Is It Worth It to Take a Lower Paying Job That Makes You Eligible for Student Loan Forgiveness?
Student loan forgiveness. Sounds pretty sweet, right? Of course it is, if you make it to a point where your loans are forgiven. But, would it be worth it to take a lower paying job that would allow you to have your student loans forgiven or should you forget it and take the higher paying job and just simply make payments on your student loans?
This is a tough question and there are many different factors to look at here. Below, we will explore some of the things you need to keep in mind as you ponder the idea. Remember, you do not want to just jump into something because it looks nice. You need to make sure that it will benefit you in the long run.
1. How Long Until You Receive Forgiveness?
There are a multitude of different student loan forgiveness programs out there that you can participate in, if you qualify. The key though is to determine how long you must participate for before you actually receive the student loan forgiveness.
When we think about taking a lower paying job, this would be beneficial for you if you only need to serve a two-year or four-year term to have a chunk of your student loans paid off. If you have to accept a low paying job AND serve a 10-year term to help pay off your student loans, it would not be worth it at that point.
Therefore, if you are able to enter into your chosen career choice and work for a short amount of time until forgiveness, it would be worth it to go ahead and accept the lower paying job for the time being. That way, you gain experience and you have only worked a few years under the average salary, but you gained more in the end, which was loan forgiveness.
2. Consider the Tax Bill at the End
One of the biggest downsides to student loan forgiveness is the tax bill at the end of the year. The reason behind this is that once you receive the loan forgiveness, it is counted as income on your tax return. So, if you make $30,000 per year and you receive $15,000 in loan forgiveness, your taxable income for that year would be $45,000 even though you did not actually make that amount.
If you do accept a lower paying job, you need to keep this in mind and plan for it in the future. If you know that you will receive $10,000 in forgiveness, you can calculate the estimated tax bill and save up over the course of the term that you have to serve and you will not be affected by the tax bill.
The only time it would not be wise for you to take a lower paying job is if you have no way to pay down the tax bill when you receive the loan forgiveness. Students who are already struggling financially may not be able to afford a $1,000 or more tax bill at the end of the year.
You need to plan wisely for this and always be alert, so that you are not hit with a ridiculous bill.
3. Will Loan Forgiveness Help You?
Unfortunately, there are instances where you may be enrolled in a loan forgiveness program, but you pay off your loan debt BEFORE you receive any type of forgiveness. It is important that you sit down and determine whether or not you will have a balance to be forgiven before you apply for the forgiveness program.
If for some reason you find out that you will not have a balance, then it would be better for you to accept a higher paying job and forget about the forgiveness plan altogether. In fact, if you are in this situation, you can apply for other flexible repayment options through your loan provider and you can extend or shorten your loan to make payments better for you.
Also, before you accept or apply for a loan forgiveness program, you need to make sure that you can take the job you want and you need to make note of any changes that may affect your eligibility. For instance, you may accept the lower paying job now and be on track for forgiveness, but if you receive a raise at work, it may disqualify you for the forgiveness program. This are things that you need to pay attention to, so that you do not end up disqualifying yourself in the end.
You Can’t Rely on Forgiveness Alone
Many students enter into a student loan forgiveness program and think that it will take care of all of their problems. The thing is, it won’t. To qualify under many of the loan forgiveness programs, you need to make a set number of payments, which is usually 10 years, sometimes more depending on the program you are in.
When it comes to other loan forgiveness programs such NURSE Corps, you need to work in a specific area for a length of time to qualify. Any changes in your student or employment status can result in disqualification from the forgiveness program.
It is also vital that you make sure you ALWAYS make payments on time, as a late or missed payment can reset your payment counter, which would delay when you receive forgiveness.
The choice to take a lower paying job and accept student loan forgiveness is up to you. If you do choose to take a higher paying job, there are alternatives for you as well such as student loan refinancing, which would reduce your interest rate and save you thousands of dollars over the course of your loan repayment term.
Ultimately, the choice is yours to make, but you should run numbers and calculate both scenarios to see which one would benefit you the most in the end and then go with that one.