Financial Planning | Evaluating Student Loans | Capital Analysts
Financial Planning Series: 5 Questions on to Ask Yourself When Evaluating Your Student Loans
- How much money do I plan on making over the next 5, 10, 20 years?
Based on the standard repayment plans, students were given a payment schedule that would pay off their student loans, principal and interest included, completely in flat and even payments. These proved to be burdensome especially for people with large levels of student debt which occurs frequently with high skilled professionals who attend school for long periods of time. Now with all the varying forms of Income based repayment borrowers have more choices as to how their payments are calculated usually allowing workers to make upwards of $200K and still make lower month to month payments than they normally would. That picture though changes over time and may affect the pattern in which a borrower would minimize the financial burden from their loans.
- What is the total level of debt that I feel comfortable taking on?
For some people it is a pure mental issue and they want to try to wipe debts off their balance sheets as quickly as possible. You can accelerate payments on most student loans to a 5 year repayment plan, which limits the level of interest you’d pay as a borrower (the longer the term the higher the interest cost). The biggest hurdle for most reverts back to how much debt there is, because if it is a large amount relative to their income then it will prove burdensome to pay off quickly.
- Should I look to work at a not-for-profit institution for a long period of time?
Under current rules, the PSLF (public service loan forgiveness) program allows student loan borrowers who are employed by a not-for-profit for 10 years to have their loans forgiven. This affects certain professions more so than others, most particularly physicians who already tend to complete their residency programs while working at not-for-profit hospitals. This grants them the ability to stick around working for certain hospitals to complete their 10 year span, or leverage that aspect in negotiating contracts with private practices. PSLF has been targeted by many lawmakers as something they can remove to save money, so keep an eye on legislation in relation to it.
- Do my savings on filing my taxes Married Filing Jointly outweigh possible savings from an income based repayment plan?
In order to take advantage of income based repayment plans it usually is beneficial to file your taxes separately from others. In certain plans it doesn’t even give you an option to separate yourself from your spouse’s income so also be aware of that. If you are married or are about to get married, and you are employing the use of income based repayment plans you should look into the difference between payments that would be required of you under both tax statuses. The thing that it comes down to is whether it’s better to save on taxes or save money on your student loan payments, which will depend on your particular circumstances.
- Is your company helping employees with their student loan debt, or are they open to it?
There are many benefits for employers to offer student loan reimbursements to their employees, but as of now when employers pay the employee still gets taxed on those payments. The Employer Participation in Student Loan Assistance Act1 would look to allow employers to pay up to $5,250 to their employee’s tax free. Some companies are already allowing student loan 401K contribution features, where when an employee completes a student loan payment, they receive a pre-tax company contribution into their 401K. Adding $100 a month to a student loan program can shave years and thousands of dollars of interest off the life of a loan. A payment many companies would gladly pay if that’s what it meant to retain their workers. When you seek to create a financial planning strategy that takes into account your student loans, it’s important to work with a professional. Our financial advisors pride themselves on helping clients make informed decisions for their family and business. Contact us today to schedule a consultation.
Disclaimer: This content was developed for informational purposes only from sources believed to be reliable, however we make no representation as to its completeness or accuracy. The information in this material is not intended to provide legal or tax advice and does not constitute a recommendation for any person or persons having circumstances similar to those discussed. You should consult your legal or tax advisor for information concerning your individual situation.Source: