Bring a little bundle of joy into this world brings up a lot of emotions. You’re excited, you’re nervous and you might even dread it, especially when finances, like students loans are still a factor in your life.
Having a baby with student loans can add stress to an already enormously stressful situation. So what are your options if you’re going on maternity or paternity leave? Are there any programs to help or steps you should take? Read on to learn more about what you can do if you’re dealing with student loans and pregnancy.
Look at the financials of maternity and paternity leave
Whether you can keep up with your student loan repayment or not may come down to if you get parental leave, and if it’s paid or not. Unpaid leave could affect your bottom line which may make it difficult to maintain your standard student loan payment.
First, you’ll want to look at the nitty-gritty details surrounding the financials of maternity or paternity leave. Through the Family and Medical Leave Act of 1993, employees can take advantage of unpaid leave for a set period of time. Emphasis on the ‘unpaid’ part.
Unfortunately, in the U.S., there is absolutely no requirement for employers to offer paid Parental Family Leave (PFL). If you’re lucky, your employer might offer some duration of Parental Family Leave.
The report “Paid Family Leave in the United States” by the Congressional Research Service, says that, “According to a national survey of employers conducted by the Bureau of Labor Statistics (BLS), 13% of private-industry employees had access to PFL (separate from other leave categories) through their employer in March 2017.”
Thirteen percent isn’t very encouraging, but still want to ask your employer about the specifics about their parental leave benefits, if any. Is there a paid parental family leave option? If so, for how long? Is it unpaid, and how much leave is offered in this scenario? If none of these are options, are there any other leave options that can be considered?
Once you have this information, you’ll want to sit down with your current budget.
- What, if anything, will the parental leave policy cover?
- Will you need supplemental income to maintain your quality of life and meet your financial obligations?
If your parental leave will cover your financials, and you think you can afford it, keeping your student loan payments as is will likely be best. However, if your income will be at a loss due to the leave, you don’t want to have all of your cash held up making your student loan payments.
In that case, you’d want to be able to put your payments on pause or lower your payments to make them more manageable with baby in tow.
Putting your student loan payments on hold
If you will be at a financial loss due to PFL, consider putting a halt to your student loan payments for a while. Even if you’re not at a loss, minimizing the stress of making payments as you learn to navigate your new budget and financial costs with a baby might be beneficial.
If you have federal student loans, talk to your loan servicer about options for deferment or forbearance. In some cases, you may qualify for student loan deferment for maternity leave.
Student loan deferment for maternity leave
There is a Parental Leave/Working Mother Deferment Request for borrowers under the Federal Family Education Loan Program. The caveat here is that your loans had to be disbursed before July 1, 1993. Under this program, you can be eligible for parental leave for up to six months and working mothers can be eligible for up to twelve months.
There are two types of forbearance for federal student loans: general and mandatory. Mandatory forbearance requires you to meet certain employment or financial requirements so if you’re dealing with student loans and pregnancy, a general forbearance is best.
A general forbearance can be referred to as a “discretionary forbearance” — because it’s at the loan servicer’s discretion to approve your request.
According to the Federal Student Aid website, you can request a general forbearance due to:
- Financial difficulties
- Medical expenses
- Change in employment
- Other reasons acceptable to your loan servicer
You’re likely to experience all of the above as you enter parenthood so it doesn’t hurt to ask your loan servicer.
General forbearances are given 12-month at a time. If after that time you still need additional time, you can request another forbearance. There are no hard and fast limits on this type of forbearance through your loan servicer may put some limits in place.
Forbearance with private loans
If you have private student loans, your options are a bit different. For example, Sallie Mae offers forbearance, but it’s typically in the case of financial difficulty. Perhaps you fit the bill, but there’s no guarantee your private student loan lender will approve forbearance during maternity leave. In general, it may be tough to get approved.
If you are approved by Sallie Mae, for example, you could get a forbearance of three months with the possibility of extending it for up to 12 months. Keep in mind that you have to pay a “good faith” payment of $50 (a max of $150) to participate in this program.
Lowering your student loan payments
If you can still afford to make some financial contribution toward your student loans but would like to lower your student loan payments, consider opting for an income-driven repayment plan (IDR).
Under IDR, you can modify your federal student loan payments so that they’re a small percentage of your discretionary income.
The four IDR programs are:
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
These four programs limit your payments to 10 to 20 percent of your discretionary income with a repayment term between 20 and 25 years. All of that will depend on your eligibility when you borrowed, and the type of schooling. Talk to your loan servicer ASAP about these options to see what is the best fit. For more information, read our guide on income-driven repayment plans.
Use your tax credits and deductions
Having a baby with student loans is stressful especially when you’re trying to manage it all. That’s why you can take advantage of any tax credits and deductions available to ease the financial cost.
Depending on your income as well as your filing status, you could be eligible for the student loan interest deduction which is up to $2,500. If your modified adjusted gross income is less than $80,000 if single or less than $165,000 if married filing jointly, you may qualify.
Additionally, you may be eligible for a $2,000 child tax credit, and depending on your income and filing status you may be eligible for the Earned Income Tax Credit (EITC). The EITC, according to the IRS, is available for people with low to moderate income. In order to qualify, your adjusted gross income (AGI) must be less than a certain threshold based on your filing status and family size.
When returning to work, you may be eligible for child care credit and you could qualify for a child care reimbursement account.
You want to take advantage of any tax deductions and credits that you may qualify for now given your new situation.
Having a baby with student loans can be stressful but it’s possible to navigate parenthood and student loan repayment. Though it’s frustrating and another expense, you can manage your student loan payments through the options listed above to make this milestone a bit easier on you financially.
The key is to take action immediately by talking to your loan servicer to get a plan in place.
Have you had to make student loan payments while in paternity or maternity leave?