Oct
22
2020
What Are Alternative Funds?
You may be familiar with investing in stocks and bonds. Learn how to diversify your portfolio with alternative investment funds.
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Sep
29
2020
Bitcoin Investment Trust
The Grayscale Bitcoin Investment Trust offers accredited investors a way to invest indirectly in Bitcoin. Learn more.
Read moreSep
28
2020
What Is Modern Portfolio Theory?
Modern portfolio theory provides the tools for building a well-balanced and less risky portfolio.
Read moreAug
26
2020
Exploring Student Loan Forgiveness for Nonprofit Employees
Public Service Loan Forgiveness. The unicorn of student debt.
Its very existence is debated. Thousands of federal student loan borrowers pursue it. And for those who could prove they’d decided their lives to doing (the public) good—and followed all the eligibility rules—it was supposed to be attainable.
So far, however, the approval process has been grindingly slow—and difficult—which hasn’t helped borrower skepticism. The Department of Education’s Office of Federal Student Aid reported that of the 110,729 applications processed as of June 30, 2019, 100,835 had been denied—a whopping 91%.
And of the over 90,962 unique borrowers applying, only 1,216 have been accepted—about 1.3%. Although the numbers are improving, it seems that only the most tenacious and patient seekers will survive. The specifics are daunting, follow-through is a must, and a number of applicants don’t qualify from the start.
So is it even worth it to apply? Misinformation abounds. Here are some helpful things to know as you explore your options.
What Is the Public Service Loan Forgiveness Program?
The Public Service Loan Forgiveness Program, often referred to as PSLF, was introduced in October 2007 as a way for those working for a qualifying not-for-profit or the government to obtain forgiveness for their federal student debt after making a decade’s worth of payments. The program took effect in October 2007.
Under the plan, those who have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer may have their remaining balance on a federal direct student loan zeroed out.
That’s a lot of qualifying to be done, so let’s break it down.
What’s Considered Full Time, Qualifying Employment?
For starters, it’s not about the specific job you have, it’s about your employer. The following types should pass muster:
• Government organizations at any level (federal, state, local or tribal)
• Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
• Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3), if their primary purpose is to provide certain types of qualifying public services
• AmeriCorps or the Peace Corps (if you’re a full-time volunteer)
Student loan forgiveness is for eligible not-for-profit and government employees, so if you’re a freelancer or employed by an organization that is working under contract, that won’t count.
To be considered “full time,” you must work at least 30 hours per week. Or, if you work more than one qualifying part-time job at the same time for an average of at least 30 hours, you might meet this standard.
But any time spent on religious-type work (instruction, worship services, or any form of proselytizing) will not be included towards the 30 hours.
What Kinds of Loans Qualify?
Here’s where it starts getting complicated. OK, more complicated.
Only non-defaulted loans received under the William D. Ford Federal Direct Loan Program are eligible for PSLF. If you received a loan under the Federal Family Education Loan (FFEL) program or the Federal Perkins Loan program, you may be able to combine them into a Direct Consolidation Loan, which does qualify, but there’s a catch: Only the payments you make on your new consolidation loan will be applied toward the 120 payment requirement. The FFEL and Perkins payments you made before that won’t count.
And if you combine Direct loans and other federal loans when you consolidate, you’ll lose credit for the payments you already made on the Direct loans.
What Qualifies as a Monthly Payment?
Any payment made after Oct. 1, 2007 may qualify, as long as it’s for the full amount on the bill, is under a qualifying repayment plan, and was made on time (no later than 15 days after the due date) while you were employed full time by a qualifying employer.
Payments made while you were in “in-school status,” under a grace period, or in deferment or forbearance won’t qualify.
But here’s a bit of good news: Your 120 qualifying monthly payments don’t have to be consecutive. If you were out of work or worked for a for-profit company for a while, you won’t lose credit for the qualifying payments you made.
And there are special rules for lump-sum payments made by AmeriCorps or Peace Corps volunteers.
What’s a Qualifying Repayment Plan?
It’s important to know this: Even though the 10-year Standard Repayment Plan qualifies for PSLF, you aren’t actually eligible to receive forgiveness unless you enter into one of the income-driven repayment plans.
That’s because if you’re on a 10-year repayment plan, and you make all the payments, you won’t have a balance left to forgive at the end of that period. So if you plan to pursue PSLF, it may be in your best interest to switch to an income-driven plan ASAP.
What Does it Take to Apply?
First thing’s first. You won’t submit your PSLF application until after you’ve made your 120 qualifying payments. What you will need to complete first is the Employment Certification for Public Service Loan Forgiveness form annually or whenever you change employers.
In the ideal case, the government will use that information to let you know for sure that you’re making qualifying payments. (If you don’t stay on top of this, you can submit an Employer Certification form when you apply for forgiveness.)
After you submit an Employment Certification form and your loans have been transferred to FedLoan Servicing (if it wasn’t already your servicer), your form is reviewed and you’ll receive notification of the number of qualifying payments you’ve made. You can track that number by logging into your FedLoan account or by looking at your most recent billing statement.
When you have made enough qualifying payments, you can file your PSLF application . But you aren’t through yet: You must be working for a qualifying employer at the time you apply for forgiveness and when the remaining balance on your loan is actually forgiven. (We know—it’s complicated. Definitely review the Department of Education’s website to get all the details.)
What Happens if the Application Is Denied?
Don’t panic. You may still be eligible for forgiveness if you were denied because payments weren’t made under a qualifying repayment plan.
The U.S. Department of Education is currently offering Temporary Expanded Public Service Loan Forgiveness (TEPSLF) opportunity. (The word “temporary” means it won’t be around forever and it may be just as difficult to get a request approved as PSLF.)
You can get more answers at the Office of Federal Student Aid’s Q&A page . Or you can call FedLoan Servicing at 800-699-2908.
Pros and Cons of PSLF
Some of the basic pros and cons of going for PSLF are fairly straightforward.
If you took on tens of thousands of dollars in federal student loans, the prospect of losing at least a portion of that debt is likely huge.
And, as a bonus, the IRS isn’t going to ask you to pay federal income taxes on the loan amount forgiven under the PSLF program. (That isn’t the case with all student loan forgiveness programs.)
The big drawback, of course, is the time and effort required for the chance to get a PSLF application approved.
And if, after all that, you don’t receive forgiveness—because the government changes the rules, because you decided to go another direction with your career, et cetera—you may have missed out on other opportunities to pay down your debt.
Federal student loans come with lots of benefits and protections, but with an income-driven repayment plan, you’ll be looking at a 20- to 25-year loan term (depending on the federal student loans you have).
With income-driven repayment, your payments are lower, it’s usually because the loan term is longer, not because your interest rate has improved. Your interest rate will stay the same under this plan.
Applying for Public Service Loan Forgiveness could be worth the challenge, if you’re pretty sure you’ve got what it takes—both in mental fortitude and when it comes to fulfilling the requirements.
But it isn’t the only option for getting student debt under control.
Refinancing Your Student Loans
If you work through a private lender like SoFi to consolidate and refinance your student loans, you may be able to get a competitive interest rate and a better fit of loan term.
But it is important to remember that if you refinance with a private lender you will lose federal benefits such as Public Service Loan Forgiveness, income-driven repayment plans, and deferment.
And with SoFi, you can combine all your federal and personal student loans into one manageable payment, so you can keep track of your debt.
SoFi Student Loan Refinance SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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Aug
26
2020
Debt Consolidation Programs: How They Work
If you’re trying to pay off debt, you’ve probably looked into the variety of options that could help. If so, you’ve likely come across debt consolidation programs—and may be wondering what they are.
Debt consolidation programs can help borrowers who may be overwhelmed by debt payments by combining multiple loans into a single payment. Typically these programs are offered by credit counseling organizations. These organizations may offer guidance and financial planning in addition to helping consolidate debt.
A reputable credit counseling organization will likely incorporate guidance to help with managing debts, along with providing educational material, workshops, and other ways to help borrowers work to develop a realistic budget.
A legitimate debt consolidation program should feature counselors who are certified and trained in offering advice on consumer finance issues in order to create a personalized plan, whether it’s to address credit card debt, bad credit, or other needs.
Consolidating debt typically results in a refinanced loan, with a lower or more manageable interest rate and modified repayment terms.
According to the Federal Trade Commission , it is recommended to find a local debt consolidation program offering credit counseling in person.
You may find these accredited, nonprofit programs are offered through channels like credit unions, universities, religious organizations, military bases, and U.S. Cooperative Extension Service branches .
(It’s important to note that everyone’s debt payoff needs differ, so your mileage may vary.)
What Is a Debt Consolidation Program?
Debt consolidation programs can play two roles. For one, they help borrowers combine multiple loans into a single payment, which can make repayment less overwhelming. For another, they act as credit counselors.
With tools for loan repayment strategies and debt management, they can help lower and/or simplify monthly debt payments. These types of programs are usually managed by credit counseling companies.
It’s good to note the difference between debt consolidation programs and an actual loan opened to consolidate debt.
Qualifying consumers can use a debt consolidation loan (typically an unsecured personal loan) to combine multiple debts into a new single loan as well, possibly with a lower interest rate. But there is no counseling offered during the loan application process, and paying down the debt remains entirely the burden of the borrower.
The services outlined above can make a debt consolidation program different from other methods of consolidation or interest reduction, such as a balance transfer for a credit card, or a personal installment loan from a banking institution or lender.
Keep in mind that debt consolidation is also different from debt settlement, which is a process used to settle debts for less than what is owed.
When enrolled in a debt management program, which is one part of a debt consolidation program, a single monthly payment is sent to the credit counseling agency, which then distributes an agreed-upon amount to each credit card or loan company. The goal of the program is to act as an interlocutor for the debt between the borrower and creditor.
While most debt consolidation program companies are nonprofit organizations, nonprofit status does not guarantee services are free, or even affordable.
These organizations can, however, reach out to the lenders on behalf of the borrower to find an affordable repayment plan, which could take shape in the form of waived fees or penalties, lowering interest rates, in exchange for a specific timeline of usually three to five years for the debt(s) to be repaid.
These programs are not loans, which would come from financial institutions. Perhaps most importantly, debt consolidation programs do not make any promises to reduce the amount of debt owed.
Those are debt settlement programs, run by outside companies who negotiate payments with creditors, and can be for-profit, predatory, or may not act in the best interest of the borrower.
A debt management program, on the other hand, could help set borrowers up for future success, when it comes to how to budget and manage money, educating consumers about cutting expenses or ways to increase income in order to gradually eliminate debt.
Pros and Cons of Debt Consolidation Programs
Debt consolidation is typically most beneficial to those struggling with high monthly debt payments. Paying just the minimum balance on debts every month means it could take a long time to pay off the debt, and interest costs could continue to add to the balance. Getting rid of high-interest debts can help make it easier to pay off the principal amount of the loan.
While having a lot of debt is certainly stressful, it’s worth weighing the pros and cons of any debt consolidation program before signing up. Here are some pros and cons to ponder:
Pros
• Multiple payments are combined into one payment, likely making it easier to pay on time.
• Credit counseling could help a borrower get back on track with tools like budgeting and other financial advice.
• Some programs can help negotiate lower interest rates, fees, possibly creating a more affordable payback plan. (Note: Because lowering interest rates may extend the amount of time borrowers would pay their debt off, they may end up spending more on interest in the long run.)
Cons
• Debt consolidation programs do not reduce the principal amount of debt owed.
• Can easily be confused for more predatory programs offered by some debt consolidation settlement companies.
• Some programs might charge fees.
Many of the legitimate counseling companies tend to follow a similar setup process, which typically includes an interview with a counselor to go over things like income, expenses, and current bills and loans. The counselor might suggest areas where spending could be reduced and offer educational materials.
The program may also help set up a budget and will send the proposal out to creditors to agree to any new monthly payments, fees, payment schedules, interest rates or other factors, Reputable programs should only charge for set-up and a monthly fee.
It is generally recommended to take extra care with any for-profit organizations requiring a lot of upfront fees, memberships, or fees for each creditor they work with on negotiation.
There is no magic pill to reduce debt, so spending less and budgeting more have been key pillars of a healthy financial foundation.
No company should promise a quick turnaround for becoming debt-free overnight. Historically, credit repair has been a market tainted by fraud, so it’s recommended to tread carefully and do the research before signing on to any program.
Selecting a Debt Consolidation Program
One common and simple way to sign up for this type of debt management program is to contact a reputable nonprofit credit counseling agency. The U.S. Department of Justice offers a list of approved credit counseling agencies by state.
Along with ensuring the agency you’re considering is on this list, you may want to consider doing further research by asking your state attorney general and checking local consumer protection agency websites.
Debt settlement companies often try to sell themselves as the same service, so be wary and check to be sure the organization is offering financial counseling and not making promises to reduce the amount of debt owed.
Based on the interview and assessment of current income and debt, the counselor could either recommend a debt management program, or another solution which could be a personal loan, bankruptcy, or some other form of settlement.
The company should not promise any sort of quick fix or short-term solutions.
The National Foundation for Credit Counseling is responsible for certifying many of these counselors, who must complete a comprehensive training program certifying them to help and educate consumers regarding their finances.
Because most nonprofits are certified, it helps to read consumer reviews of these programs as well, to see how the company operates.
The next step is to check what services are offered and what fees will be charged, such as an initial sign-up fee and recurring monthly fee. Understanding the costs upfront is important, and can help someone avoid a possibly predatory, for-profit business.
Something else you may think to look out for: A settlement company may charge more fees initially on the promise to arrange a reduced lump sum payment of debts.
These companies often instruct consumers to stop making payments entirely on their debt, which could affect credit rating and even may cause the creditor to send the debt to a collection agency. A legitimate program should offer financial advice and counseling on ways to help reduce debt.
Paying Off Debt Independently
Rather than looking into a debt consolidation program to alleviate unwieldy monthly payments, one alternative worth considering is an unsecured personal loan, which could help reduce the overall amount of interest payments and possibly save money on interest in the long run.
While a personal loan doesn’t normally come with the counseling services offered by some consolidation programs, SoFi members also get access to complimentary appointments with SoFi Financial Planners.
This service for SoFi members can cover some of the ground offered by the certified debt counselors under the debt consolidation programs, with an initial call to talk about goals and personal finances.
The SoFi Financial Planner may cover things with members like take-home pay, monthly budgets and spending, loans and debt, and savings, and come up with some next steps.
By consolidating high-interest debt into one lower-interest personal loan, borrowers might find having a fixed monthly payment is a simpler way for them to manage debt. For someone interested in debt consolidation loans, SoFi personal loans offer various term lengths, and come without fees—unlike many debt consolidation programs.
Consolidating your debt with a personal loan can potentially allow you to pay off your debt at a lower interest rate. An unsecured personal loan could make it easier to focus on just paying down the one loan, with a single monthly payment at a fixed rate and payment amount.
Financial wellness can start with having a plan to be debt-free, and debt consolidation, whether through a certified program or a personal loan, can be one place to start.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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