Are you worried that your student loan payments are holding you back from full time streaming? Does your side income mean you have to pay more in student loans? We’re going to go in to the details of different student loan plans to help ease your mind. We also have some tips on ways your streaming might impact your loan repayments.
The Ugly Stuff
The statistics on student loan debt in the United States are… pretty horrifying. Skip this paragraph if you don’t want the gory stats. American households carry a staggering 1.385 trillion dollars of student loan debt as of October 2016, putting it behind only mortgages as the largest type of household debt. This number grows by over $2,700 per second and if you’re interested in watching it grow, check here. 13.5% of Americans carry student loan debt and 70% of college graduates leave college with debt. This number is higher for households headed by young adults, where 40% have student loan debt. Students graduating college with debt get married later, buy houses and cars later, and invest later. Debt is not the sole factor in these delays but appears significant.
An analysis of debt repayment burdens shows that 40% of graduates are burdened (greater than 18% of gross income) by their student loans in the first several years of repayment. While the Federal government has options for capping repayments or loan forgiveness, borrowers must carefully keep to the process or risk losing that benefit. Additionally, in most cases of loan forgiveness the borrower faces a hefty tax bill for imputed income. Finally, student loan debt cannot be discharged through bankruptcy so it is a more persistent form of debt than others.
Federal Loans
Your options on your student loans are highly dependent on your lender. Generally, you have more options if you have loans with the federal government because they have a strong interest in you succeeding in life. The more you succeed, the more in taxes you pay and the less in services you consume.
Your new student loans from the government come in a couple of different forms. They’re all now called Direct loans (as opposed to an old program called FFEL) and they can be either subsidized or unsubsidized. If you have subsidized loans it’s way better for you because the government pays your interest while you’re in school and during times of hardship. These loans are dependent on financial need so they make up a smaller part of the overall student loan picture. For unsubsidized loans, you’re responsible for the interest at all times. However, you don’t need to show need. If you’re getting unsubsidized loans for graduate school you have to pay more interest.
You can see the baseline interest rates for the different types of loans here and a good breakdown of the difference between subsidized and unsubsidized loans here.
The amount you can take out in loans depends on your family’s expected family contribution (EFC) determined by what’s entered on your Free Application for Federal Student Aid (FAFSA) form. Your family’s EFC contains several different factors but one to keep an eye out for as a streamer is that 50% of your income counts towards the family’s EFC. That means that if you’re in school and earning some good money streaming you could be reducing the amount of aid that you’re eligible for. Now, is it bad to have more income and get your aid reduced? Not necessarily, especially if that income is being applied towards your tuition or other school costs. You could be lowering your total cost of attendance. Just don’t forget that your income needs to be included!
Federal Repayment Plans
So all of that stuff was on acquiring loans. What happens once you have your loans and you’ve graduated? The federal government is the biggest student loan lender and they’ve had many, many graduates point out that their loan balances are stopping them from being productive citizens. In light of that, there are several different repayment plans that you can get on to which can help make your payments more manageable. Because these programs come from the federal government and Congress and the President have been having slap fights the past eight years there are a couple of different, yet similar, programs in place. All of these programs are based on you having “financial hardship” which generally means that your student loan balance is higher than your annual income. That’s not a set rule but a good rule of thumb you can use.
The government has an in depth guide on each of these located here. They also have a super awesome calculator here. There are some other key factors, like deferment, forbearance, and consolidation that we’ll discuss in a future article.
Standard Repayment Plan
This is the plan you’re on by default. Your loans are paid over 10 years at a fixed amount. There are no specific requirements (besides having loans!) to be on this plan and it likely will give you the highest monthly payment but lowest overall cost of your loan.
Graduated and Extended Graduated Repayment Plan
A graduated repayment plan means that your payments start lower but get higher over time. The graduated repayment plan takes 10 years and has no specific eligibility requirements. The extended graduated repayment plan takes 30 years and requires you to have over $30,000 in loans. Additionally, your loan payments must be reduced to less than the standard plan to go on this repayment plan. Both of these might be good options if you know for certain that your income will rise significantly over time. If you’re a streamer who has figured out how to be that certain, I absolutely need to learn from you!
Income Based Repayment (IBR)
IBR payments will be based on your adjusted gross income (AGI, a topic covered here) as opposed to your loan balance. This means that you need to report your AGI to the federal government each year, though you will likely be doing that anyways when you file your taxes. The actual amount you have to pay is based on your discretionary income, which is calculated by subtracting 150% of the federal poverty guideline from your AGI. This figure is recalculated annually.
Your annual payments on IBR will be 10% or 15% of your discretionary income. You get the 10% rate if you were a new borrower after July 1st, 2014 and the 15% rate otherwise. That means if you have an AGI of $30,000 and you’re the only member of your family you’d pay $101.50 or $152.25 on your loans, each month ($30,000-$17,820=$12,180 * (0.1 or 0.15)/12). That’s not too shabby if you have a high loan balance. It’s also possible to have your payment amount be $0 if your income is low enough. Your IBR plan lasts 20 years if you qualify for the 10% payments or 25 years for 15% payments. If you are married your spouse’s income counts in your AGI unless you file taxes separately. Your payments are also capped at the standard repayment plan amount, at which point you’d be put on that plan.
If you still have a loan balance at the end of the term of your loan the rest is forgiven. While that sounds nice, and it is, it’s not all roses. Any loan forgiveness counts as income to you, which means you need to pay taxes on it. If it’s $25,000 forgiven and you already had an income of $30,000 you’d be paying $6,250 extra in tax!
Pay As You Earn (PAYE)
PAYE is probably the most forgiving repayment option, outside of public service loan forgiveness. Unfortunately, only a small subset of borrowers will qualify for it. If you were a new borrower on or after October 1st, 2007 and received a loan payment after October 1st, 2011 then you qualify. Basically, if you were a new student promised a better loan situation during the 2008 election you qualify. If not, take a peek at REPAYE.
For PAYE your payments are 10% of your discretionary income and your repayment term is 20 years. Basically, it’s equivalent to the better option under IBR. You can use the same calculations as IBR for what you’d pay and what your tax hit might be at the end of the term. Similarly, your payments are capped at the standard repayment amount and you can file taxes separately to exclude your spouse’s income from AGI. You still get the tax bomb at the end if you get forgiveness.
Revised Pay As You Earn (REPAYE)
REPAYE is a program for people who don’t qualify for the more forgiving programs like PAYE and IBR. Anyone with a Direct loan is eligible and your payments are 10% of your discretionary income. One nice perk of REPAYE is that if your payments aren’t enough to cover the interest payments on your loan the government will pay your interest for 3 years and then 50% of your interest after that.
So where is REPAYE different than PAYE? First, if you have any graduate loans then your repayment plan is 25 years. Second, your payments aren’t capped at the standard repayment plan rate. That means that if your income goes up a lot you could actually pay more. Finally, if you’re married your spouse’s income counts, regardless of if you file taxes together or separately.
This still comes with the loan forgiveness tax bomb.
Public Service Loan Forgiveness (PSLF)
If you’re a full time streamer, you almost certainly won’t qualify for this. I won’t go in to it a ton but do know that if you’re working for a 501c(3) non-profit, making on-time, income based payments on Direct loans, and document that you’re doing it you can get earlier forgiveness without the tax bomb. If you have more questions on PSLF leave a comment or shoot me an email.
Private Loans
So what if the government won’t loan you enough money to cover college costs? Then you’ll have to look at private lenders to make up the difference. There are many companies that offer private student loans and you should do your research before selecting one.
Generally, private loans are worse than government loans. While the government has an interest in your success over your entire life, a private lender really only cares whether or not you’ll make enough money to repay them on time. You aren’t guaranteed options like the repayment plans listed before. Often, you will have to get a higher interest rate. That being said, it’s also possible to get lower rates or better terms. That’s because the contracts with these companies are less standardized. It’s unlikely, but possible.
So what can you do with private loans if your payments are untenably high? First and foremost, talk to your lender. See what options they have available. They really do want you to repay the loan because that’s how they make money. They might give you a hard time about it or be more strict, but ultimately they’re businesses and they prefer getting paid over not getting paid.
Often, you can consolidate higher interest loans with one company in to a lower interest loan with another company. These kinds of loans tend to have strict requirements for their best offers but it can still be worth seeing if you can get a better rate or repayment option than what you have. I’m against consolidating your loans just for the convenience of having one payment but I am for lowering payments and interest rates. As always when looking to change the terms of your loan, make a point of looking at the total cost of the loan and not just your monthly payment. If you lower your monthly payment by $50 but the loan will cost $10,000 more in total you’ve not improved things!
Also, private lenders are generally more willing to settle for you paying them less than the full balance of your loan. This would be a move of last resort for sure because it could cause issues with your credit.
How Does This Matter to Streamers?
We already discussed the impact streaming income could have on your loan situation while you’re in school. The recap is that any income you earn while in school could impact the amount and type of loan you’re eligible for.
So, as a streamer who has finished school what kinds of things should you look out for? First, if you have government loans you’ll want to take a careful look at what your streaming income could mean for you AGI. Especially if you’re on a repayment plan. It could be that your side income ends up meaning you have a lot more in loan payments. Of course, that also means you have a lot more in income.
If you’re looking to go full time as a streamer you really should look at federal repayment programs. Odds are your income will drop so you may qualify for lower payments. That could be just the kind of short term savings that helps you make the transition to full time and helps you survive as you grow.
For private loans, you may have a hard time as a streamer. It’s a relatively new career and companies that give loans don’t tend to be super excited about trying new things. If you’re looking for a consolidation or to get better loan terms, it may be a bit harder.
Regardless of the type of loan, you should enact the steps we discussed in managing uncertain income. If you have a loan that you have to repay you need to be a bit more conservative in your spending and financial decisions. Rough, but true.
Conclusion
Student loan suck. I mean yeah, you did get an education with them. Unless you’re at a really cool school I’m not aware of it wasn’t in streaming. If it was please tell us which school it is because that’s awesome! Oh well, but you still have to pay them off.
Luckily, if you have federal loans there are a lot of options available to you. Some of them are income based, which means that if you make the move to full time streaming you might be able to lower your payments. Regardless, those programs will be impacted by any streaming income you make so you need to keep an eye out.
Private loans are a bit less forgiving on average but have more flexibility in general. It may be worth it to spend a good deal of time working with your lender to get better rates. Remember, when you’re going full time with streaming you want to be as lean as possible! Explore every avenue you have.
Believe it or not, there are way more intricacies to student loans (and even types of student loans) than we had the space to discuss here. If your question wasn’t answered or you want to dig more in to the specifics, leave a comment below!
