How To Defer Student Loans And Come Out Ahead
As of Sep 1, 2023, student loan payments that were deferred are now due this month. Much has been written about the economic impact of student loan repayments. According to Nik Bhatia, a professor of finance at the University of Southern California, “Proponents have come out of the woodwork over the years for student loan forgiveness. Moral hazard is already at nuclear levels, and the decision by our policymakers is for yet more easy credit, thus moral hazard. Genius.”
Mr. Bhatia further explains “Eliminating the need for students to repay student loans will distort credit incentives even further for future borrowers. If you set this precedent, people will knowingly take on debt that they cannot repay with the expectation that they won’t have to”. His claim is substantiated. According to CreditKarma.com, 45% of borrowers expect to go delinquent once forbearance ends.
While dire predictions feed the YouTube algorithm, we at Degree Solutions have found several cost effective deferment programs that will possibly have you come out ahead. We will start our comprehensive review by stating you have three outcomes
How To Get Your Loans Forgiven
Hardship Forgiveness [Bankruptcy Discharge]
According to studentaid.gov, the federal student loan information clearinghouse, they state: In some cases, you can have your federal student loan discharged after declaring bankruptcy. However, discharge in bankruptcy is not an automatic process.” In reality, we wanted to find examples of students that have used this process to determine if it is valid or not.
Hint: It is very difficult to obtain a discharge of your federal student loan after declaring bankruptcy. Nevertheless, there have been a few success stories.
Owed over $349,800 in federal student loans while filing for bankruptcy. Through Upsolve, a free, open source app that helps students navigate the bankruptcy process , she was able to successfully settle over $250,000 with the Department of Education. While her full loan was not forgiven, a large amount was reduced. Her hardship was due to having Type 1 Diabetes (medical hardship) and her medical costs, coupled with her medical condition that impeded upon her ability to work, factored into her ability to reduce a substantial portion of her loan during her bankruptcy proceedings.
Why is it so difficult
The burden of proof of undue hardship favors the lender as the borrower has to demonstrate undue hardship. Unfortunately, bankruptcy code does a poor job of defining undue hardship. In addition, these rules have been reformed and renegotiated in the 80s, 90s, 00s and 10s.
Adding insult to injury, the original intent of non-discharge rules in bankruptcy was to prevent students from incurring massive amounts of debt (think medical school students and law students), then filing for bankruptcy upon graduation in an effort to eliminate any financial burdens. It is important to take into account the timeframe of when these rules were written and the climate of the country at the time. These rules occurred during the 70s era, where government trust was at an all time nadir (Watergate, Nixon, Fall Of Saigon, Iranian Hostage Crisis) and there was a growing professional class that prized individual liberties over civic duty. One can argue that this is taxpayer protection as a professional class should not take advantage of government generosity.
After student loans were expanded to middle class families by the [name of bill] led by then Senator Joe Biden, undergraduate students, vocational training students and niche training/educational programs were eligible for loans and this group, unlike the medical and law students, would not command a starting salary that would make a bankruptcy discharge program seem egregious. Unfortunately, the wheels were in motion to ensure discharging in bankruptcy remains challenging. But it can be done.
Total and Permanent Disability Discharge
You may qualify for a total and permanent disability discharge of your federal student loans and any TEACH service obligations if:
- you’re totally and permanently disabled, and
- you have a Direct Loan, Federal Family Education Loan (FFEL) Program loan, or Perkins Loan.
Work For The Government or a Non-Profit?
If you do, then you are in luck. If you do not and you seek loan forgiveness, you might consider a career in public service. There are robust public service loan forgiveness programs [PSLF] that provide different amounts of debt relief for in demand professions. The PSLF got its inspiration from the G.I.Bill, rated by historians as one of the most successful pieces of social legislation in U.S. Government history. The spirit of thanking those for public service has been extended throughout the government, hoping to attract talented workers into public service.
Eligible Public Service Careers
Government Employees
Public Service Loan Forgiveness (PSLF)
“You may be able to receive Public Service Loan Forgiveness (PSLF) if you work in federal, state, local, or tribal government, and you have a Direct Loan. The PSLF Program forgives the remaining balance on your Direct Loan after you’ve made the equivalent of 120 qualifying monthly payments while working full time for a qualifying employer.
*Federal Family Education Loan (FFEL) Program loans and Federal Perkins Loans may become eligible for PSLF if you consolidate your loans into the Direct Loan Program.”
Teachers | Educators
The Teacher Loan Forgiveness of up to $17,500 is targeted toward teachers/educators who teach full time and have completed five (5) consecutive academic years at a school (elementary, secondary or educational service agency with a low income designation. This applies to holders of Direct Loans or Federal Family Education Loan participants.
Nurturing Professionals In Education | Education Administrators
Public Service Loan Forgiveness (PSLF)
If you work in childcare, early childhood education, or have a technical and/or an administrative role in public or not-for-profit education and you have a Direct Loan, then may be eligible for [PSLF] Public Service Loan Forgiveness.
Non-Profit Workers
Public Service Loan Forgiveness (PSLF)
If you are a non-profit worker, then you will first need to speak to your human resources team to determine if your organization qualifies. If your organization does, then as long as you have a Direct Loan, then you may be eligible.
Medical Professionals
Public Service Loan Forgiveness (PSLF)
The PSLF applies to certain health care professionals working for a qualified non-profit or government organization. Due to the current shortage of medical professionals in the United States, The Health Resources & Services Agency is actively on a near real time basis occupations that need staff and locations that are critically understaffed. Each location also has special programs and incentives to attract qualified workers.. In the past, these programs were decentralized and managed at the state and local level. Given the acute labor shortages and the need to fill these positions, the HRSA has outlined the following areas as critical
Source-
https://data.hrsa.gov/topics/health-workforce/shortage-areas
HRSA Funded Loan Forgiveness Programs
Nurse Corps Loan Repayment Program
Pays up to 85% of unpaid nursing education debt for recipients that serve or elect to work for two years in a Critical Shortage Facility (CSF) or an eligible school of nursing.
Occupations eligible:
- A registered nurse (RN)
- An advanced practice registered nurse (APRN)
- Nurse faculty (NF)
You must have received your nursing education from an United States, or U.S. Territory based accredited school of nursing .Apply for the Nurse Corps Loan Repayment Program
National Health Service Corps Loan Repayment Programs
NHSC Loan Repayment Program [NHSC-LRP]
Eligibility: Licensed primary care clinicians in eligible disciplines can receive loan repayment.
Qualifications: Must serve a minimum of two years at an NHSC- approved site in an HPSA
(Health Professional Shortage Area)
Application: https://nhsc.hrsa.gov/loan-repayment/nhsc-loan-repayment-program
NHSC Substance Use Disorder Workforce Loan Repayment Program
The NHSC SUD Workforce LRP combats the nation’s opioid crisis by prioritizing treatment over law enforcement. This program is designed for trained and licensed providers in eligible disciplines that use evidence-based treatment models to treat substance use disorders.
In exchange, you serve at least two years at an NHSC-approved SUD treatment facility. This could be viewed as a barrier, but look at this as an opportunity to make a real impact on your fellow Americans by serving in a location that needs your expertise. If qualified personnel do not take up this challenge, who will?
Eligible specialties
- Physicians
- Nurse practitioners
- Certified nurse midwives
- Physician assistants
- Behavioral health professionals
- Substance use disorder counselors
- Registered nurses
- Pharmacists
How do I apply?
Get details and guidance on how to apply to the SUD Workforce LRP.
NHSC Rural Community Loan Repayment Program (NHSC Rural Community LRP)
The NHSC Rural Community LRP is for providers combating the opioid epidemic in the nation’s rural communities.Licensed primary care clinicians in eligible disciplines can receive loan repayment. In exchange, you serve at least two years at a rural NHSC-approved SUD treatment facility.
Eligible disciplines
- Allopathic/osteopathic physicians
- Physician assistants
- Psychiatrists
- Nurse practitioners
- Certified nurse-midwives
- Psychiatric nurse specialists
- Health service psychologists
- Licensed clinical social workers
- Marriage and family therapists
- Licensed professional counselors
- SUD counselors
- Pharmacists
- Registered nurses
- Certified registered nurse anesthetists
How to apply?
Get details and guidance on how to apply to the NHSC Rural Community LRP.
For states, the NHSC offers the State Loan Repayment Program (SLRP) as a cost-sharing grant.
NHSC Students to Service Loan Repayment Program (NHSC S2S LRP)
Are you a student in your last year of medical, nursing, or dental school? You can receive loan repayment from the NHSC S2S LRP. In return, you provide at least three years of service at an NHSC-approved site in a Health Professional Shortage Area (HPSA)
- Allopathic (MD)
- Osteopathic (DO)
- Family Medicine
- General Internal Medicine
- General Pediatrics
- Geriatrics
- Obstetrics/Gynecology
- Psychiatry
Nurse Practitioner (NP)
- Adult Practice
- Family Practice
- Pediatrics
- Women’s Health
- Psychiatry
- Geriatrics
Certified Nurse-Midwife (CNM)
- Women’s Health
Dentists
- Doctor of Dental Surgery (DDS)
- Doctor of Medicine in Dentistry (DMD)
- General Dentistry
- Pediatric Dentistry
How do I apply?
Get details and guidance on how to apply to the NHSC S2S LRP.
For states, the NHSC offers the State Loan Repayment Program (SLRP) as a cost-sharing grant.
Substance Use Disorder Treatment and Recovery Loan Repayment Program (STAR LRP)
The STAR LRP repays eligible educational loans. You must work in a full-time SUD treatment job. In exchange, you serve full-time for six years at a STAR LRP-approved treatment facility.
Am I eligible?
Your job must involve direct patient care in a
- county/municipality where the average drug overdose death rate (over three years) exceeds the most current national average; or
- Mental Health Professional Shortage Area (MHPSA).
You must be trained, certified, registered, or licensed in an eligible discipline.
Pediatric Specialty Loan Repayment Program
The Pediatric Specialty LRP repays eligible educational loans. In exchange, you serve full-time for three (3) years at a Pediatric Specialty LRP-approved treatment facility.
Am I eligible?
You may be eligible to apply if you are providing:
- Pediatric medical subspecialty
- Pediatric surgical specialty
- Child and adolescent mental and behavioral health care including substance use disorder (SUD) prevention and treatment services
You must be trained, certified, registered, or licensed in an eligible discipline.
How do I apply?
Get details and guidance on how to apply to the Pediatric Specialty LRP.
Learn what your site needs to become Pediatric Specialty LRP-approved.
Faculty Loan Repayment Program (FLRP)
If you’re a faculty member, we’ll repay a portion of your health professional student loan debt ($40,000 max over two years). In return, you serve at an eligible health professions school.
Am I eligible?
You are eligible for the Faculty Loan Repayment Program (FLRP) if
- You come from a disadvantaged background. We base this on environmental and economic factors.
- You have an eligible health professions degree or certificate.
- You are a faculty member at an approved health professions school. You must have a contract for two years or more.
How do I apply?
Get details and guidance on how to apply to the FLRP.
How To Use Tuition Reimbursement To Defer Payments
Does your employer offer tuition reimbursement of any kind? Have you checked? If you have not, you should. Why? According to SHRM, 48% of employers state they offer some form of tuition reimbursement to their employees. Research firm Willis Towers and Watson found that over 80% of large employers offer tuition reimbursement.
Before we provide use cases for you on how to use tuition reimbursement to compliment student loan deferment, let’s first understand who benefits from tuition reimbursement programs. According to Guild Education, a platform that allows employees of select companies to source, enroll and matriculate from certificate and degree programs that are reimbursed by the company.
According to Rachel Romer, CEO of Guild Education, participants in tuition reimbursement programs are twice as likely to be promoted and four times less likely to leave the organization. A promotion and retention program.
If your company happens to have a tuition reimbursement program and you are accepted into it and you have student loans, this may be a beneficial scenario for you if.
- You are attending half time or full time (9 or more credit hours) at a qualified institution.
- Your company pays, via tuition reimbursement, your part/full time study
- The school you attend contacts your loan servicer to inform them you are now studying part time
- You confirm with your loan servicer that your school is eligible for deferment and you show proof of enrollment into your tuition reimbursement program
Note – this is for students with previous loans that are seeking deferment of loans by attending school. The difference in this scenario happens to be the student will be taking advantage of tuition reimbursement.
What happens when my loans go into deferment?
Think of deferment as a payment pause. You do not have to make payments on your loans, however, depending on the type of loan and deferment, interest may accrue on that loan. It matters if you view obtaining skills and training as a pathway to increasing your salary.
In our case, we asked, “if an average outstanding balance is 15,000, and a median salary for a college graduate is ~$56,000 according to the Bureau of Labor Statistics, then what type of salary increase can we expect to make deferring and going back to school worthwhile.
According to our calculations, a person making $56,000 (average salary) with an outstanding balance of $15,000 (average outstanding balance) pays roughly $170 to,$180 per month in student loans or about 3.6% of their income. After completing the course of study, if we include taxes and make minor adjustments, the student would have to, with taxes, increase their salary by 5.6% to make themselves whole. In other words, in order for the tuition reimbursement courses to show a positive impact, the person has to obtain a raise of 5% or more from their base salary.