I’m finding that there are mistakes professors make with their student loans, oftentimes with negative consequences. In this article I’ll outline the 7 mistakes that I keep seeing time and time again.
Most professors end up graduating with sizeable student loan debt. In order to become a professor, normally an advanced degree (or two) is required. These degrees do not come cheap. A few statistics from Student Loan Hero:
Combined undergraduate and graduate debt by degree:
- MBA = $42,000
- Law = $140,616
- Master of Science = $50,400
- Master of Education = $50,879
- Medicine and health sciences = $161,772
- Master of Arts = $58,539
With the amount of student loan debt being accrued to get these degrees, it makes repaying these loans a big priority for young professors. It’s not easy, especially as you juggle changing work and family dynamics. Here are the mistakes that have stood out to me the most…
Not Updating Your Contact Info
Make sure that if you move, change your phone number, or get a new email address that you let your loan servicer know. Keeping these items up-to-date can save you from major headaches in the future.
For instance, let’s say you are set up on auto-payment from your local credit union checking account. You get a new job in a new state and you decide to start banking with a new local institution. Because your student loans have been on auto-pilot, you forget to update your payments to come from the new institution. If you don’t have your contact info up-to-date, you may end up missing some payments, incurring late fees, and possibly having negative reporting on your credit score.
Get the alerts from your loan servicer. Keeping your contact info up-to-date is the easiest way to avoid any trouble.
Not Taking Advantage of PSLF
Are you familiar with public service loan forgiveness (or PSLF)? I have found that many professors don’t realize they are able to take advantage of this program. Most every college/university is a 501(c)(3) organization, making it’s employees eligible. The gist is that if you make 120 qualifying monthly payments, the balance of the loan is then forgiven. The forgiven amount is not taxable either, it just gets eliminated. It’s really a great program.
There are three levels of eligibility:
- Eligible employment – you must be employed with an employer that is eligible for PSLF.
- Eligible loans – the loans need to be eligible for PSLF. These are any loans under the Direct Loan Program.
- Eligible payments – you need to make eligible payments under a qualified repayment plan.
The goal should be to enter into a qualifying repayment plan and do all that you can to keep your payments as low as possible, which would increase the amount forgiven.
Not Certifying for PSLF
If you are planning on taking advantage of public service loan forgiveness, you should be sending in the certification form each year. There is a portion that you will fill out as well as a portion for your employer. Each year that you certify, your qualifying payments will be updated to reflect how many total qualified payments have been made. It’s important to keep a copy of all of these records as you receive them.
You aren’t required to do it each year but best practice is to certify each year so that you can track your progress and keep a record of it.
For more: Copy of the Certification Form
Not Choosing the Right Repayment Plan
When dealing with repayment on student loans, it is important that you choose the right repayment plan. If you are struggling to cover your student loan payments, you should look into an income-driven repayment plan. If you are looking to take advantage of PSLF, you need to be in an income-driven repayment plan so that your monthly payments will qualify.
Not sure of which one to choose? You can go here to get started. When you get to the portion of the application that asks for which plan you want to use, you can select that you want the plan that will give you the lowest monthly payment.
Refinancing When You Shouldn’t
Oftentimes, professors will look to refinance their student loans as soon as they find a permanent position. The problem is, they often look to private loan servicers like SoFi, LendKey, or CommonBond too soon. These are reputable companies and if you can get a better rate, I’m normally all for it. However, they aren’t for everyone.
As stated before, many professors don’t realize that they qualify for public service loan forgiveness. If you plan to take advantage, you cannot refinance with a private loan servicer. Any loan that you refinance with these servicers will become ineligible for PSLF. These loans need to be left in federal Direct loan status to be eligible for forgiveness. Many professors refinance their loans and learn after-the-fact that they could have had some of their loan balance forgiven instead.
Failing to Claim Student Loan Interest Deduction
Borrowers can deduct up to $2,500 in interest on federal and private student loans on their federal tax return. This can amount to several hundred dollars of tax savings each year. Many do-it-yourselfers forget to take this interest deduction on their taxes.
You will get information on the amount of student loan interest paid for that year from your student loan servicer. Also, they usually make it available for you online as early as January so that you can get your taxes done quickly. If you paid over $600 in student loan interest that year, you should receive a form 1098-E with all of the relevant information needed. These deductions are claimed on the front page of your 1040 without needing to itemize your deductions.
Not Setting up Auto-Payments
Many loan servicers will give you an interest rate deduction of .25-.5% for setting up auto-payments. This essentially just means linking your bank account to your loan and allowing the servicer to pull the payment each month. This is a no-brainer. Many will blow this off because they see .25 or .5 as “no big deal” but it all adds up. Check to see if your loan servicer offers this incentive.
Those are the 7 big mistakes that I have seen professors make with their student loans. Many of these mistakes can have lasting impact so make sure that you understand these issues to prevent costly mistakes.