While volunteering doesn’t come with a big paycheck, it may help you pay off your student loan debt. There are several volunteer programs that are eligible for student loan forgiveness after a certain number of years. If you’re looking to volunteer to pay off student loans, read on for a closer look at your options.
The Challenge of Student Loan Repayment
Paying off student loans can be a huge challenge, especially if you’re dealing with large balances and high interest rates. Once your grace period ends, you’re expected to pay back your student loans on a monthly basis.According to the Federal Reserve, the average student loan payment is $393, a hefty sum, especially for new graduates who are figuring out their career path. However, that financial obligation doesn’t have to prevent you from giving back to your community through volunteering.
Exploring the Concept of Volunteering and Paying off Student Loans
There are ways to volunteer and pay off student loans at the same time. In fact, your volunteer work may make you eligible for student loan forgiveness programs, such as the Public Service Loan Forgiveness program, which requires 10 years of service and 120 payments on an income-driven repayment plan. Here are some programs to put on your radar if you’re looking to shorten the time it takes to pay off student loans:
Teach for America
The Teach for America program places teachers in underserved communities for a minimum of two years. You must have a bachelor’s degree to qualify for this program, along with a college GPA of at least 2.5 on a 4.0 scale. You’ll get paid a salary for your work — anywhere from $32,000 to $72,000, depending on your location — and your Teach for America will count toward Public Service Loan Forgiveness. As mentioned, PSLF forgives your student loans after 10 years of qualifying service.
Peace Corps
If you volunteer for the Peace Corps, you could get sent to another country to help with community development. Peace Corps volunteers work in a variety of fields, including healthcare, education, and agriculture. You can defer payments on your student loans while you’re volunteering in the Peace Corps. Plus, your service qualifies for the PSLF program. If you have a Perkins loan, you could get between 15% and 70% of the balance forgiven. Note that the Perkins loan program stopped lending new loans in 2017, so this Perkins loan cancellation benefit would only be relevant to borrowers who took out loans prior to that time.
AmeriCorps
AmeriCorps places volunteers around the U.S. to help address issues related to poverty, education, and the environment. Your volunteer work in AmeriCorps is eligible for the PSLF program. Plus, you could qualify for the Segal AmeriCorps Education Award, which gives you money toward your student loans. The award amount equals the Pell Grant amount for the year, which is currently $7,395 for the 2023-24 award year. If you use your Segal AmeriCorps Education Award toward your student loans while they’re in forbearance, you’ll get credit for 12 payments toward PSLF (the program requires 120 payments in total). What’s more, you won’t have to worry about paying interest that accrues during forbearance. As long as you complete your term of service, the National Service Trust will pay off the interest that accrues during this time.
Potential Benefits and Drawbacks
Before choosing to volunteer to pay off student loans, it’s worth considering both the benefits and potential drawbacks.
Benefits
- Contribute to an underserved community. Volunteer work is all about giving back. By volunteering either in the U.S. or abroad, you can help economically disenfranchised communities and make a difference in the world.
- Gain work experience in an area of interest. There are a variety of volunteer positions in anything from healthcare to education to entrepreneurship. This experience could serve as the springboard to your future career.
- Work toward student loan forgiveness. Some volunteer work is eligible for PSLF or comes with other student loan assistance benefits to help you pay off your student loans. You may also have the option of pausing payments through forbearance while you’re volunteering, but find out whether interest will accrue and cause your balance to grow during this time.
Drawbacks
- May have to live on a strict budget. Volunteer work isn’t going to come with a high salary. The position may come with housing or a small stipend, but you’ll have to be comfortable living on a tight budget for a while or working a job in addition to volunteering.
- Limit your earning potential. Along similar lines, the time you spend volunteering is time you’re not spending earning a full-time income or working toward a promotion at work.
Organizations and Charities That Pay Off Student Loans
Along with volunteer work, you may find organizations and charities that offer grants to pay off student loans. The Shared Harvest Fund, for example, offers student debt assistance in exchange for volunteer work. In particular, it connects healthcare workers, such as doctors, nurses, therapists, and social workers, with MyCovidMD, an organization that provides Covid-19 care, testing, and vaccines to communities in need. To date, the Shared Harvest Fund has provided $120,000 toward student debt relief.
Tips for Getting Involved
Before applying to become a volunteer, review the rules and requirements around student loan repayment and forgiveness. Find out if you need to get your loans on an income-driven repayment plan or apply for forbearance. By researching the program’s rules from the start, you can make sure you’re on track to receiving student loan forgiveness. Then, you can enjoy your time volunteering and giving back without having to stress about your student loans.
The Takeaway
Student loans can be a burden, but they don’t have to stand in your way if you want to volunteer after college. Fortunately, there are several programs that are eligible for PSLF or offer assistance toward your student loans. Another student loan management strategy worth exploring is refinancing your student loans for better rates. Reducing your interest rate can save you money over the life of your loans. Keep in mind, though, that refinancing federal student loans turns them private, so you’ll lose access to federal programs like PSLF and income-driven repayment. It wouldn’t make sense to refinance federal loans if you’re working toward federal forgiveness or using other benefits.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Can I use a 529 to pay off student loan debt?
A 529 plan is an investment account that’s mainly used to pay for college and other educational expenses. You can also use 529 plan funds to pay off student loans, thanks to a law that was signed in 2019. More specifically, you’re allowed to use up to $10,000 per beneficiary on student loan repayment.
Read on to learn more about 529 plans and what you can (and can’t) spend 529 savings on.
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A 529 plan is a tax-advantaged investment account that was created in the 1990s to help people save for college. Parents often open 529 savings plans on behalf of their children to save for their postsecondary education expenses.
There are two types of 529 plans: savings plans and prepaid tuition plans. Savings plans allow you to make tax-free investments and withdrawals, as long as you’re using the money to pay for qualified educational expenses.
529 savings plans work like a Roth IRA, since you submit after-tax dollars and invest them in mutual funds or similar investments. Your savings may increase or decrease depending on the performance of your investments.
Prepaid tuition plans, on the other hand, let you prepay tuition at participating public colleges at today’s rates. You won’t have to pay more in the future, even if tuition increases by the time your child attends.
Every state offers its own 529 plan, but you’re not limited to the plan offered by your state of residence. You can choose another state’s plan if you prefer it. That said, opting for your own state’s plan could make you eligible for certain tax deductions or credits.
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Although 529 plans are primarily used for college expenses, they can now also be used to pay off a certain amount of student loan debt. Thanks to the 2019 SECURE Act, 529 plan owners are now allowed to use their funds to pay off up to $10,000 in student loans for the account’s beneficiary.
That $10,000 limit applies to each beneficiary, not each account. If you have remaining funds in the account, for instance, you could change the beneficiary to the student’s sibling to help them pay off student loans. Parents with PLUS loans could also make themselves the beneficiary and put $10,000 toward their own loans.
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Besides paying student loans, you must use 529 plan funds on qualified educational expenses. If you withdraw the money for non-qualified expenses, you could be subject to income taxes and a penalty.
Here are some common expenses to use 529 funds on:
- Tuition and fees
- Books and supplies
- Housing
- Meal plans
- Computers
As part of the Tax Cuts and Jobs Act of 2017, 529 plan owners can also use 529 funds to pay for private school tuition for kindergarten through 12th grade. The maximum you can use on K-12 tuition is $10,000 per year.
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You might have some additional school expenses that don’t count as qualified education expenses. Here are some things you can’t use 529 plan funds for:
- College application fees
- Testing fees, such as the SAT or ACT
- Transportation
- Health insurance, unless the fee is an official requirement for enrollment and attendance
- Extracurricular activities, such as sports and clubs
- Dues for fraternities and sororities
- Room and board costs that exceed the school’s official cost of attendance
If you use 529 plan funds on non-qualified expenses, you’ll have to pay income taxes and a 10% penalty.
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Now that you know the answer to the question “can a 529 be used to pay student loans?” is yes, let’s talk about what that means.
If you’d like to use a 529 to pay student loans, there are both benefits and drawbacks to consider. Here are some pros and cons to keep in mind before you move forward with this strategy.
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- Tax benefits: Your 529 savings can grow tax-free, as long as you spend the funds on qualified expenses. Some states also offer tax deductions or credits on your 529 contributions, leading to additional savings.
- Option to change beneficiaries: You can change the beneficiary on your 529 plan account, allowing you to withdraw up to $10,000 for the primary student, their siblings, or even yourself to use toward student loans.
- Flexibility: You can contribute to or take distributions from a 529 plan at any age, meaning you could contribute to an account even after a student has graduated from college and use the funds toward student loans.
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- Limit of $10,000 per beneficiary: The maximum amount of 529 funds you can use toward student loan repayment per beneficiary is $10,000, which may be only a small portion of a borrower’s total student loan debt.
- May make you ineligible for the student loan interest tax deduction: Since the 529 plan already comes with tax benefits, the IRS doesn’t let you simultaneously claim the $2,500 student loan interest tax deduction when you use a 529 plan to make student loan payments.
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Even if you use a 529 plan to pay off $10,000 of your student loans, you might have additional debt left over. Here are some strategies to help you pay it off:
- Explore your repayment plan options. Federal student loans are eligible for a variety of repayment plans, including graduated repayment and income-driven repayment. If you need to reduce your monthly bills, consider applying for one of these plans.
- Set up biweekly payments. Instead of paying your loan payments once a month, pay half the monthly payment every two weeks. This strategy adds up to an additional one month’s payment per year. This extra payment could cut down on interest charges and reduce how long it takes to pay off student loans.
- Pursue student loan forgiveness. There are various forgiveness and loan repayment assistance programs that will forgive part or all of your debt in exchange for qualifying service. Some companies also offer student loan assistance benefits to employees. Learn more about employer student loan repayment opportunities, plus other options so that your student loans are forgiven.
- Look into refinancing your student loans. If you owe high-interest loans, it could be worth refinancing your student loans for better rates and new repayment terms. Just be careful about refinancing federal loans with a private lender, as doing so means forfeiting access to federal protections.
Finally, if you can afford to pay your loans off ahead of schedule, consider making extra payments toward your principal amount. Use a student loan calculator to see how much you’d need to pay to shave a year or two off your repayment timeline and how much interest you could save. By getting rid of your debt early, you could shift your focus to other financial priorities.
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- Refinancing your student loan can lower your monthly payments and help you adjust your loan term. Compare student loan refinancing rates to find a loan that works for you.
- Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.)
- One pain-free way to pay down your student loan sooner: send in your tax refund to put against the principal balance. Since it’s money that has already been taken out of your pay, you won’t miss it.
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Nearly 43 million Americans owe $1.745 trillion in student loans, with the average student loan debt adding up to $37,787 in federal loans per borrower, according to the Education Data Initiative.
Using a 529 plan to make student loan payments can be a savvy financial move, since your contributions and withdrawals will be tax-free as long as you don’t spend more than $10,000 per beneficiary.
At the same time, using savings from a 529 plan on student loans means you can’t simultaneously claim the student loan interest tax deduction. Given the tax implications, it could be worth speaking with a financial advisor to determine the best move for your specific situation.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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