There are a few simple truths in life. We all know the major ones: death and taxes. What many people don’t know is that there is another certainty of life as well: student loans.
Even in bankruptcy, student loans never go away. They follow you. They do not expire.
There is, however, a way to reduce the pain of student loans, in particular, loans with a balance greater than $100k. That way is called student loan forgiveness. People can work part-time with huge student loans, it is possible.
The upside of student loan forgiveness is that it is a viable, actionable plan to significantly reduce your student loan burden.
The downside is that using student loan forgiveness takes a long time. As in, 10-25 years, depending on the plan for which you qualify.
While there are some options as to ways to reduce your massive student loan debt, there is no truly free money for school when it comes to loans.
Just like how the only way to run faster is to run faster, the only way to pay off a debt is to pay off the debt.
It’s that simple, and also, that complicated.
Is Student Loan Forgiveness Right For You?
When considering if student loan forgiveness is right for you, there are certain variables that do not change for everyone:
Shelter and food.
These things require money
If you are reading this article, my guess is that you a.) have $100,000-$300,000 in student loan debt or more and b.) are interested in some strategies for reducing that debt without working yourself into the ground.
I realize the path to student debt reduction feels long and endless. You’re not afraid to work, or you wouldn’t have gone to school for so long or worked so hard for your degree in the first place.
But the fact remains that it’s not unusual for people like yourself to find your way to a large debt obligation, with seemingly no realistic way to reconcile that debt without working every last minute until you die.
That is certainly no way to live. It’s not a way to move forward confidently with the newfound expertise under your belt. It’s not good for your physical or mental health, or, bigger picture, our economy. It’s also not a good way to use that newfound professional expertise you have for good.
Is There a Way to Pay Down Student Loan Debt Without Working Full Time?
So, is it possible to pay down debt – even very large debt – without working eighty hours a week? Absolutely. What would you think if I told you it’s even possible to work down your debt in a meaningful, productive way and get your life back?
Because that’s possible, too.
In fact, it’s even possible to pay down your debt in a meaningful way while working part-time.
That’s right, I said part-time.
The way to live the life you want while working part-time and paying down your huge student loan debt in a meaningful way is by taking advantage of the PAYE and REPAYE programs.
This only works with federal Direct loan products. Private lenders do not offer such programs. They simply charge you lots of interest and expect their monthly payment to stay the same until the loan is completely paid off.
Federal Direct loans, however, offer some options that still involve making payments towards those loans, but that take the need to be a living, breathing person with a family and a life into consideration.
What Are PAYE and REPAYE?
PAYE and REPAYE stand for Pay As You Earn and Revised Pay As You Earn, respectively. Both are income-based plans, which means that both programs take the amount of money you earn each year into consideration when setting your monthly loan amount. Both are federal loan products not associated with private lenders, like banks. Both extend the loan repayment period from the standard ten years to twenty or twenty-five years.
This obviously means that it takes longer to pay down the loan, but in turn, it means that the monthly obligation can be reduced to a point that allows you to live a reasonable life.
Facts About PAYE:
- You must demonstrate financial distress to qualify. This means you have to be able to show that you are not able to meet the monthly payment on a typical ten-year repayment plan.
- Caps your monthly payment at 10% of your discretionary income
- Limited to “newer” loans, for those who borrowed for the first time on or before Oct 1, 2007, and received a Direct Loan on or after Oct 1, 2011.
- Repayment term is 20 years, after which remaining funds are “forgiven” (or 10 years if you combine this with Public Service Loan Forgiveness)
Facts About REPAYE:
- No matter what your salary, the monthly payments will never exceed 10% of your income, based on family size
- Can be used regardless of when you first took out your loans
- Can be used in conjunction with Public Service Loan Forgiveness
- Monthly amount is recalculated every year based on income and family size
- Repayment term is 20 years for undergraduate loans, and 25 years for graduate loans
You might have noticed that the plans are very similar. The main difference between the two is the timing. PAYE works for newer loans, and REPAYE works for loans regardless of when you borrowed.
Are There Downsides to These Programs?
It is important to note that for both programs, you will be obligated to pay income tax on the forgiven portion of your loans. Interest will accrue throughout the life of the loans as well. And of course, the higher your discretionary income (salary minus fixed expenses), the more your monthly payment will be, but that’s where the point of this article comes in.
How Does All of This Lead to Me Working Part Time?
If you’re reading this, you are likely staring down a pretty large amount of debt, and are wondering what to do about it. Working even more hours doesn’t seem like a very good option, does it?
One of the common misconceptions about large student loan debt is that with it comes the need to work yourself into the ground. Guess what you can work part-time with huge student loans.
The good news is that even with very large amounts of debt – think six figures – there are options available to help you meet your student loan responsibility as well as live your best life so yes, you can pay off student loans working part-time.
The largest amounts of student loan debt tend to result from professional degrees: chiropractic, medical or dental school, veterinary school, nursing, etc.
These are also jobs that can lead to working long hours…or not.
Maybe you want to reduce your hours to avoid (or reduce) burnout. Maybe you want to spend more time with your kids. Maybe you want to try unique side jobs that can help pay off student loans. Maybe you simply want to see what your options are for addressing your student loan liability in a smart and calculated fashion.
Can you reduce your hours to work part-time, even though you have $150,00 in student loan debt? Absolutely.
Let’s say you are paying off large student loan debt say$250,000 at 7%, and earning $100,000 a year and are married with two children. Both debt and income increase over time with inflation.
With the PAYE program, you would pay $167,537 in total payments, with a remaining balance (“forgiven” after twenty years) of $432,463. You would pay $520 a month, with $463 per month invested (ideally in a brokerage account) towards the taxes you’ll need to pay on the balance when it is forgiven.
All in, that’s $983 per month that you will need.
Now, let’s look at how the numbers change if you reduce your income to $50,000 a year.
Also with the PAYE program, you would pay $33,185 in total payments, with a remaining balance (“forgiven” after twenty years) of $566,815. So, the payments went down a little and the forgiven balance went up.
Here’s where it gets interesting.
Because your discretionary income has gone down so much, you will only owe $103 per month towards your loans, with $607 per month needed to save in that brokerage account for taxes on the loan balance at forgiveness time.
That’s a total of $710 per month that you’ll owe for the next twenty years, at which time, close to a half million dollars worth of debt will be forgiven.
Same loan. Same rate of inflation. Same twenty year time period. The only difference is that you reduced your hours and are now earning less.
It sounds counter-intuitive, doesn’t it? It’s hard to get your mind around the fact that earning less can actually save you money on student loans, but with the PAYE and REPAYE programs taking your income into account, that’s exactly what can happen.
With these programs, you can still pay down your student loan debt, yet don’t have to work yourself into the ground in order to do it.
It’s Not Magic, It’s Math
The formula is this: spread the payments out over a longer period of time, only pay an amount capped at 10% of your discretionary income (recalculated each year), reduce your discretionary income, and voila – a lower monthly payment, with the balance forgiven at the end of the twenty or twenty-five years. Yes, there are taxes to pay (there’s no magic plan to avoid those, sorry), and yes, this will take a long time, but overall, this math does add up.
Can You Picture It?
Lawyers, pharmacists, nurses: imagine that you can work half of the time instead of full time and still handle your student loan debt successfully through PAYE and REPAYE plans. Your income part time would be more than many families make in America.
You can still have a life. You can still work towards building a family and owning a home. You can live without feeling crippled by student loan debt that you can’t get out from under.
If you’re worried you can’t make things work on the reduced salary, don’t be. Once we have crunched the numbers, the next step is to have the big picture conversation about living expenses. It’s important to learn how to pay off large student loans and make this work for you from a practical perspective. You can change your mindset to know that hey you can work part-time with huge student loans.
What are your car payments, what are your housing payments, what are your childcare costs, and would you have fewer childcare costs if you had flexible side jobs to pay off student loans?
Consider the reason you want to work part-time. Is it because you are burned out or want more time at home with your family? Once your life plan is mapped out, we can talk about limiting your necessary expenses (such as mortgage payments or child care) in your budget to free up the ability to work part-time.
The key is to find ways to take actionable, measurable, scalable steps toward financial independence. It helps if you have some good financial advice in your corner. Student Loan Planner can help with this. We can also help you free up some good time in your schedule to make fitting in part-time work and paying off student loans fast, more than just a possibility, but a really good idea and a feasible long-term plan.
Do you know any part-time jobs with flexible hours and a reasonable income?