Student Loan Assistance Programs: What You Need to Know

When I graduated from college, I was one of the “lucky ones” with a lower-than-average student debt load. While I “only” had $10,000 in loans, it still took me seven years to pay them off.

These days, with the average student loan debt for the Class of 2018 looming at $29,800, it could take you decades to crush that debt. In fact, you might be taking your student debt with you well into your retirement years. Student loan borrowers in their 60s owed an average of $33,800 in 2017, according to the Federal Reserve’s Survey of Consumer Finances, while those over 50 owed more than $50 million in student debt. What’s more, the Consumer Financial Protection Bureau (CFPB) reports that almost 40 percent of those age 65 and over have defaulted on their student loans.

While that’s certainly a cascade of downer news, there is a sliver of hope: companies are catching on to the hot new benefit that is student loan repayment programs. Through such a program, your employee would help pay off a portion of your student debt. According to the Society of Human Resources Management (SHRM)’s most recent Employee Benefits Survey, companies that offer student loan repayment as part of their benefits package have spiked from 4 percent in 2018 to 8 percent in 2019.

Curious about how student loan repayment programs work? Here’s what you need to know:

How Student Loan Repayment Works

Similar to say, how an employer-sponsored retirement plan such as a 401(k) account works, your employer would work with a third party. This third party would enable your employer to make monthly contributions to your student loan servicer. Meanwhile, you’d continue to make your own payments toward your student loan debt. The particularly cool thing is that your employer’s contribution would go toward the principal, which could potentially knock off a few years off your student loan repayment.

The structure and amount of assistance that can be offered will depend on the employer. Your workplace might offer a single-lump payment. For instance, Goodly helps employers come up with a contribution plan, then syncs up with payroll providers to make additional student loan payments on behalf of the employees. These contributions are made with after-tax dollars, and the employer can contribute anywhere from $25 to $200 a month toward debt balances.

So exactly how much could you save with student debt repayment assistance? Let’s say you have $30,000 in student loans, and your interest rate is 4.79%. Your monthly payment is $315. If your employer contributes an extra $100 each month, instead of 120 months, it’ll take you 85 months to pay off your debt, shaving off nearly 3 years. What’s more, you’ll go from paying $7,800 to $5,275 in interest, which saves you $2,525 in interest fees alone. Of course, all that depends on how long you stay with your company and how many months they’re contributing to your student debt payments.

Make a Strong Case for It

Consider leading the charge at work and requesting that student loan repayment assistance be added to your benefits package. Reach out to your human resources department at your workplace and make a case for it. You could bring this up during a scheduled session on employee benefits, or during your annual review.

Pointing out some relevant stats could help further support your argument: An ASA survey comprised of 500 participants reveals that 85 percent of workers would commit to a company for five years if their employer helped with student loan repayment. What’s more, nearly 65 percent say they might get a second job to pay off their student loans. The bottom line: Offering student loan repayment can be a win-win for both you and your employer.

Changes at the Legislative Level Is Pending

There might be a few changes at the legislative level that could provide companies greater incentive to hop on the student loan repayment bandwagon. The Student Loan Repayment Assistance Act would extend a 10% tax credit for employers offering student loan repayment help. It would be 10% of how much an employer pays on behalf of their employee, up to $500 a month.

Another incentivizing piece of legislation that’s pending is the Employer Participation in Repayment Act. Introduced in February 2019, this bill, if passed, would allow employers to grant up to $5,250 a year in tax-free student loan assistance, which is the same amount of tuition reimbursement that is tax-exempt.

There Are Non-Employer-Sponsored Programs

What if your employer is unable or unwilling to implement a loan assistance program? Or you’re a freelancer without full-time benefits? Beyond employee-sponsored student loan repayment assistance programs, there are other ways of getting help with paying off your student debt. For instance, some places in the U.S. offer relocation programs for digital nomads to work and live in their city.

And if you’re in the market for buying a house, a handful of state-sponsored home-buying programs could help shave off your student loan debt. For instance, through Maryland’s SmartBuy Program, you could receive some help with your debt burden while you’re buying a home there.

While being saddled with student loan debt is a reality you can’t ignore, hopefully the rise of student debt repayment programs offered by employers will help alleviate the tremendous burden. If employees make the case of these programs at work, and legislators pass bills that incentivize employers to implement them, the resources available for borrowers will hopefully only continue to grow.

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Budgeting 101: How to Create a Budget

Keeping a budget can seem daunting or restrictive at first, especially if you’ve never had one before. But a budget can offer you peace of mind and give you more confidence in managing your finances. Rather than worrying about money, you’ll know exactly what you and your cash flow are up to. With that knowledge, you can better decide what you spend and what you save.

Remember, you don’t need to have the perfect budget right away. A basic budget is all you need to take charge of your finances—and help achieve more of your financial dreams.

What is a Budget? 

A budget is a financial outline for your income and expenditures for a certain period of time, such as one month. With a budget, you can track the amount you’re making compared to what you’re spending and saving. You can maintain a budget with a spreadsheet, paper and pen or through a budgeting app.

How to Create a Budget

To set up your budget, you’ll need a few key pieces of information. With these basic components, you’ll have a foundation for your budget that you can tweak as the months go by and as financial circumstances change.

Calculate your monthly income after taxes

Total up what you typically make in a month, minus taxes. Estimate or find an average for any commissions or tips you receive. Your monthly income lays the groundwork for your entire budget. It helps you realize how much money you have to spend, save, and pay off debts.

Account for your living expenses

Your living expenses like rent payment, utility bills, groceries, transportation, and health care costs are likely to absorb a large chunk of your budget. Create a list of each of these regular expenditures. Calculate a monthly estimate for each one, so you know how much of your income is dedicated to it. If you’re not sure how much something costs, review previous bills and credit card statements to see what you’ve spent in the past.

Consider the debts that you have

If you have student loans and credit card balances, you’ll want to attribute part of your monthly budget to paying them off. Allocate a certain amount to these monthly payments. The sooner you pay off debts, the less interest you’ll pay overall.

Factor in miscellaneous items

Whether you belong to a gym, go on a weekly date, or have a Netflix subscription, make sure you account for these costs in your budget. Reviewing these expenses can help determine if you want to keep paying for them, or cut back. 

Set goals to help you stay on track

If you want to stow away funds for retirement or save for a new car, it’s helpful to establish concrete goals, then break them down into bite-size chunks. For example, if you want to take a $1,200 vacation next year to New York, you’ll need to stow away an extra $100 every month. Put that dollar amount into your budget. When you write out a clear plan, you’re much more likely to follow through with it.

Common Budgeting Obstacles and Mistakes

Like most things in life, budgeting isn’t always clear-cut.vv There can be aspects that are difficult or ambiguous. Luckily, there are some ways to ensure you have the most accurate budget—no matter the circumstance.

Estimating irregular income

If you’re a freelancer or work a side hustle, you likely have an irregular income that can be hard to predict. In these cases, it’s best to estimate a conservative (low) amount, so you don’t overspend. Review the past 3-6 months of income and watch for any patterns. Can you find an approximate hourly rate or weekly rate for what you bring in? If you’re new to a job, like being a waitress, ask a coworker how much they typically make in tips. Above all, do your best to create an income estimate—knowing you can tweak it along the way.

Paying for emergency expenses

Unfortunately, accidents and unexpected bills happen to everyone. From car troubles to job loss and medical expenses, emergencies can be expensive. An unexpected bill can throw off our budget, and set you back. Do your best to factor the expense into your budget while paying your other bills. For instance, you may want to cut back on eating out for the month, or pick up an extra shift to cover a bill. If you can, build an emergency fund into your budget to safeguard your finances against future unexpected situations. 

Forgetting one-time expenses

Items like annual memberships, vacations, and gifts for family and friends are often forgotten when creating a budget. If you can, set aside a small amount of cash every month for these extra expenses. You can estimate the expected cost for the year and account for them in your monthly budget. For example, if you typically spend $300 on Christmas gifts, set aside an extra $25 every month. By the time December comes, you’ll have the cash available to spend on gifts. 

Tips for Expense Tracking 

Keeping a tab on what you spend helps you see exactly where your money is going. It allows you to make adjustments to your saving and spending habits. There are a few ways to make the monthly tracking easier.

Sign up for Mint to help you stick to your budget and goals

Let the Mint app do the heavy lifting for you. It can calculate your income, total your spending by category, and help you conquer your savings goals. Tracking expenses with the app is simple and accessible—no matter where you are. 

Try the envelope method

The envelope system involves spending with cash instead of plastic. If you budget $100 for eating at restaurants, put that amount into an envelope. When the money’s gone, you have to wait until next month to eat out again. If you budget $200 for groceries, put $200 in a “grocery” envelope. If you’re at the checkout line and the total comes to $203, you’ll need to put something back. The envelope method helps you be more strict with your budget. The pockets of cash are a visual and tangible reminder of how much money you’re dedicating to each area of your life.

Consider a zero-based budget

With the zero-based budget technique, each month begins and ends with zero dollars. Every dollar has a purpose. For example, if you make $3,500 every month, attribute each dollar to an expense. You might put $1,750 toward living expenses, $700 toward paying off debt, and $1,050 toward personal expenses like going to the movies or saving for vacation. At the end of the month, your balance is zero, because every dollar is accounted for.

Follow the 50/30/20 rule

Financial experts recommend the 50/30/20 guideline as a basic financial strategy, especially for young professionals. The rule says that you should spend 50% of your income on essentials, like your mortgage and car insurance. You should put 30% toward personal expenses like a weekend getaway or date night. The remaining 20% should go toward savings, such as a rainy day fund or your retirement account.

Creating a basic budget is a huge financial victory. It helps you ensure you can cover your expenses and reach for exciting milestones, like buying a house or paying off your student loans. As you continue to budget, make adjustments as you see fit. Your income, expenses or lifestyle might change, and it’s important to ensure your budget keeps working for you and your future. 

Sources

Debt.org | Investopedia 

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