By Angie Payne, AVMA LIFE representative, Kansas State University
Life moves fast following graduation: licensure, employment,
moving, insurance decisions, emergency savings, retirement savings and more. Suddenly, it’s been six months and you’re still tripping over boxes that haven’t yet been
unpacked and the grace period on your student loans is expiring. It’s time to
choose a student loan repayment plan.
Get a Plan
Although www.studentaid.gov
does require borrowers complete exit counseling, many borrowers report it’s not
all that helpful. AVMA
offers financial resources for rising professionals, new veterinarians and
current students. You can find information about repayment plan options and
what to do in the event of a financial hardship as well as many other financial
resources. The VIN Student
Debt Center can project your income growth over the next 20-25 years, help
you compare repayment plans, estimate potential tax liability and more. You can
also work with a qualified financial professional for a personalized repayment
strategy. Not all financial professionals are knowledgeable about student loan
repayment especially if you have a high amount of student debt, so it makes
sense to shop around.
In order to make an informed decision about which repayment
plan to choose, you first have to determine what your goal is for your loans.
Do you want to pay them off as soon as possible? Access Public Service Loan
Forgiveness? Minimize monthly payments? Contribute the Lowest total paid over
time? It's also important to consider other factors such as tax filing status,
how you document your income, where you live, whether your spouse/partner has student loans, and more. What works for your co-worker isn’t necessarily going
to meet your goals but worse than copying your co-worker’s strategy is putting
your head in the sand and hoping it will all go away. You must be proactive in
your approach to effective student loan repayment planning.
Review Your Plan
Having a plan is only the first step. You have to implement
and review the strategy on a regular basis. If you are on an income-driven repayment plan, you will have to recertify your income each year. This is the
perfect time to reassess and determine if your repayment strategy is still
meeting your financial goals. The repayment plan you choose initially may not work
for you in the long term. As life changes, don’t be afraid to change the plan if
necessary.
Effective implementation of your repayment strategy requires
commitment and although it can be overwhelming, it is possible to achieve other
financial goals while managing your student debt. It is important to remember
you can’t always make the fun financial decisions but you can enjoy life
if you follow the plan.
Plan Ahead
What is the “tax bomb” everyone talks about? At the end of
your repayment term (20 or 25 years) on the income driven repayment plans, any
balance left is forgiven by the Department of Education but any amount forgiven
is considered taxable income by the IRS. You must pay income taxes on that
amount in addition to the taxes you pay on your regular earned income. Saving
for the dreaded “tax bomb” is a vital part of your repayment strategy and is
NOT optional. Not saving for the tax liability can be a catastrophic error. (Hint:
it’s much easier to negotiate with the Department of Education than it is with
the IRS.)
Cancelled Plans
Currently there are legal challenges to the new SAVE
repayment plan and some experts predict the future of the SAVE plan is shaky at
best. Changes to student loan legislation may warrant changes to your repayment
strategy. If the SAVE plan is eliminated by the courts, you may be back to
square one choosing a new plan. Pay attention and stay informed.