Category: Local / State Employees

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Student loan forgiveness program guide

fireworks by the water

fireworks by the water

For many, student loans represent a significant investment in an individual’s future. Borrowing to complete an undergraduate, graduate, or professional degree program is often the only means to pay for the cost of higher education, as the price tag continues to increase at public and private institutions alike.

Currently, more than 44 million Americans have outstanding student loan debt, totaling over $1.4 trillion among them, and these figures make it hard to fathom how student loan balances will ever be paid off.

Fortunately, some student loan borrowers have access to valuable forgiveness programs that offset the burden of paying for student debt over the course of several years. In this guide, borrowers can learn about what student loan forgiveness is, the available student loan forgiveness programs, caveats to forgiveness, and how private student loans are impacted.

What Is Student Loan Forgiveness?

Student loan forgiveness is the process of having outstanding loan balances canceled after a period of on-time, consistent monthly payments. Whether in full or in part, student loan forgiveness means that a borrower has the slate wiped clean and there is no longer an obligation to repay a remaining balance.

The cancellation of student loan debts takes place through the borrower’s student loan servicer, but the federal government via the Department of Education takes on the financial responsibility of student loan forgiveness. Students may be eligible for loan forgiveness based on their employment, their career field, or their selected repayment program.

Student Loan Forgiveness Programs

There are several student loan forgiveness programs available to qualified borrowers through the Department of Education, including Public Service Loan Forgiveness, Teacher Loan Forgiveness, Income-Driven Repayment Forgiveness, and Perkins Loan Cancellation.

Public Service Loan Forgiveness

Under the Public Service Loan Forgiveness program, also referred to as PSLF, individuals who borrowed federal student loans to help pay for their education who work in a public service position may have outstanding balances forgiven after a period of ten years of repayment. The program started in 2007 and is made available to qualifying workers, like teachers, military personnel, nurses, and firefighters, who hold a job in a non-profit organization or the government.

To qualify, borrowers must have worked in a qualifying field for at least ten years and made payments on their federal student loans for at least the same amount of time. Employment with a qualified organization must be full-time, which means at least 30 hours per week. At this time, only federal direct loans are eligible for PSLF, but a consolidation of other types of loans may indirectly provide loan forgiveness to some qualified borrowers. After the 120th payment is made, borrowers may submit an application to their federal student loan servicer.

Teacher Loan Forgiveness

Individuals who borrowed to help pay for their college degree may qualify for teacher loan forgiveness through the Department of Education. Through the teacher loan forgiveness program, borrowers who work as teachers on a full-time basis may qualify to have up to $17,500 in direct or Stafford student loans forgiven. Eligible teachers must work in a low-income public elementary or secondary school, and they must have worked in that environment consecutively for the last five years.

While direct and Stafford loans are eligible for the teacher loan forgiveness program, borrowers must have taken out their first loans on or after October 1, 1998. Borrowers who believe they are eligible for teacher loan forgiveness may submit an application directly to their student loan servicer after the five years of consecutive, qualifying employment is complete.

Forgiveness Via Income-Drive Repayment

The federal government also offers student loan forgiveness to borrowers who elect to participate in an income-driven repayment program. Through these repayment options, which include income-based, income-contingent, Pay As You Earn and Revised Pay As You Earn, a borrower’s monthly student loan payment is capped as a percentage of monthly discretionary income, recalculated each year.

At the end of the repayment term, either 20 or 25 years, the remaining balance is automatically forgiven so long as borrowers have made consistent, on-time payments. To apply, borrowers must contact their federal student loan servicer directly to ensure they are on the most appropriate repayment program and are ultimately eligible for income-driven repayment forgiveness.

Perkins Loan Cancellation

Certain borrowers who show an exceptional financial need at the time of applying for federal financial aid may qualify for Federal Perkins Loans. These loans are low-interest federal student loans made available to both graduate and undergraduate students, up to certain limits. Perkins loans are only offered through participating schools, and the college or university offering the loan is the student’s lender, not the federal government.

Borrowers with Perkins Loans who work in certain types of public service or certain occupations may qualify to have a percentage of the loan canceled after each year of employment. Perkins Loan cancellation is currently offered to volunteers in the Peace Corps or ACTION program, teachers, members of the U.S. armed forces, nurses or medical technicians, law enforcement, Head Start workers, child or family services workers, and professional providers of early intervention services. To apply for Perkins Loan cancellation, borrowers must contact the school from which the original loan was acquired.

Special Considerations and Drawbacks

While student loan forgiveness can ease the burden of large student loan balances, there are caveats. First, student loan forgiveness tied to an income-driven repayment plan has certain tax implications for borrowers. At the time outstanding loan balances are forgiven, a borrower is taxed on that amount as income.

As an example, for an individual with a 25% income tax rate who has $30,000 in student loan debt forgiven may owe $7,500 in income tax the year the balance is canceled. Fortunately, borrowers who qualify for Public Service Loan Forgiveness, Teacher Loan forgiveness, or Perkins Loan cancellation are not taxed on any balance forgiven.

Additionally, borrowers who plan to utilize a federal student loan forgiveness program are susceptible to legislative changes that could severely impact their chances of being released from obligations. In recent months, student loan forgiveness for all current programs has been debated in Congress, leaving some borrowers weary of banking on forgiveness as part of their long-term financial plan.

There is no prediction that can be made as to what will take place with any of the student loan forgiveness programs, but borrowers should be aware that any or all of these benefits may disappear in the future, leaving the responsibility to repay student loans fully on their shoulders.

Finally, student loan borrowers who plan to use student loan forgiveness through PSLF or teacher loan forgiveness often work in career fields that offer lower earning potential over a lifetime. Taking a smaller annual income is beneficial in qualifying for loan forgiveness, but it may lead to challenges in setting aside savings for long-term financial goals.

Each loan forgiveness program requires years of on-time payments before loan balances are forgiven, so it is important for borrowers to weigh the pros and cons of career decisions in advance.

Forgiveness for Private Student Loans?

All student loan forgiveness programs mentioned in this guide are relevant for student loan borrowers who have federal student loans, or those originally provided through the Department of Education.

Private student loans offered by financial institutions not tied to the federal government do not currently qualify for student loan forgiveness under any federal program. There are, however, rare instances where student loans provided by private lenders may be canceled.

Borrowers may be able to have private student loans discharged through bankruptcy proceedings, but only when they are able to prove that the monthly payment will impose an undue hardship for an extended period of time. Each bankruptcy court varies by state, and this means that the tests used to evaluate undue hardship also varied greatly.

Generally speaking, if a borrower is unable to maintain a minimal standard of living for himself or his dependents based on income and expenses, including private student loan payments, a discharge through bankruptcy may be possible.

For student loan borrowers who currently have federal student loan debt, the idea to refinance into private student loans may be appealing. This is because most private student loan lenders offer extended repayment plans and variable interest rates that seem lower at the onset of a loan refinance, saving borrowers money on their monthly payment as well as on the total cost of borrowing over time.

However, because private student loan lenders do not offer any respite to borrowers by way of loan forgiveness over time, individuals should carefully consider their options with their federal student loans before opting to refinance with a private lender.

Overall, federal student loan forgiveness can be a smart strategy for borrowers who plan to work in a certain career field or select an income-driven repayment plan after graduation. When consecutive, on-time payments are made to eligible federal student loans, forgiveness can be a light at the end of a long tunnel.

However, borrowers need to be aware of the caveats of federal student loan forgiveness, including tax implications, uncertainty about the viability of forgiveness programs, and the need to take lower-income positions before relying heavily on a forgiveness program to repay student loan debt.

 

 

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Federal Employees Local / State Employees Teachers / Professors

Will I receive spousal or survivor Social Security if I have a government pension?

woman sitting on couch in deep thought

woman sitting on couch in deep thought

Will I receive spousal or survivor Social Security if I have a government pension?

 

Spousal and survivor Social Security benefits. Retirement plans and government pensions. Exceptions and more exceptions.

You’re a government employee and you have a government pension coming, but what about your partner’s retirement plan? You may be entitled to some of their Social Security benefits, but does your government pension influence what you receive? It turns out it does, and the government has the details down to a T.

First things first. What are you entitled to?

You can collect up to 50% of your spouse’s Social Security benefits instead of your own. This is good if your own benefits are less than that. If you’re a widow or widower, you can collect up to 100% of your late spouse’s benefits.

Now is when the Government Pension Offset enters the picture.

The Government Pension Offset reduces your spousal or survivor Social Security benefits if you receive a government pension on which you didn’t pay Social Security taxes.

However, the Government Pension Offset doesn’t apply if:

  • You have a private company pension.
  • You’re collecting both a government pension and Social Security based on your own work history. Keep in mind the Windfall Elimination Provision may apply.
  • Your government pension is not based on your own earnings.
  • Your government pension is from a job for which you paid SS taxes and:
    • Your last day of employment that your pension is based on is before July 1, 2004; or
    • You filed for and were entitled to spousal/survivor benefits before April 1, 2004; or
    • You paid SS taxes on your earnings during the last 60 months of government service.

Keep in mind that if you remarried before the age of 60, you are not entitled to a survivor benefit.

If you’re still with me and those exceptions don’t apply to you, let’s look at the calculation. You have a government pension and are entitled to spousal or survivor Social Security benefits. What happens when those two worlds collide?

Spousal or Survivor Social Security Benefits vs. Your Government Pension

 

character holding a scale

The Calculation

In a nutshell, your Social Security benefits are reduced to 1/3 the amount of your monthly government pension. (Even if you take your government pension in one lump sum instead of monthly payments, Social Security will calculate the reduction as if they were monthly payments.)

Example 1: Your spousal/survivor SS benefits totals $2,000/month and your government pension is $2000/month. We subtract $1,333 ($2,000 x 2/3 (or 0.667)) and you’re left with $667 per month from Social Security (1/3 the original amount) plus $2,000/month from your government pension. Your total combined benefits are $2,667 per month.

Example 2: Your spousal/survivor SS benefits totals $2,000/month and your government pension is $5000/month. Your SS benefits will be completely eliminated because what we would subtract (2/3 of your government pension, or $3,335) is more than your total SS benefits. You are left with just your government pension of $5,000 per month.

If you don’t want to do the math, use the government calculator here.

But it’s not all deductions and bad news!

Don’t forget Medicare. Even if you don’t get cash benefits from your spouse’s work, you can still get Medicare at age 65 based on your spouse’s record if you aren’t eligible for it yourself.

Retirement benefits are a tricky business. Spousal and survivor Social Security benefits aside, calculating even your own retirement benefits as a California public employee and especially as a public-school teacher can be confusing. If you haven’t already, get a solid grasp on what you’re entitled to first, and then figure out what else you may have coming your way from your partner.

Life is unpredictable. The more you know, the better prepared you’ll be for those inevitable twists and turns.

 

 

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Local / State Employees Teachers / Professors

Will I receive Social Security if I have CalSTRS or CalPERS?

Person holding sheet with question mark over face

Person holding sheet with question mark over face

Will I receive Social Security if I have CalSTRS or CalPERS?

 

If you’re a California public school teacher or public employee, you may have asked yourself this very question. In fact, I get asked it a lot from my clients. Understanding your CalSTRS retirement benefits if you’re a teacher or trying to figure out your CalPERS retirement as a public employee is not that simple. So when we start factoring in Social Security, of course there are going to be questions.

That’s when the Windfall Elimination Provision comes breezing in. It turns out your tax withholdings and previous jobs make a big difference, so let’s clear the air! Because we don’t want to throw caution to the wind when it comes to your retirement. (Let’s see how many more references to wind I can make so you’ll never forget the name of this provision!)

According to the Cambridge English Dictionary, a windfall is a large amount of money that you win or receive from someone unexpectedly. Could that someone be Social Security?

The Facts

 

Magnifying glass with "facts"

Your SSI benefits will likely be affected if:

• You work for an employer who doesn’t withhold Social Security taxes from your salary. This can impact your retirement or disability pension. AND

• You’ve worked for another employer who did hold back Social Security retirement or disability benefits.

• You’re a public-school teacher. Most public-school teachers do not pay into SSI.

 

The Windfall Elimination Provision can also apply if:

• You turned 62 after 1985 OR

• You became disabled after 1985 AND

• You first became eligible for a monthly pension based on work where you didn’t pay SS taxes after 1985. Even if you’re still working, this applies.

 

If you’re a federal employee, you’re affected if:

• You performed federal service under the Civil Service Retirement System (CSRS) after 1956.

***If you only performed federal service under a system such as the Federal Employees’ Retirement System (FERS), your SS benefits won’t be reduced. Social Security taxes are withheld for workers under FERS.***

 

The Windfall Elimination Provision does NOT apply if:

• You’re a federal worker that was first hired after 12/31/1983.

• You were employed on 12/31/1983 by a non-profit organization that didn’t withhold SS taxes from your pay at first, but then began withholding SS taxes.

• Your only pension is for railroad employment.

• The only work you performed for which you didn’t pay SS taxes was before 1957, or

• You have 30 or more years of substantial earnings under SS.

• The standard 90% factor doesn’t get reduced.

• On page 2 of the Windfall Elimination Provision breakdown, consult the chart listing substantial earnings for each year. As long as you make that amount or over, that year counts towards the 30 years. The second chart shows the percentage corresponding to how many years of substantial earnings you have.

***This doesn’t apply to survivors’ benefits. Benefits for widows and widowers may be reduced because of the Government Pension Offset.***

The Calculation

 

Person with big abacus

Your Social Security benefit is based on your average monthly earnings adjusted for average wage growth. These average earnings are separated into three amounts and these amounts are multiplied by three factors to calculate your full Primary Insurance Amount (PIA).

Your PIA is what you would receive if you chose to receive benefits at the normal retirement age, neither later nor earlier.

If you become eligible for retirement or disability benefits in 2018, these three factors are calculated:

1.)  The first $895 of your average monthly earnings is multiplied by 90%

2.)  The earnings between $895 and $5,397 are multiplied by 32%

3.)  The remaining balance is multiplied by 15%

The sum of A, B, and C is your PIA, which is then decreased or increased depending on whether you start collecting benefits before or after the full retirement age (FRA).

 

Let’s look at some examples:

Example 1:

A worker retires at 66 (his full retirement age, FRA) in 2018 with average earnings of $6,000/month. The Windfall Elimination Provision (WEP) does not apply.

1.)  $895 (first $895 of earnings) x 90% = $805.50

2.)  $4,502 (next part of earnings between $895 and $5,397) x 32% = $1,440.64

3.)  $603 (remaining balance) x 15% = $90.45

Total PIA = $2,336.59 per month

 

Example 2:

A worker retires at 66 (his FRA) in 2018 with average earnings of $6,000/month. In this case, the WEP applies as he had 10 years of substantial earnings and then the rest in CalSTRS-covered employment that didn’t withhold any SS taxes.

1.)  $895 x 40% (see chart) = $358

2.)  $4,502 x 32% = $1,440.64

3.)  $603 (remaining balance) x 15% = $90.45

Total PIA = $1,889.09 per month

You can manually figure out your average monthly earnings by following this chart. However, due to its complexity, it’s easier to use the following calculators:

 

This chart that shows the maximum amount your benefit may be reduced because of WEP.

***

Even if retirement feels like it’s far away, it’s good to know this information now so you can make plans accordingly. So, remember the Windfall Elimination Provision . . . because the winds of change are upon us and retirement will be here before you know it!

 

 

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Local / State Employees

How to calculate your CalPERS retirement benefits

calculator next to invoices

figure standing on calculator

How to Calculate your CalPERS retirement benefits

 

More than 1.6 million California public employees, retirees, and their families.

Managing one of the largest public pension funds in the US for that many people seems daunting, doesn’t it? And if you’re a recipient trying to calculate your retirement benefits, you may feel a bit lost. But terms like “benefit factor” and “final compensation” don’t have to be intimidating. Let’s break down the benefits, the variables, and get you informed and ready for retirement.

First off . . . when can you retire?

In most cases, you can retire at age 50 with 5 years of service credit. However, if all service credit was earned on or after January 1, 2013, you must wait two more years until the age of 52.

Start educating yourself now with the help of CalPERS tips and tutorials, and make sure to fill out a service retirement application within 120 days of your planned retirement date.

1. Calculating your Retirement Benefit

calculator on top of a document

If you expected a formula, this won’t disappoint:

Unmodified Allowance = Service Credit x Benefit Factor x Final Compensation

First things first. Unmodified allowance is your highest benefit payable, that doesn’t include any benefit for any beneficiary. (More on beneficiary options below.)

Now, on to those variables . . .

a. Service Credit

This equals the total years of employment with a CalPERS employer. Other types of service credit may be added, such as sick leave and service credit purchased.

To earn a full year of service credit, you must work at least:

  • 1,720 hours (for hourly pay employees)
  • 215 days (for daily pay employees)
  • 10 months full time (for monthly pay employees)

 

b. Benefit Factor (aka Age Factor)

The benefit factor is the percentage of final compensation for each year of service credit. It is based on your age at retirement and the retirement formula.

Access your retirement benefit formula chart to figure out your benefit factor or check with your personnel office. You can also check your CalPERS Annual Member Statement to verify your retirement formula.

Find your category below and click on the link to view how benefit factors increase depending on the retirement formulas. The tables illustrating the changes are towards the back, but the entire pamphlet for each member category is extremely helpful.

Local Miscellaneous Member Benefits

If you’re employed by a public agency or special district that has contracted with CalPERS, but you’re not involved in law enforcement, fire suppression, the protection of public safety, nor employed in a position designated by law as local safety.

Local Safety Member Benefits

If you’re employed by a public agency or special district that has contracted with CalPERS and you’re involved in law enforcement, fire suppression, the protection of public safety, or who are employed in a position designated by law as “local safety.”

School Member Benefits

If you’re employed in a classified position within the jurisdiction of a school employer, except:

  • local police
  • those who are covered under CalSTRS
  • those who work directly for the Los Angeles or San Diego County Superintendent of Schools
  • those employed under the jurisdiction of a Joint Powers Authority contract
  • eligible certified employees who elect to retain CalPERS membership

State Miscellaneous & Industrial Benefits

If you’re employed by the state and universities, but are not involved in law enforcement, fire suppression, the protection of public safety, or a position designated by law as industrial, patrol, peace officer/firefighter, or safety.

State industrial members are those who are employed by the California Department of Corrections and Rehabilitation or its Division of Juvenile Justice, other than state safety or peace officer/firefighter members.

State Safety Member Benefits

If you’re employed by the state and involved in law enforcement, fire suppression, the protection of public safety, or are employed in a position designated by law as “state safety.”

 

c. Final Compensation

time cost quality triangle

The final compensation is the highest average annual compensation during any consecutive 12 or 36-month period of employment, depending on your collective bargaining agreement or employer contract. This may include special compensation.

*If your membership date is on or after January 1, 2013, there is a cap on the compensation used to calculate your benefit.

  • If your service is coordinated with Social Security, the compensation cap used to calculate your benefit is equal to the 2013 Social Security wage base, adjusted by the Consumer Price Index for All Urban Consumers: City Average. For 2017, the cap was $118,775.
  • If your service was not coordinated with Social Security, the compensation cap used to calculate your benefit is equal to 120% of the 2013 Social Security wage base, adjusted by the Consumer Price Index for All Urban Consumers: City Average. For 2017, the cap was $142,530.
  • The compensation limit is calculated based on the limit in effect for each calendar year included in the final compensation period.

Are you still with me? We’ve gone through the variables, so now we can calculate your retirement benefit! Remember:

Unmodified Allowance = Service Credit x Benefit Factor x Final Compensation

Let’s look at an example.

A local police officer retires at 60 with 30 years of service and $100k/year as his final compensation.

i. Calculate manually

Before technology changed everything, we had to do this stuff by hand. Using the 3% at 55 retirement formula (3% being his benefit factor), we review the chart on page 46 of his benefits breakdown to see that his chart maxes out at 90% of final compensation.

30 (service credits) x 3% (benefit factor) x $100,000 (final compensation)

= $90,000 unmodified allowance

***If you want a rough estimate of your final compensation, use a Time Value of Money calculator and follow the instructions here.***

ii. Use the CalPERS online calculator

But yes, technology has changed everything, and you have options to find this out:

  • Log into your my|CalPERS account to obtain an estimate that incorporates data your employer already reported to CalPERS. You can generate and save a variety of scenarios.

The calculation we’ve been looking at is for unmodified allowance.

And if you want beneficiaries?

2. Choosing your Benefit Type

 

figures on five different platforms

a. Unmodified Allowance

This is the highest monthly allowance paid for life with no benefit to your beneficiary. The formula we have followed throughout this article is for this option.

 

b. 100% Beneficiary Option 2 with Benefit Allowance Increase

One beneficiary will receive 100% of your monthly benefit upon your death for the rest of his/her lifetime. If your beneficiary dies before you, your benefit will increase to the Unmodified Allowance.

 

c. 50% Beneficiary Option 3 with Benefit Allowance Increase

One beneficiary will receive 50% of your monthly benefit upon your death for the rest of his/her lifetime. If your beneficiary dies before you, your benefit will increase to the Unmodified Allowance.

 

d. Flexible Beneficiary Option 4

You name one or more beneficiaries and specify a specific dollar or percentage to be paid to each one.

 

You made it! I hope I’ve helped make these murky waters a bit more navigable. And remember, there is plenty more information and resources out there to take you confidently to retirement. You’ve worked a long time to get there. Make sure you’re prepared!