By Victoria Sechrist (ConsumerCatholic.com)
Part 5 of a 5-Part Series on Student Loans
We have reached the end of our series, and this week, we’re discussing the virtue of justice. We will look at this both from the perspective of you, the borrower, and the lender.
While you may be hoping that justice would mean getting your loans wiped away one morning (that would be a miracle!), it actually refers to giving God and your neighbor what is due to them.
Two Bible quotes that describe this idea are:
- Matthew 22:21: “Jesus said, ‘Render to Caesar the things that are Caesar’s; and to God the things that are God’s.’”
- Romans 13:1: “Let every person be in subjection to the governing authorities.”
Legalese
Some new legislation can make a difference! The SECURE Act, which went into law on January 1st, 2020 will now allow you to use up to $10,000 from your 529 to pay down student loans.
The FUTURE Act, which also went into effect on January 1st, 2020, is supposed to make it easier for students to enroll in income-driven repayment plans with a monthly payment that accurately reflects their income.
There is a lot of other proposed legislation and it’s anybody’s guess what will ultimately become law. Some proposals include getting rid of capitalized interest on student loans after forbearance and eliminating the income tax on any student loan debt forgiven after 20 or 25 years on income-driven repayment. You can keep track of all the legislation here.
Taxes
All students paying back school loans should also know about the Student Loan Interest Deduction. You can deduct up to $2,500 (separate from the standard deduction) per year of interest paid. This doesn’t include payments made towards principal; it only includes payments that covered interest. You can check out if you qualify by going here: https://www.irs.gov/help/ita/can-i-claim-a-deduction-for-student-loan-interest
Loan Forgiveness
The most well-known loan forgiveness program for Federal student loans is the Public Service Loan Forgiveness. You make 10 years of on-time qualifying payments and voila, your loans are forgiven and you’re not taxed on this amount at all. It sounds simple enough, but few people have qualified. You have to work for a qualifying governmental or nonprofit employer. You can learn more about the program here.
There are also certain loan forgiveness programs for nurses or teachers, for example. It can be worth your time to spend an afternoon researching the different options associated with your line of work. You never know if a few hours of research can result in savings!
Private Loans
There is not as much justice for private loans. There is no loan forgiveness after making payments for a certain number of years.
So what’s someone to do if they can’t afford their monthly payments? To the lender, this may seem unfair that a borrower doesn’t hold up his or her end of the bargain. After all, you signed an agreement that you would pay a certain amount on a certain date every month until the debt was paid down. When the borrower stops paying, the lender isn’t getting money it was counting on. Eventually, the debt may end up in collections.
The borrower could argue that college was too expensive to begin with and that he or she made this decision to take out loans when they were just a teenager, not understanding the magnitude of the debt!
Hopefully, you can see this from both sides.
For some students, though, the last resort is bankruptcy. It’s taboo to talk about, but bankruptcy is sometimes the best option. Generally, it’s extremely difficult to get student loans discharged in bankruptcy, but there is an exception for “undue hardship.”
In this case, the borrower has to prove that paying back his or her student loans would cause undue hardship. An attorney would be the best person to help you decide whether you’d qualify. (There are attorneys who specialize in student loan bankruptcy.) Attorneys may consider the Brunner Test. This looks at 3 things:
- Whether you can keep up a minimum standard of living while repaying the student loans
- Whether your current financial situation is temporary or long-term
- Whether you’ve really tried your best to pay back the student loans
As with any decision in life, talk to God. Here are some questions to ask Him:
- Lord, what is just in my situation? What is right?
- Why are student loans so frustrating?
- What should I do?
Here’s a great prayer I love to Saint Anthony of Padua (from BeliefNet):
Blessed St. Anthony, who in life was ever mindful of the needs of the afflicted, consuming yourself in the service of God and for the good of souls, who was the enemy of idleness and a tireless worker in the vineyard of the Lord, beseech God to grant me a suitable job, which may procure for me and my loved ones a decent livelihood, and be at the same time a means of personal sanctification and of real service to others. Amen. Our Father, Hail Mary, Glory Be…St. Anthony, helper in all necessities, pray for us.
