Five undenied methods for lessening federal student loan obligations (not abolished by the Big Beautiful Legislature Bill)
In the complex world of student loan repayment, understanding the available loopholes can be crucial for borrowers looking to manage their debts effectively. Here's a breakdown of some key loopholes and strategies that have been discussed by financial advisors, economists, and higher education debt experts like Mark Kantrowitz.
Firstly, it's essential to note that loopholes should not form the central strategy for student loan repayment. Engaging in fraudulent activities, such as exaggerating family size to qualify for a lower Income-Driven Repayment (IDR) payment, is strongly discouraged.
One legitimate loophole is the option for Federal Parent PLUS Loan holders to access the Income-Based Repayment (IBR) plan via a new version of the past "double consolidation" loophole, which remains open until July 1, 2026.
The IDR amount is determined, in part, by your adjusted gross income (AGI). Interestingly, the Internal Revenue Service (IRS) offers a Foreign Earned Income Exclusion, allowing individuals to earn up to six figures from a US employer while living abroad and still qualify for a $0 IDR payment.
Consolidating federal loans into a Direct Consolidation Loan can also provide benefits. Borrowers can reset their access to deferment and forbearance, offering up to another three years' worth of postponement if needed. However, it's important to note that the Big, Beautiful Bill, set to take effect after July 1, 2027, will repeal economic hardship and unemployment deferments and limit forbearances.
Another strategy involves delaying or deferring income, such as a bonus, until after certifying an IDR plan. Similarly, requesting a tax-filing extension to delay the arrival of a tax return is known as the "tax extension strategy" loophole.
The 2011 Kantrowitz-detailed loophole allows medical and some dental school graduates to receive Public Service Loan Forgiveness (PSLF) credit during their postgraduate residencies. Notably, the House version of the Big Beautiful Bill attempted to close the medical professional PSLF loophole, but the Senate and the final version of the legislation kept it alive.
The "Preserve a low IDR payment with your married-filing tax status" loophole requires a tax-filing status of married filing separately, shielding your spouse's income from being included in your IDR, resulting in a lower monthly due.
Lastly, Hornsby's "alternative documentation of income" loophole allows for the supply of a recent pay stub instead of a tax return when recertifying an Income-Driven Repayment (IDR) plan.
While some loan repayment loopholes exist, their feasibility and ethics are a personal choice. It's crucial to remember that engaging in fraudulent activities is not a recommended strategy and can lead to severe consequences. Consult with a certified student loan counselor for guidance on the best repayment strategies for your unique situation.
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