June 25, 2024

Your Money Adviser: Relief From Student Loan Debt for Public Service Workers

“It’s enabling me to do the work that I love,” said Mr. Wala, who graduated in 2010. “It wouldn’t be possible, otherwise.”

The federal government is trying to encourage more participation in the Public Service Loan Forgiveness program, which was created in 2007. The program and other debt assistance options have been underused because of complex rules and sometimes conflicting benefits.

Last month, the Consumer Financial Protection Bureau created a tool kit for employers — like nonprofits, school systems and police and fire departments — to help make their workers aware that they may be eligible. The public service program allows those with high student loan balances relative to their income to have the balance of their loans canceled if they work in government or nonprofit jobs for 10 years.

Mr. Wala hasn’t calculated exactly how much the forgiveness program will save him, but he expects it could be many thousands of dollars. “I definitely am looking at it as something that will have to happen, if I want to maintain a stable lifestyle,” he said.

The program works best with income-driven student loan repayment programs — options that let you make lower loan payments based on your pay. (That’s because if you stayed on the standard 10-year loan repayment plan and made all your payments on time, you wouldn’t have any loan balance to forgive.)

The savings can be substantial, as this example from the Institute for College Access and Success shows: A student graduated this year with $26,600 in loans and landed a public service job with a $25,000 salary. She continues to work in public service for 10 years, and her income increases 4 percent a year to $35,600.

Under the income-based repayment plan, which sets monthly payments at 15 percent of discretionary income, she would pay $16,700 over 10 years and have $28,000 in debt forgiven.

In contrast, if she didn’t work in public service (but still qualified for income-based repayment) she would pay $61,500 over the income program’s 25-year repayment period, with no loan forgiveness. (She’d save even more combining public service with the Pay as You Earn program, which sets monthly payments at 10 percent of discretionary income.)

There are some restrictions. Only federal direct loans — those originated by the federal government — are eligible for the public service forgiveness program. But older loans that were made by private lenders and guaranteed by the federal government — like those made under the Federal Family Educational Loan program, which ended in 2010 — may be refinanced into a new direct loan, to become eligible.

You must make your loan payments on time every month for 10 years — 120 payments — to qualify. The payments don’t have to be consecutive, however. You could, for example, work at a public service job for five years, leave for two years and return for another five years.

Betsy Mayotte, director of regulatory compliance at American Student Assistance, cautions that you can’t always predict your career path 10 years in advance, so you should still borrow the absolute minimum you need — in case you move away from public service and aren’t eligible for its debt-erasing benefits.

Here are some questions to ask as you consider your options:

I just started working in public service. Do I have to apply for the loan-forgiveness program now?

No. But to help you keep track it’s a good idea to submit an employment certification form to the United States Department of Education each year. You fill out the form jointly with your employer. More information on the form and how to submit it can be found on the Consumer Financial Protection Bureau’s Web site.

Do I have to pay income taxes on the debt canceled under the public service program?

No. The amount forgiven after 10 years of public service isn’t treated as taxable income. Debt forgiven for borrowers using income-based repayment program alone, however, is considered taxable under current law.

Are there other options beside the public service program to help reduce my loan debt?

Yes. In addition to federal programs, some states and some private employers, offer their own programs. SALT, a program of American Student Assistance that aims to help students manage their debt, has just published a guide that you can download free.

E-mail: ann.carrns@gmail.com

Article source: http://www.nytimes.com/2013/09/10/your-money/relief-from-student-loan-debt-for-public-service-workers.html?partner=rss&emc=rss

Europe Braces for Greek Vote — and Maybe More

With a good chance that the elections will produce either a political stalemate or a populist left-wing government in Athens, even people who say they do not believe Greece will drop out of the common currency are preparing for that possibility.

Because there has been time to prepare, some economists say, Greece’s departure from the euro will not be as much of a shock as the collapse of Lehman Brothers in 2008, which provoked a global financial crisis. Nor is it likely to be as abrupt. Even if a new Greek government eventually decided it could no longer stay in the euro union, no one expects an immediate, hasty exit.

Lehman was a surprise. But Typhoon Greece has been swirling offshore for months if not years, giving investors, governments and euro zone citizens plenty of time to batten their financial hatches.

They have drained money from Greece and put it into assets considered safe, like German or Swedish bonds. Foreign businesses with operations in Greece have been demanding payment up front from local customers, lest they later have to accept devalued drachmas. Some, like the French bank Crédit Agricole, are putting their Greek operations under quarantine to keep any infection from spreading.

Policy makers have been busy, too, though they are reluctant to say so. The European Commission acknowledged this week that it had been looking at whether it would be legal to allow restrictions on the movement of capital within the euro zone. The European Central Bank is reinspecting its tool kit, which could include lowering its benchmark interest rate or giving banks another shot of cheap, long-term loans.

But, in fact, there are limits to how much European officials can actually do, because of the same structural limitations to the euro currency union that have let the Greece problem fester so long in the first place.

“The consequences are incalculable — nobody can pretend to know what would happen,” said Holger Schmieding, chief economist of Berenberg Bank in London. But he added, “Policy makers are very aware this is a high-risk event and are thinking through possibilities, which they didn’t do before Lehman.”

Are the preparations adequate?

Views on that issue have become increasingly polarized. Some economists and policy makers say that the departure of Greece would be a shock to the world economy, but survivable, and maybe even not that big a deal.

“I do believe it would be tolerable for the remaining member states,” said Ferdinand Fichtner, head of forecasting at the German Institute for Economic Research in Berlin, which advises the German government. But Mr. Fichtner, speaking to reporters in Berlin, quickly added, “It should be the last option.”

In the opposite camp is the E.C.B., which has warned that the shock could indeed rival Lehman’s collapse. There are simply too many unknowns to quantify, Vítor Constâncio, the vice president of the central bank, said this week.

“Any assessment would be virtually impossible to do,” he said.

Jean-Paul Chifflet, the chief executive of Crédit Agricole, said at the annual shareholders’ meeting in May that he was “looking at all potential options when it comes to Greece.” On Thursday, the French bank’s Emporiki Bank subsidiary in Athens announced that it was transferring control of units in Albania, Bulgaria and Romania to the Crédit Agricole parent company in what was evidently a move to shield those assets from whatever might ensue in Greece.

Mr. Schmieding of Berenberg Bank, who admits to “a naïve belief that Europe always rises to the challenge,” argues that the threat posed by unruly Greek politics has already prodded euro zone leaders to extraordinary action, and that they would do even more if Greece went overboard.

He cited the urgency with which euro zone finance ministers cobbled together a plan to bail out Spanish banks last week, a scramble that “only makes sense in the context of the Greek election,” Mr. Schmieding said.

Stephen Castle contributed reporting from London and David Jolly from Paris.

Article source: http://www.nytimes.com/2012/06/15/business/global/europe-braces-for-greek-vote-and-maybe-more.html?partner=rss&emc=rss