I Got a Public Service Loan Forgiveness, Now What?
The past few months have brought some pretty catchy headlines and trends when it comes to our collective finances. These days, you can’t get far without running into a burning issue near and dear to many of us: student loan forgiveness. Earlier in the year, the U.S. Department of Education released Public Service Forgiveness Loan figures that revealed 70,000 borrowers were eligible for nearly $5 billion in student loan relief, and other estimates predicted that up to 550,000 people could benefit, in total. If you’re qualified and your loans have been forgiven, it might be tempting to run out of cash and spend that wad of cash (hey, a splurge here or there might be in order), but if you’re looking to be smart with your money, my conversation with Mark Reyes, Senior Director of Financial Advisory at Albert, a financial services technology company might be helpful to you, as he has some good suggestions.
Reyes says less than 5% who qualified and applied received student loan forgiveness and for them to get it there were criteria that had to occur to stay in good standing. “ The service is designed [for people working in] jobs that are not high paying and have an impact,” he says. “Loan forgiveness helps relieve them of the economic burden of their student loans.”
Mindfulness of the basis of loan forgiveness is crucial. Above all, you must remain qualified for this forgiveness. It’s important to remember that the landscape of personal student loan forgiveness has changed significantly over the past few years, according to Reyes. This means that you will need to stay informed and ensure that you are fully aware of what needs to be done to qualify and possibly receive this loan forgiveness. Typically, this includes re-certification, providing the correct documentation, and making consistent payments while waiting for your loan to be forgiven.
Here are some additional tips:
GW: Should borrowers do anything from a tax standpoint?
MR: Yes. If you are receiving student loan forgiveness, make sure you have a clear picture that provides an accurate understanding of any tax liabilities you may be responsible for. Keep in mind that under the American Rescue Act of 2021, the amount of student debt that is forgiven will not be federally taxed until the end of 2025, but some states may still consider it income. taxable. If you plan to receive the pardon after 2025, stay alert to any changes to how the pardon will be handled by the IRS and be prepared for that.
GW: Tell us about paying off toxic debt.
MR: What is toxic debt? Also called toxic loans or bad debts, toxic debts are less likely to be repaid to a lender. If you have high-interest credit card debt or other forms of toxic debt like a payday loan, it’s time to detox by making it a priority to pay off those debts as soon as possible. Toxic debt is very expensive to maintain and can prevent you from achieving greater financial goals.
GW: What can people do about planning their emergency fund?
MR: It’s important to start prioritizing financial wellness and having an emergency fund saved up of 3-6 months of non-discretionary spending is a mainstay of that. An easy way to accomplish this task is to automate your savings, so that a percentage of your paycheck is automatically deposited into a savings account. I highly recommend it.
GW: A lot of people are reluctant to set a budget. Do you have any advice?
MR: Budget doesn’t have to be a dirty word. In fact, a healthy budget is the backbone of financial well-being, according to Reyes. If you’re not sure where to start, it’s probably best to keep it very simple. Reyes generally recommends what’s called a “50/20/30 budget.” This is where 50% goes to essential expenses such as rent, insurance, essentials and food, 20% goes to savings and investing, while 30% goes to everything you desire.
GW: So can we call that 30% the You Only Live Once (YOLO) bucket? How many YOLOs can we make?
MR: This YOLO bucket is crucial for your enjoyment of life. It’s for whatever you want. If you stay in the 30%, it doesn’t matter what you do with it as long as you can stick to that 30%. You don’t have to YOLO every night. You can YOLO some.
GW: What about investing for retirement?
MR: Paying yourself first is crucial, as is paying yourself in the future. Retirement, that distant light at the end of the proverbial tunnel, will come knocking sooner than most of us realize, and the financial news surrounding our prospects for group retirement isn’t always great. Once you have a sound financial foundation (no toxic debt, a solid emergency fund, some wiggle room in your budget/no overspending), start investing for your retirement. Generally speaking, a good goal is to contribute 10-15% of your income, but if you can maximize your retirement account, [that’s] better.
GW: Thank you for your time.