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The Department of Education also offers several forms of income – based repayment plans for federal student loans

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The Department of Education also offers several forms of income – based repayment plans for federal student loans

These include the Pay as You Earn Repayment Plan, the Revised Pay as You Earn Repayment Plan, the Income – Based Repayment Plan, and the Income – Contingent Repayment Plan. 45 Under the Education Department repayment plans, the student’s payment obligation will cease if the principal loan balance is repaid before the end of the repayment period. Borrowers and their advisers should be diligent in reviewing the plan details, as each Education Department plan has specific requirements and features.

Under the Education Department plans, any remaining student loan balance is forgiven if the loans are not fully repaid at the end of the designated repayment period

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Because income – driven repayment plans often lower the monthly payment and extend the repayment period, the student will likely end up paying more in interest over time.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, 46 enacted in , expands the benefits of Sec. 529 college savings plans by allowing families to take tax – free distributions for purposes of student loan repayment. Principal and interest payments toward a qualified student loan will be considered a qualified 529 expense. The portion of the interest paid with tax – free Sec. 529 earnings is not eligible for the student loan interest deduction.

47 If the $10,000 limit is exceeded, the earnings portion of the excess distribution is included in the individual’s income and subject to the 10% penalty. The limit on student loan distributions applies to an individual from all 529 plans; it cannot be avoided by receiving distributions from more than one account. A distribution to a sibling of the designated plan beneficiary is applied to the sibling’s $10,000 lifetime limit, not the beneficiary’s. 48

The law has an aggregate lifetime limit of $10,000 in student loan repayments per 529 plan beneficiary and $10,000 per each of the beneficiary’s siblings

In an effort to support business growth, states and local governments are exploring innovative strategies to recruit new college graduates. For example, due to a shrinking population, Niagara Falls, N.Y., implemented a program to help pay off student loans for up to two years if the individual agreed to live in certain neighborhoods. New York state has the Teachers of Tomorrow campaign designed to use state grant money to pay off student loans of teachers who agree to work in underprivileged neighborhoods. Many communities have been exploring innovative ways to be successful in attracting and retaining young professionals. Assisting borrowers with student loan debt is a promising strategy. Readers are encouraged to research state and local programs, as there seems to be an increasing use of these incentives.

Employees burdened by student loan debt, including the debt of a family member, may have savings in a 401(k) plan or similar tax – deferred plan that can be withdrawn and online payday loans Montana used in the case of hardship. A hardship distribution is included in income and subject to the early – withdrawal penalty. 49 A distribution is made on account of hardship if the distribution is necessary to satisfy an immediate and heavy financial need. 50 Whether an employee has an immediate and heavy financial need is determined based upon all the relevant facts and circumstances. 51 A financial need could be considered immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee. 52

For distributions after 2019, whether a hardship distribution is necessary to satisfy an employee’s immediate and heavy financial need is determined under standards set out in Regs. Sec. 1.401(k)- 1 (d)(3)(iii). The hardship distribution ount of the employee’s need, including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated as a result of the distribution. A distribution is not treated as necessary to satisfy an employee’s immediate and heavy financial need if the need may be relieved from other resources that are reasonably available to the employee, including assets of the employee’s spouse and minor children. 53 The employee must provide a written representation that he or she has insufficient liquid assets to satisfy the financial need. 54 A plan administrator may rely upon this representation unless the administrator has knowledge to the contrary.

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