only scenarios that qualify for PSLF. In real life, any agency or organization may qualify, provided they are recognized as a nonprofit entity by IRS regulation 501(c)(3) guidelines. Moreover, the specific type or nature of employment with a bona fide nonprofit entity is wholly irrelevant for PSLF eligibility purposes. Two rare exceptions are labor union or bipartisan political groups. Also, be aware that your bill for student debt will not disappear instantly after hire. Rather, you must continue timely payments each month for a minimum 10-year period just to become eligible for partial forgiveness of the entire sum owed. However, depending on total balance and income, which is typically lower for public interest work, it may still be worthwhile, as at least ½ of your total repayment term length will expire by that time. Not to mention that monthly installments might be as low as $0.00 in the meantime.
- American Opportunity Tax Credit (AOTC)
AOTC is designed to reduce ‘qualified’ expenses incurred for education pursuits, like tuition, books, fees or even housing and transportation. Although it may be applied only to the first $2,500 paid each year, Uncle Sam was so generous to make up to 40% of AOTC ‘refundable.’ This can let you get a tax refund of $1,000 the same year you claim AOTC, without even one cent paid in federal or state income taxes!
During the same year you claim AOTC up This means you can receive The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.
- The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.
Tax Consequences From Student Loan Forgiveness
It’s important to note that while these “secret” student loan forgiveness options could be helpful to some borrowers, for others they may result in tax consequences (see taxes and student loan forgiveness). Under current IRS rules, you may be required to pay income tax on any amount that is forgiven if you still have a remaining balance at the end of your repayment period for any of these plans.
What happens is the forgiven amount of the student loan is added to the borrowers taxable income for the year. So, if you had $50,000 in student loans forgiven under these repayment plans, it is considered income. If you made $35,000 working, your total income for the year would now be $85,000. The result? A higher tax bill.
However, for many borrowers, this tax bill is much more manageable than the original debt itself, so the plan makes sense. Using a very simple example, here is what the tax bill will look like in both scenarios:
As you can see, with these repayment plans, you’ll owe an additional $11,377 in Federal Income Tax in the year you do it. However, that’s cheaper than paying the original $50,000 plus interest. Furthermore, there are options to work out a repayment plan with the IRS if you need to, which may also be helpful in your situation.
The great thing about student loan forgiveness, unlike other debt, is that the amount forgiven is NOT treated as taxable income. Other types of student loan discharge are taxable.
Finally, make sure you’re not getting scammed with your student loans, and make sure you’re not overpaying for help with your student loan debt either.
Public Service Loan Forgiveness
The #1 way to currently get student loan forgiveness is to work in public service for 10 years. President Obama announced the PSLF – Public Service Loan Forgiveness Program, which will grant student loan forgiveness on qualifying loans after 120 payments (10 years).
If you want step-by-step help filing for Public Service Loan Forgiveness, check out our short 15 minute course below: PSLF Training Program.
State-Based Student Loan Forgiveness Programs
46 of the 50 states offer some type of student loan repayment assistance program for their residents. These programs are a little different than traditional student loan forgiveness (such as PSLF) because they typically only repay a portion of your student loan.
These programs not only require you to live in the state (sometimes in certain areas of the state), but they also typically require you to work in specific fields that the state is looking for.
To find out if you qualify for any programs, we put together a massive guide of all the programs we could find. Search for your state here: Student Loan Forgiveness By State.
While some volunteer work can be a huge life commitment, organizations such as VISTA all you to have a semblance of life while volunteering. They also offer money to be used towards your student loan debt, which is great!
Peace Corps – If you volunteer for the Peace Corps, you get automatic deferment of Stafford, Perkins, or Consolidation loans. You can also get partial cancellation of Perkins Loans based on the number of years of service. Currently, you get 15% per year, with a max of 70%.
Americorps – If you serve for 12 months, you can receive $4,725 towards your student loans.
Volunteers in Service to America (VISTA) – If you volunteer for 1,700 hours, you can receive $4,725 towards your student loans.
Military student loan forgiveness offered by each branch has been replaced by Public Service Loan Forgiveness.
You can currently see the student loan benefits that military personnel are eligible for here.
Students who become full-time teachers in an elementary or secondary school that serves low-income families can have a portion of their Perkins Loan forgiven. This program forgives 15% of your loan in each of the first and second years, 20% in each of the third and fourth years, and the remaining 30% in the fifth year.
This program will be phased out in lieu of Public Service Loan Forgiveness.
Check out the full guide to student loan forgiveness for teachers.
TIPS & TRICKS
The only way to avoid the tax ramification of a student loan discharge is to apply for an insolvency exclusion. For the IRS to consider you insolvent, you need to show that your debts exceeded the value of your assets at the time of the loan discharge. You also need to complete IRS Form 982 to apply for this exclusion.
Keep in mind that if you are eligible for an insolvency exclusion, it may not be for the full amount of your loan discharge. You can estimate the value of the exclusion using the worksheet in IRS Publication 4681.
Anyone who has had his or her student loans canceled due to TPD or other taxable discharges can seek relief with the insolvency exclusion. However, the Student Loan Ranger is not a tax professional and recommends borrowers considering this option to speak with one.
If you’re ineligible for an insolvency exclusion or only partially eligible, you are responsible for your IRS bill. The IRS does allow short- and long-term installment plans, though, if you cannot afford to pay your bill immediately, and you can apply for these online or by mail or phone.
A short-term installment plan – up to 120 days – has no associated fees, but fees are assessed on long-term plans, with lower fees for direct-debit plans.