Author Topic: Student loan question/Teacher Loan Forgiveness Program  (Read 5421 times)

MustardTiger

  • Stubble
  • **
  • Posts: 180
Student loan question/Teacher Loan Forgiveness Program
« on: August 24, 2014, 09:43:34 AM »
Ok so I have a question about my priorities with student loans.  I have double checked the qualifications of the teacher loan forgiveness and I teach in a qualifying subject and school.  You have to have 5 consecutive years and I am starting year 2 in a qualifying subject, and I plan to stay for at minimum  the rest of the 5 years.

After the 5 years I can qualify for up to 17.5k in loan forgiveness.  Ok to the details:

2 student loans:

1st- owe 6,391 @ 6.55% and minimum payment 85.

2nd- owe 6,824 @ 3.55 min payment 90.

Option 1: I continue to make minimum payments on both loans, I will have ~7k balance on the loans when I am eligible for the program.   Free money is always great.

Option 2: Apply for a deferment which I should easily be eligible for, and is a yearly application.  Could be higher reward but also seems risky because of added interest.


Before really looking into this program my plan was to attack that 6.5% loan and have it paid off in a year or two, and make min payments on the other with the low interest rate and the tax deduction.

Option 2 seems awesome, but what if the program goes away?  Or they change criteria? Or I move to a position that does not match the criteria (most likely)?

Another question is I didn't see anything that said I could discharge 2 loans from two separate providers.  Seems like I would be able to but I couldn't find anything mentioning it.

Thanks for your help!

Joel

  • Pencil Stache
  • ****
  • Posts: 787
  • Location: California
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #1 on: August 24, 2014, 10:09:35 AM »
If you have the means to pay the loan, you should. On a personal level. You borrowed the money.

Regardless, what are the chances you are in this position 5 years from now? It sounds like it's not guaranteed. That in and of itself would make we want to pay the loans. At least the 6.55% interest rate loan aggressively.

MustardTiger

  • Stubble
  • **
  • Posts: 180
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #2 on: August 24, 2014, 10:26:37 AM »
I understand your point but the morality of using the program doesn't affect me.  I just want to do what makes the most sense financially. 

theonethatgotaway

  • Guest
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #3 on: August 24, 2014, 10:34:09 AM »
A lot changes over 5 years. The loans aren't that high. Pay them off  early and be done with it in 2 years. Then use the rest to invest after that time. You'll be 3 years ahead of your plan.

clarkm04

  • Stubble
  • **
  • Posts: 182
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #4 on: August 24, 2014, 10:53:10 AM »
I think either option is great.

I disagree with people about the "morality" of your choices.  This is a legal program to add advantages for teachers working with difficult populations and 7 K or 17.5 K is significant on a teacher's salary.

Go for it!

MustardTiger

  • Stubble
  • **
  • Posts: 180
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #5 on: August 24, 2014, 11:00:13 AM »
A lot changes over 5 years. The loans aren't that high. Pay them off  early and be done with it in 2 years. Then use the rest to invest after that time. You'll be 3 years ahead of your plan.

I would be investing the difference in tax advantaged accounts starting now. 

charis

  • Handlebar Stache
  • *****
  • Posts: 1826
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #6 on: August 24, 2014, 11:32:06 AM »
Sounds like you have already decided to take advantage of the program (as you are ethically and legally entitled to).  Just recognize that banking on future forgiveness may not pan out like you hope it will.  You can't predict the future for certain.  I am also on track in a loan forgiveness program and while I plan to reach eligibility, anything could happen in the next few years.

beltim

  • Magnum Stache
  • ******
  • Posts: 2875
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #7 on: August 24, 2014, 11:55:24 AM »
If you have the means to pay the loan, you should. On a personal level. You borrowed the money.

The OP took a position that is in such demand that the federal government offers incentives to work there.

Do you use tax advantages savings?  It's the exact same situation.

MustardTiger

  • Stubble
  • **
  • Posts: 180
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #8 on: August 24, 2014, 12:16:50 PM »
Sounds like you have already decided to take advantage of the program (as you are ethically and legally entitled to).  Just recognize that banking on future forgiveness may not pan out like you hope it will.  You can't predict the future for certain.  I am also on track in a loan forgiveness program and while I plan to reach eligibility, anything could happen in the next few years.

I feel similar.  I think doing a deferment is a bit too risky so maybe just paying the minimum for now and worst case the program falls through I just have paid a bit more interest.

midwifemustache

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #9 on: August 24, 2014, 01:33:46 PM »
Hi, 

I had huge loans (130k) after I was done with school (nursing). I have done loan repayment for the last 5 years to pay them off. I have two more years left to serve and they will be completely paid off. There is nothing immoral about these programs. The US and state government have decided that in order to motivate individuals to take these often lower paying and more stressful jobs that some incentive was required.

I am not familiar with the education loan program but a requirement for some of the healthcare repayment programs is that you have made on time payments throughout the period. I was able to greatly reduce my monthly payment by switching to income contingent loan repayment schedule. My recommendation would be to pay as little as possible and take advantage of the program you have available to you as much as possible.


Suit

  • Bristles
  • ***
  • Posts: 275
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #10 on: August 24, 2014, 01:41:04 PM »
If you're trying to maximize the benefit you're receiving and you're eligible for the deferment, why wouldn't you defer? It would give you extra money to invest each month and then if at the end of 5 years the program goes away or doesn't cover your full amount you could just sell some of the investments that you've had growing the whole time.

nereo

  • Senior Mustachian
  • ********
  • Posts: 11566
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #11 on: August 24, 2014, 01:45:36 PM »
I'm not certain, but I believe in your situation you could put your loans in deferment and then continue to pay the interest on the loans each month while investing the rest.  In 3 more years you can use the loan forgiveness assuming that policy doesn't get changed and you stay with your current position.

if anything changes you'll have the money invested and you can pay off the princible that way.

charis

  • Handlebar Stache
  • *****
  • Posts: 1826
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #12 on: August 24, 2014, 03:46:43 PM »
I am not familiar with the deferment option.  In my program, you have to make payments on the loans the entire time you are in the program to qualify for forgiveness.

Mrs. PoP

  • Bristles
  • ***
  • Posts: 421
    • Planting Our Pennies
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #13 on: August 24, 2014, 03:51:25 PM »
Deferment is definitely the higher risk, potentially slightly higher reward strategy, but having been through it and knowing what immovable bureaucracies seem to lie on the other side of student loan institutions, I wouldn't recommend that route to anyone.  When I was in your shoes, I tried some student loan arbitrage and all it took was a paperwork snafu with deferment to ding my credit report... something that I *think* finally fell off this past spring seven years later.  I'd at least pay the minimums - stick it on auto and never miss a payment but be careful as I've also heard horror stories of loans being sold and borrowers not getting much notice as to where to redirect payments. 

You've been teaching for 2 years, so I'm pretty inclined to believe you when you'll stay for the full 5, but don't let the prospect of a potential payout in another 3 years drive your decisions too much between now and then.  If you're teaching in a high needs subject area, there's a decent chance that any salary bump you would get by transitioning to private industry would more than compensate for the potential loan payoff within the first year.  That's how it was for me. 

Here's more details on exactly how I tried to arbitrage and got bit if you want to learn from my mistake 7 years ago.  =/
http://www.plantingourpennies.com/arbitrage-miscalculation-and-a-scarlet-letter-my-student-loan-story/

Nords

  • Magnum Stache
  • ******
  • Posts: 3244
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #14 on: August 24, 2014, 11:40:33 PM »
Ok so I have a question about my priorities with student loans.  I have double checked the qualifications of the teacher loan forgiveness and I teach in a qualifying subject and school.  You have to have 5 consecutive years and I am starting year 2 in a qualifying subject, and I plan to stay for at minimum  the rest of the 5 years.
After the 5 years I can qualify for up to 17.5k in loan forgiveness.  Ok to the details:
This sounds similar to the Public Service Loan Forgiveness program.  The way they avoid the deferment issue is by requiring the borrower to make 120 payments before they qualify for forgiveness.  The payments don't have to be consecutive, and they don't have to be within a certain number of years, but there have to be 120 of them.

It would seem that whoever wrote the terms of your program would also be aware of a deferment loophole and would do their best to close it.  If I was in your situation then I'd check the fine print and even call the program manager to make sure that deferment does not violate the terms of the forgiveness.

If you have the means to pay the loan, you should. On a personal level. You borrowed the money.
On a personal level, that sounds very generous-- and financially against your best interests.

The borrower signed a business contract with a financial institution that was facilitated by a government incentive.  Everything in the contract is perfectly allowable among the parties, and personal ethics can be aligned with the contract terms.  Otherwise the borrower is making a heck of a charitable donation to the government and the lender, and they don't even get a tax deduction.

« Last Edit: August 24, 2014, 11:44:00 PM by Nords »

teen persuasion

  • Handlebar Stache
  • *****
  • Posts: 1070
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #15 on: August 25, 2014, 08:29:51 AM »
OP, find out all the details first. 

DH was eligible for a similar loan forgiveness program, but he could only get $5k forgiven after five years in an eligible school.  It was a challenge to actually get the forgiveness even after he'd completed the five years.  They rejected his application three times for ridiculous excuses; each rejection took several months to work thru.  He did eventually get the forgiveness, but I was beginning to wonder if it would ever work out.  We just treated it as a bonus if it happened.  We paid on schedule, autopay, for the quarter point rate discount and to be sure he wasn't disqualified for a missing payment.  If he ever got an offer from a better district, the pay difference would more than make up for essentially $1k a year.

nawhite

  • Handlebar Stache
  • *****
  • Posts: 1064
  • Location: An RV somewhere in the West
    • The Reckless Choice
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #16 on: August 25, 2014, 09:41:01 AM »
I thought that if your loans were in deferred status, the 5 year clock stopped until you were out of deferment?

MustardTiger

  • Stubble
  • **
  • Posts: 180
Re: Student loan question/Teacher Loan Forgiveness Program
« Reply #17 on: August 25, 2014, 03:49:07 PM »
Ok, after thinking this through today I have decided to just click minimum auto pay and apply for the program in 4 years.  If it doesn't work out for some reason it will be an insignificant loss with such low balances.

I had pretty much decided against finishing my masters (18 hours left and not a ton of incentives pay wise) but I might think about taking out loans to finish it now in the hope that it could be forgiven.  I estimate 10k cost to complete the program for ~2k annual raise.  I guess it would also open up a path to administration or maybe other work in the future if I want to leave the classroom.