Employer student loan repayment assistance was one of the provisions of the over $2 trillion CARES Act passed in March 2020 that received the least attention. Congress changed the law to allow employers to make up to $5,250 loan contributions to your student loans under Section 2206 of the CARES Act.
Thereafter, Congress opted to prolong this benefit for an additional five years in the Consolidated Appropriations Act of 2021. In essence, that is a signal to big employers that Congress intends to permanently extend this benefit.
I’ll go into further detail about these four bullet points, what this program entails for you, and whether you could be eligible to benefit.
Self-Employed: Top 5 Student Loan Repayment Options
Repaying student loans when self-employed can be difficult because of income fluctuations. You can efficiently manage your loans and even pay them off sooner with these five strategies.
Enroll In an IDR Plan
If you are eligible for an income-driven repayment (IDR) plan, you may have federal student loans. These plans base your payments on a portion of your discretionary income over a longer repayment period.
Self-employed individuals are eligible for IDR plans. All you have to do is provide documentation of your income, such as previous tax returns, client 1099 forms, or an accountant’s letter.
In order to maintain your lower payment plan status with IDR plans, you must recertify your income and family size annually. IDR plans, however, can be very beneficial if your income fluctuates a lot. For instance, you can recertify your income early in order to possibly receive a smaller payment if you lose a significant client or a project that ends and causes your income to decline.
Wait for Loan Forgiveness
The only time you might be eligible for Public Service Loan Forgiveness if you work for a 501(c)(3) non-profit organization instead of being self-employed is if you started your own business.
If that’s not the case, you don’t qualify for PSLF. However, you could be eligible for IDR plan forgiveness.
With this option, you make payments under the IDR plan for 20 to 25 years. At the end of your loan term, the government will forgive your remaining balance of the loan that hasn’t been paid in full.
For now, this type of loan forgiveness is not taxable, but that could change in the future, so consult a tax expert to learn how loan forgiveness might affect your tax liability.
Make Extra Payments
The secret to paying off your debt more quickly and saving money is to increase your monthly payments.
It’s not necessary to make enormous additional payments to have an impact; even a $20 monthly increase in your payments can result in significant financial savings. By cutting back on streaming services, packing a brown bag lunch, or carpooling with a coworker, you can find that amount in your budget.
Here’s how much money you could save and how much quicker you could pay off debt if you increased your loan payments by $20, $50, or $100 a month to demonstrate the impact that additional payments can have.
Assume, for the purposes of this example, that you have $30,000 in student loans with a 2010 year term and 5% interest.
| Original Loan Terms | $20 Additional Payment | $50 Additional Payment | $100 Additional payment | |
| Time In Repayment | 10 Years | 9 years 4 months | 8 years 4 months | 7 years 2 months |
| Payment Amount | $318 | $338 | $368 | $418 |
| Total Interest | $8,192 | $7,535 | $6,731 | $5,719 |
| Total Cost | $38,192 | $37,535 | $36,731 | $35,719 |
| Savings Compared to Original Loan | N/A | $656 | $1,461 | $2,473 |
Set Up Your Own Student Loan Repayment Assistance Program
More and more employers are offering student loan repayment benefits. However, did you know that if you work for yourself, you can benefit from an employer repayment program?
Employers can benefit from the Consolidated Appropriations Act through 2025. Employers may offer each employee up to $5,250 in pre-tax student loan repayment assistance under this act.
With this provision, you can use your self-employment to give yourself up to $5,250 in pre-tax employer student loan repayment assistance if you own a sole proprietorship, LLC, or S-Corp.
While there aren’t any federal tax benefits for employers, there might be additional benefits to this strategy because some states offer tax deductions, grants for student loan repayment, or credits for employers that provide this benefit.
Refinance Your Student Loans
Refinancing your student loans is an additional option to manage your debt if you work for yourself. Refinancing is a great way to find a lower interest rate, modify your monthly payments, and save money if you have high-interest loans.
Although most refinancing lenders have minimum income requirements, being self-employed won’t prevent you from refinancing as long as you can show proof of income.
If you’re just starting out as a self-employed person and don’t yet have any tax returns or 1099s, you might want to ask a parent, close friend, or relative to co-sign your loan application. Getting a co-signer can help you get a loan with a cheaper interest rate.
Before refinancing, just make sure you complete your homework, particularly if you have federal loans. Federal loans become private after you refinance, and you will no longer be eligible for loan forgiveness or IDR programs.
You can get a rate quote and begin your application online with ELFI if you decide after weighing the benefits and drawbacks that refinancing your student loans makes sense. *.
How Much Could You Save by Refinancing?Use our student loan refinancing calculator to see how much you could save by refinancing your student loans.
*Education Loan Finance is a nationwide program provided by Tennessee-based SouthEast Bank for the consolidation and refinancing of student loan debt. With the help of ELFI, borrowers can reduce their cost of education debt and/or simplify repayment by combining and refinancing multiple loans into a single loan. Subject to credit approval. See Terms & Conditions. Interest rates current as of 10-13-2023. After closing, a variable rate loan’s interest rate and monthly payment may rise, but they will never go above 9. 95% APR. Interest rates are subject to change and are determined by a number of factors, such as the length of the loan, your credit history, and the credit history of any cosigners you may have. See Eligibility Requirements for more information. For instance, a loan for the year 2010 with a fixed rate of 6% would require $ 11 in zero payments. 10 per $1,000 borrowed. Rates are subject to change.
2Named a Best Student Loan Refinance Lender by U.S. News & World Report as of 6/7/23.
FAQ
Can I pay my student loans through my S Corp?
With this provision, you can use your self-employment to give yourself up to $5,250 in pre-tax employer student loan repayment assistance if you own a sole proprietorship, LLC, or S-Corp.
Can my business pay off my student loans?
Employers are currently able to offer tax-free student loan repayment benefits to their staff members up to $5,250 annually. Reaching your objective of paying off student loan debt can be made easier if you comprehend how these programs operate and how to be eligible.
Can an employer pay student loans tax-free?
Both payments made to the employee and direct to the lender are eligible. Tax-free benefits under an educational assistance program are legally restricted to a maximum of $5,250 annually per employee. Normally, assistance provided above that level is taxable as wages.
Is paying off student loans a tax write off?
Student Loan Interest Deduction: You are eligible to deduct interest from your taxes for student loans that you, your spouse, or your dependents have taken out. This benefit is applicable to all loans used to cover the costs of higher education, not just federal student loans. The maximum deduction is $2,500 a year.
Read More :
https://www.elfi.com/how-to-pay-off-student-loans-when-you-are-self-employed/
https://ttlc.intuit.com/community/college-education/discussion/employer-student-loan-repayment-cares-act/00/1637840