Image: Freedigitalphotos.net
May is the first month in well over a decade when the Eyes on the Dollar household hasn’t had to make a student loan payment. While we certainly took our eyes off the dollar in paying those loans back, I wanted to share some final thoughts on student loans and why I think it’s important to consider all of your options before you do something big like consolidating or even paying them off. We’ve made our share of financial mistakes, but a huge one was losing $6000 because we consolidated the wrong loans. Hopefully you can use our mistakes to save yourself some serious money.
Student Loan Forgiveness
If you work full time in certain occupations, you could be eligible for loan forgiveness. Keep in mind, this is for the US only, and I don’t have enough room to include all the details. You’ll need to research them if one seems like it could work for you.
Public Service Loan Forgiveness- This is the newest loan forgiveness program that was put into place in 2007. Basically if you work for the federal, state, or local government or for a tax exempt non-profit organization, you could be eligible for this program. If you make 120 consecutive, on time payments, the balance of your loans are forgiven. In order to maximize the benefit, you would need to make the lowest possible payment, usually the income based option. You also cannot put loans into deferment or forbearance. I would not bother with this for small loan amounts, but if you have tons of student loan debt and work in this type of job, it is worth looking into.
Teacher Loan Forgiveness-If your student loans were first dispersed after October 1, 1998 and you teach in a low income or Title I school for five consecutive years, you could be eligible for this program. If you teach math or science in a secondary school or special education, you can qualify for up to $17,500 in loan forgiveness of certain federal loans. If you teach in an elementary classroom or teach a non-math or science subject related to your major, you can receive up to $5000. We almost got this one, but Jim’s first loan was dispersed in 1997, so we missed it by one year.
Perkins Loan Cancellation-If you hold a public sector job, like a head start teacher, law enforcement officer, an attorney who works as a public defender, a nurse, teacher in a low income school, or volunteer for organizations like the Peace Corps, you could be eligible to cancel a percentage of your Perkins Loans. This one is a bit complicated, but Jim would have been eligible if we hadn’t consolidated his loans with a private company. Because we did that, he missed out on about $6000 in loan cancellation. If you think you might be eligible someday for this program, then don’t consolidate your loans or consolidate them through the Federal government’s Direct Consolidation Loan Program.
If you call the government for information, make sure you get the terms correct. I asked about Perkins Loan forgiveness, and the lady kept telling me there was no such program. I knew I’d seen it online, so I made her stay on the phone while I looked it up. I realized it was called cancellation instead of forgiveness, and she then gave me information. Honestly, when calling the government for anything, if you don’t get the answers you need, call again. Eventually you’ll get someone who knows or is willing to help you out.
National Health Service Corps Loan Forgiveness-If you are a medical or dental professional, you could qualify for loan forgiveness by working in an approved site for two years. Generally, these are places where the population is under served. If approved, this program offers forgiveness for federal and private student loans.
Consolidating Loans
Consolidating loans can be a smart move if you are concerned about variable interest rates. Keep in mind that when you consolidate, the rate is based on an average of all your rates for various types of loans. If you have some loans sitting at a very low rate, you might want to leave those out because the higher rate ones are going to increase the over all interest you’ll be paying. Consolidation offers you the ability of one convenient payment, but the term usually stretches to 20 years or more. Of course you can pay more than the minimum payment, but we fell into the trap of not doing that. Our loans were like that Titanic song, they went on and on. Also, don’t miss out on cancellation or forgiveness options because you consolidated with the wrong company.
Should You Invest While You Have Student Loans?
I’ll take the easy way out and say, it depends. If you have a small amount of student loans that you can knock out in a year or a large amount that you are willing to sleep on a couch and eat ramen to pay off quickly, then I’d say get the student loans done before you’re old and gray. However, I would never pass up a company match on a 401k to pay off student loans. I also would not lose years of compound interest to pay off a student loan that has a reasonable rate. I would certainly buy a house with interest rates at all time lows if that is a goal you have. Waiting 5-10 years to pay of student loans before you buy real estate or start investing in retirement is too long in my opinion. However, if you start to adjust your lifestyle upwards before you pay for your education, you could end up on AARP while sill paying off student loans.
I’m sure there are other loan forgiveness programs that I’ve missed. If you’re like me and work for yourself, you don’t qualify anyway. You might as well get used to the idea of paying off your debt. In conclusion, I think looking at the long term picture before you make any big decisions about your student loans is very important. Otherwise, you could be like us and lose $6000 because you made a hasty decision.
Have you qualified for any type of student loan forgiveness? Would you invest or buy a home while still paying off student loans?
I spent 9 hours yesterday at the Indian Health Service Biannual Meeting attending continuing education classes. Indian Health CE is so unlike other optometry meetings because the patients are generally more complicated. Most people think of optometrists as the people who give you glasses and contacts, and that is a big part of what I do. My favorite part, though, is medical optometry. It’s like a puzzle. My patient has X, Y, and Z symptoms, and I have to connect the dots to decide what might be wrong.
