What Student Loans Aren’t Eligible for Public Service Loan Forgiveness?

Student loans are back in the news again. The Government Accountability Office (GAO) released a report earlier this month detailing that the federal government is expecting to forgive over $100 billion in student loan balances in the coming years. While there are many loan forgiveness programs, the Public Service Loan Forgiveness program is one of the most common.  Subscribe to my newsletter to receive a 30 page student loan guide that details the others!

Doctors working in nonprofit hospitals, teachers, government employees, and more can all be eligible for Public Service Loan Forgiveness (PSLF).  But, there’s a catch, and it’s one that many people don’t find out about until it’s too late.

Only specific types of student loans will qualify for PSLF.  Many loans aren’t eligible for the program at all.

Unfortunately, your student loan servicer will not notify you of this.  It’s on you to make sure you are eligible for PSLF, and the sooner you take action, the better.

 

What is PSLF?

Public Service Loan Forgiveness (PSLF) is available to individuals with specific kinds of federal loans who work for the government or a 501(c)3 Non-Profit, including charities and non-profit hospitals, among others.

It’s important to note that it’s your employer that determines whether or not you are eligible.  If, for example, you teach at a for-profit school, you wouldn’t be eligible for PSLF.  So, make sure your employment qualifies before pursuing PSLF.

In order to obtain forgiveness under this provision, you must fulfill two provisions.  First, you need to make 120 payments while on an Income Repayment Plan.  Note that this is not the same as having the loan for 10 years! You must actually be making the payments in order for a month to count toward your total.  At the end of 120 months where you have made a qualifying payment, you are eligible for forgiveness.  Secondly, of course, you must make these payments while holding a qualifying job.

There are many more important details about PSLF that you should review if you seek to pursue this forgiveness plan.  You need to be sure you are on the right type of repayment plan, as I mentioned above.  While not required, you should file a form indicating that you hold a qualifying job with your servicer each year.  To get more information on these other items to consider, schedule a free introductory call or subscribe to my newsletter and download my student loan guide.

For now, the important question I want to highlight revolves around what types of loans do not qualify for PSLF.   And, of course, what can be done to fix the situation if you have these loans.

 

Which Loans are Eligible, and Which Loans Are Not?

Any Federal Direct Loans are eligible for PSLF.  Common types of Direct Loans include Direct Stafford Loans (subsidized and unsubsidized), Direct PLUS Loans, and Direct Consolidation Loans (more on that last type in the next section).  Typically, the information on your monthly statement may not always be enough to determine the specific loan type you have.  Not to keep tooting my own horn, but you can find a step by step approach to confirming what types of loans you have in my free student loan guide.

Unfortunately, not all loans are eligible for PSLF.  If your loans were issued by a private lender, this may come as no surprise.  Regrettably, private loans have very few of the flexible “perks” that federal loans have, and that includes forgiveness provisions.

More subtly, there a few types of federal loans that aren’t eligible for PSLF, either.  One of the most common mistakes I see around PSLF is individuals who have been making payments for years while holding a qualifying job, but aren’t actually eligible for forgiveness at all.  Solely because of the types of federal loans they have.

The main types of federal loans that are NOT eligible for PSLF are:

  • Federal Family Education Loans (FFEL)- Federally-backed loans issued by private banks. The government discontinued this program in 2010, so this typically only affects people who graduated college in 2014 or earlier.
  • Perkins Loans- The federal government funds these loans, but your individual college distributes the funds. Perkins loans aren’t quite as common as Direct Stafford loans, but many colleges include them in financial aid packages.

If you are pursuing PSLF, review your loans to confirm that you don’t have either of these types.  Unfortunately, the current PSLF plan does not allow forgiveness of these loans.

 

What to Do if You Have FFEL or Perkins Loans and Want to Pursue PSLF

Thankfully, you still have options if you have FFEL or Perkins loans and want to work toward forgiveness.  There is a way to qualify these balances.

In order to do so, you must consolidate the other loans through a Federal Direct Consolidation Loan.  In this process, you can combine the federal loans you currently have, including Perkins and FFEL loans, into one direct loan through the federal program.

The purpose of getting a Federal Direct Consolidation Loans isn’t to cut your interest rates.  The rate for the new consolidation loan is a blended average of all the loans you consolidate.  Instead, a major benefit of consolidation is that all of your consolidated loans are eligible for PSLF.  So, if you roll your Perkins or FFEL loan into a Federal Direct Consolidation Loan, the balance may now be forgiven through the program.

Two important caveats, though.  First and foremost, there are a number of unique benefits for Perkins loans specifically that do not transfer over to the new consolidated loan.  If PSLF is a high priority for you, this may not matter, but it is something to consider before deciding.  Work with a financial planner who specializes in student loan planning to review the pros and cons before taking action.

Second, and most importantly, consolidating your loans in this way will “reset” your 120 payment counter for forgiveness on any direct loans you are consolidating with the Perkins and FFEL loans.  The US Department of Education says it best (emphasis added):

If you have both Direct Loans and other types of federal student loans that you want to consolidate to take advantage of PSLF, it’s important to understand that if you consolidate your existing Direct Loans with the other loans, you will lose credit for any qualifying PSLF payments you made on your Direct Loans before they were consolidated. In this situation, you may want to leave your existing Direct Loans out of the consolidation process.

That’s a very critical point.  Consolidation has huge benefits for PSLF because it can qualify balances originally issued under Perkins or FFEL loans.  But, if you have other direct loans as well, make sure you only consolidate the needed loans if you have already begun payments to avoid resetting your 120 payment count.

 

Student Loans Are Complicated

There are many different types of student loans, and all of them are eligible for different benefits, including PSLF.  Even in a 1300+ word blog post, I wasn’t able to touch on all of the potential complicating factors.  Download my student loan guide to learn more, and if you are contemplating pursuing PSLF, consolidating your loans, or making any other adjustments to your particular loans, it’s never a bad idea to get a second opinion.

Why It’s Critical to Negotiate Your Salary

Just about anyone I’ve ever spoken with remembers the feeling they had when they accepted their first job.

I certainly do.  Getting ready to graduate college, signing on the dotted line to join a great and growing firm.  It was a wonderful feeling.

But before you accept the contract, there’s a critical step that many of us miss.  And it can come back to haunt you if you aren’t careful.

I started Pacesetter Planning as a firm dedicated exclusively for millennials for many reasons, but one of the biggest was that nobody ever taught us about financial topics in school.  Certainly, nobody ever taught me about this critical step to accepting your first (or second, or third…) job.

You absolutely have to have a strategy in place to negotiate your starting salary.

I’m not just talking about going in and blindly making demands.  No, there’s a lot of strategy involved.  I can help you develop and implement a negotiation plan.

But, it’s so important that you actually do it.  If you don’t, you could be literally costing yourself hundreds of thousands of dollars.

Don’t believe me?  Read on.

Millennials are Good at Many Things.  Negotiating Salaries Isn’t One of Them.

The good news is that we can fix this negotiating problem that we collectively have. The bad news is that most of us just aren’t doing it.

A study conducted by NerdWallet last year indicates that only 38% of millennials negotiate salary with their employers upon receiving a job offer.  Over 60% of millennials aren’t negotiating at all, even when they are told that the employer expects negotiating as part of the application process.

The most heartbreaking part?  According to the study, three out of four employers have room to negotiate salary by as much as 10%, if the new employee asks for it.

I get it, it feels uncomfortable.  But, the odds are high that your employer is expecting you to negotiate.  Develop a strategy, do you homework, and practice before you ask.  But you absolutely need to try – there’s too much on the table to avoid it.

It’s About Way More Than Just Your Current Salary

Negotiating an increase in your salary when you start a new job, or even in a job your currently hold, is about way more than just increasing your income right now.  That’s a nice benefit, don’t get me wrong, but that only scratches the surface as to why it’s such an important concept.

The key is that your future income is, in most cases, directly based on your current income.  Meaning, that the raise you get next year isn’t completely random.  It’s based on your current salary.  So, if you increase your salary now, your raise next year is going to be for a higher dollar amount than it would be if you hadn’t negotiated.  The year after that, your income is going to go up by an even higher number, assuming you get annual raises at your job of course.  Thus, if you negotiate your salary upwards as early as possible, your income will grow at an exponentially faster rate in the future than it would otherwise.

How Negotiating a 5% Raise Could Make You $220,000

Hypothetically, let’s say a company makes a job offer to two seniors in college, Max and Jess.  Each of them have the same amount of experience, and both are offered a starting salary of $50,000.  They are each 22 years old.

Max, happy with the offer, accepts a starting salary of $50,000.  Jess, however, decides to negotiate, and is able to earn a salary of $52,500 – 5% higher than the initial offer.

Let’s say that they then each get a 3% raise each year.  How do their salaries compare as they get older?

blog-5-negotiating-raise-chart-1

Jess started her career making $2,500 per year more than Max, but by the time they reach retirement age at 65, she’s making over $9,000 a year more.  This difference is only because she negotiated a raise before she took the job offer – there are no other differences in their compensation paths.  And, of course, this doesn’t take into account that Jess is probably more likely than Max to negotiate future raises, further increasing the difference.

At first glance, this might not seem like a huge deal.  Why am I making such a big deal about $9,000?  Because it’s about much more than that.  If you add up all of the earnings that Jess and Max would take home throughout their career, Jess cumulatively earns over $222,000 more than Max:

blog-5-negotiating-raise-chart-2

Seriously.  By making a quick phone call before accepting the job, Jess can earn nearly a quarter million dollars more than she would have if she hadn’t made that call.

If I told you that you could schedule a meeting this week that could earn you a quarter million dollars, would you do it?

Negotiating Isn’t Just for New Hires

Negotiating salaries isn’t just for new job offers.  Depending on your situation, it can be appropriate to negotiate a raise in your current job as well.

Again, there’s a right and wrong way to do it.  Do your homework and be able to back up your request with specifics about your job performance and industry trends.

And if you get pushback, or still aren’t comfortable with going to your boss to talk about a raise?  I’m about to share a secret about how employers base salaries.  It’s not a hard and fast rule, but it applies to many firms who work in competitive industries.

Here it is: most companies pay higher salaries to individuals who they hire away from their competitors.  Think about it – in order to attract the best workers, it makes sense that the company would want to offer “premium” salaries to employees that they recruit from other firms.  If you’re already working in the industry, why else would you consider jumping to a competitor?

Of course, there are plenty of other reasons you might not want to start looking for a new job.  Your company’s people, location, training, benefits, culture… the list goes on and on.  It might not be a good idea to jump around in the industry just to bump your pay.

But, your salary certainly is a factor.  What I’m trying to say is this: if you can see yourself making a change, keep in mind that doing so often comes with an increase in pay.  And if you’re a super savvy negotiator, having another job offer in your pocket could be a great way to get your current HR team to consider giving you a raise to stay!

Plan. Prep. Negotiate.

There are lots of different strategies here, but above all, it’s important to negotiate.  It’s about more than your current salary – any increase in pay today will have exponential effects for you down the road.

But, it absolutely needs to be done in the right way to give yourself the best chance of success.  If you want to learn more, schedule a fee, no obligation consultation to talk about how to do this the right way!

How to Keep Holiday Spending From Blowing Up Your Budget

With Thanksgiving behind us, the holiday season is here.  And with it comes travel plans, parties, family gatherings, and, of course, gifts.

With all of that comes costs.  Significant ones.  A study from PwC estimates that millennials will spend over $1,000 on holiday-related expenses this year, up 26% from last year alone.

I’m not writing this to say that’s a bad thing.  Heck, I’m the lunatic who starts listening to “White Christmas” in October.

Here’s my question instead.  No matter who you are, spending an extra $1,000 in a particular month is enough to blow up anyone’s budget.  From a financial planning perspective, how do you prevent irregular expenses from destroying your monthly spending projections?

It’s not Just about Holiday Presents

What do I mean by irregular expenses?  Spending that isn’t completely unpredictable, but doesn’t happen every month.

Breaking your leg and needing to pay for an x ray isn’t an irregular expense- it’s an emergency, and its why I encourage all my clients to have an emergency fund before focusing on other financial goals.  That’s not what we’re talking about here.  Instead, we’re looking at the money you spend every year or so in a way that’s predictable, but not frequent.

Holiday spending is particularly relevant in December, but this isn’t the only irregular expense that comes up during the year.  This also relates to:

  • Car insurance payments (usually made twice a year)
  • Renters or homeowner’s insurance payments
  • Reoccurring medical expenses (for example, a refill on prescriptions or contact lenses every x months)
  • Annual car registrations and inspections
  • Car maintenance (ex: new tires every 60,000 miles)

Some of these are more predictable than others, but you get the picture.  If you aren’t careful, you can have a huge, irregular expense in your budget every other month.

Getting back to the holidays, I’m not just picking on gifts.  There are a lot of other costs that can add up around this time of year- travel expenses, shipping costs, decorating, cooking/baking, and Christmas cards, just to name a few.

So, what should you do about it?  There are two main ways you can approach irregular spending.

Option 1: Keep and Fund an Irregular Expense Account Using Past Average Spending

Personally, this is my favorite method to approach these issues.  In a nutshell, using this approach you would average out your yearly expenses across every month, and use these savings to cover the expenses when they come due.  Let’s break it down.

First Step: Estimate Your Yearly Irregular Expenses

In order to plan for your irregular expenses, you have to have a ballpark idea of what they are.  While it can be difficult to calculate some irregular expenses, generally I recommend that you let your own spending history be your guide.

With bank account and credit card information online, it’s not terribly difficult to piece together a ballpark estimate of your past irregular expenses.  (Note: I didn’t say “fun”.  I said “It’s not terribly difficult”. Going back through old receipts isn’t something that makes anyone excited, but it’s important!)

For example, let’s say that on average, you’ve spent $1,000 on holiday gifts/travel/decorating/cooking every year in December, $500 every March and September on car insurance, and $150 on annual car registrations and inspections.   If these are your only irregular expenses, your total for annual irregular spending is $2,150.

Just to be on the safe side, let’s round up by a couple percentage points and use $2,200 instead.

What does this mean?  On top of your monthly budget for rent, food, etc., you need an extra $2,200 to cover your expenses each year.

Second Step: Break It Down By Month

In this step, we’re going to divide your annual irregular spending into an average amount per month. Then, add that amount to your current monthly budget.

The idea here is that rather than only thinking about holiday spending in December, it’s best to set aside some money every month so that when the holidays roll around, your budget stays intact.

Going back to our example, if you spend $2,200 on irregular expenses every year, averaging that out every month means that you’d spend $183.33 per month on these items if you spent it evenly throughout the year.

So, how do you stop irregular expenses from blowing up your budget?  Estimate them on a monthly basis, then save that amount each month.  That way, when it comes time to buy that holiday gift or get your car inspected, you can use cash you’ve saved up in advance to cover it.

Is it easy to save $183.33 each and every month?  It might be, or it might not be, given your budget.  That isn’t really the point.

The point is that if you did the first step correctly, you’ve been spending that money already in the past year or two.  Rather than dealing with it in large chunks, you’re planning ahead to make it easier on your wallet when the time comes.

Third Step:  Where to Put the Money in the Meantime?

Saving a set amount each month to cover sporadic expenses is great.  But that begs the question- where do you put the savings?

I’m a big believer in having multiple savings accounts for different goals.  Assuming you aren’t paying fees on your savings accounts (if you are, you shouldn’t be!  There are plenty of free options out there), the only drawback to having multiple savings accounts is just keeping track of them.  And, I’d argue that it’s much easier to keep track of your money if you have different accounts earmarked for different purposes.

Your emergency fund is different than your irregular expense fund, which is different than your travel money, which is different from your savings to buy a house…. You get the picture.  One of the easiest ways to keep your money allocated for the correct purpose is to use different accounts.

So, if you set up a separate irregular expense account, your goal should be to contribute to it evenly each month to fund these expenses.  Make it easy on yourself, and automate this savings.  Schedule a direct deposit from your paycheck, or an automatic debit from your checking account, once a month to make sure you’re saving what you need to be saving.  Your wallet will thank you when the holidays roll around!

Fourth Step:  Reevaluate Annually

I work with all of my comprehensive financial planning clients to update their financial plans annually.  There’s a good reason for this: things change, and change often.  What worked for you this year might be too much or too little next year.  Set your targets based on what you’ve done in the past, but make sure to reevaluate at least once a year to make sure you’re saving the appropriate amount.

Tangent

We need to have a brief time out before we go to the second option for how to keep holiday shopping to blow up your budget.

So far, we’ve only talked about irregular expenses.  But, irregular income works exactly the same way.  If your cash flow increases once or twice a year, either earmark those funds toward a long-term savings goal, or average out this income each month to treat it more like a raise than a bonus.

What am I talking about here?  For people who have seasonal income, this definitely applies to you, but I bring this up to primarily speak to one irregular source of income that most of us receive each year- your annual tax refund.  If you get $500 back from the IRS every April, build it into your monthly income budget for the rest of the year, just like we did for your irregular expenses, rather than spending it all at once.

Time in- time to talk about the second option for handling irregular expenses.

Option 2: Benchmarking and Flexibility

Let’s say that the thought of diligently setting aside money in January and February that you won’t be able to touch until December gives you some anxiety.  What do you do then?

The short answer, of course, is that you need to come up with a way to pay for your holiday expenses in real time.  This isn’t fun either, but there are a few good ways to go about it.

First Step: Set Spending Caps

Before you start your shopping, set some hard caps for yourself.  Again, this best done in conjunction with your historical spending, but the key is to come up with a realistic number and hold yourself to it.

For example: this year, you might commit to only spending 1.5% of your annual income on holiday-related items.

That’s a great first step, but now it’s time to divide it up.  Let’s say that 1.5% of your annual income is $1,000 (if your post-tax income is $66,666.67).  How are you going to spend that?  For example:

  • $50 for decorations
  • $75 for baking expenses
  • $75 for Christmas cards
  • $250 for a train ticket home
  • $550 for gifts

From there, divide each category down even further.  Of the $50 you’re spending on decorations, $35 might go toward a Christmas tree, $15 toward lights.  For your gift budget, break it down by person.  This way, once you’re browsing your favorite online stores, you have your targets in mind before you buy.

Second Step: Flexibility

Of course, limiting your expenses in this way is great, but it doesn’t completely solve the problem of where the money is going to come from.  Hopefully, by putting reasonable caps on your holiday expenses, you’ve made the burden light enough to solve the problem through some flexibility in your budget.

Obviously, your rent and electric bill still need to be paid.  But most people I’ve worked with have some discretionary money built into their budget somewhere.  Maybe its money you set aside for eating out on the weekends, or for going to the bars.  Maybe you like to go to the movies or to sports games. All of those things are great, and they absolutely belong in your budget.  But, when these irregular expenses come up, they should be the first place you look to cover the costs if you haven’t been setting aside money for them.

Saving and cutting down on discretionary money isn’t fun, but your wallet will thank you come New Year’s if you plan accordingly!

The Elephant in the Room

If you’ve made it this far, you may have noticed I left out a step.  I’ve made an assumption and left it unaddressed until this point, but it’s an absolutely crucial one.

You need to have a monthly budget.

I don’t think anyone actually likes budgeting. But, I can’t overstate the importance of a monthly budget if you want to make financial improvements in your life.

I was in this position a few years ago.  I never sat down to budget how much I was spending on food, transportation, entertainment, etc. each month.

And guess what?  I wasn’t saving anything.

So I know it’s not fun, but I also know that in order to meet just about any financial goal you have, the first step is going to be to make a monthly budget.

If you want to learn how to do this and (more importantly) how to make yourself stick to it, click here to schedule a free intro call.