PAYE: A Brief Overview

Heard a bunch about student loan forgiveness lately? It does seem to be everywhere, and because so many students are saddled with looming debt, it’s a hot topic for sure. However, there are some major points to examine:

  • This applies to federal loans.
  • President Obama has just signed an executive order that expands eligibility for Pay As You Earn. An executive order still has to be reviewed by the Senate, and thus is not law yet.
  • The program caps the monthly debt payments of eligible borrowers to no more than 10% percent of their monthly income. And if you still have outstanding debt after 20 years, or 10 years if you work in the public sector or for a nonprofit, it will be forgiven.
  • The new order would allow borrowers to take advantage of the cap beginning in December 2015.
  • This executive action is an expansion of a 2010 law that tied student loan payments to income.

MJW EA & Company LLC has been working to compile resources for our clients regarding student loans and options for both before you borrow and for afterwards. Check out our College and Beyond link on our home page for info and helpful links.

Links 102

There are a number of programs and websites with valuable information on ways to repay your student loans.  MJW EA & Company LLC has a few here for your convenience.  Know of a good one we missed?  Email us and we’ll add it!


Mapping Your Future

Student Debt Relief

National Student Loan Data System

Income Driven Plans

How to Help My Son Pay Off Student Loans

Teacher Loan Forgiveness

Public Service Loan Forgiveness

Total and Permanent Disability Discharge

Graduate PLUS Loans

Scholarship Opportunities for Women

Loan Organizer

Intro to Student Loans

Welcome to the MJW EA & Company LLC College and Beyond resource and information section!  Keep an eye out, as this section will be constantly evolving (as the realm of student loans itself is).

The words “student loans” can inspire fear, dread, aggravation and more often than not, confusion.  We are here to help!



There are options to defray college costs before you even get to the point of taking out student loans:



Long-term savings accounts (CHET, 529)

Working while going to school

Work-study programs offered through the colleges



What to Watch Out For:

  • It often isn’t clear who even owns the underlying loans
  • The Consumer Finance Protection Bureau has documented that in many cases loan servicers are unresponsive to borrowers who want to restructure their payments
  • The problem is particularly obvious in the Direct Loan program, in which the federal government owns the student loans and pays servicers a fee to interact with borrowers. Here we have a classic “principal-agent” problem, with the agent (the servicers) having little incentive to act in the best interests of the principal (the federal government). Carefully written contracts are required to make such relationships work well; if the principal can’t get the incentives right, in some cases she should just do the job herself. In this case, that would mean the federal government collecting payments on the loans it makes. Taxpayers would most likely come out better in that situation
  • Student loans, like mortgages, are traded in a secondary credit market. Robo-signing (a practice in which bank employees sign blizzards of documents selling mortgages to another investor without properly verifying who actually owns them) is cropping up in these trades, with staff members signing off on the transfer of ownership of a huge number of student loans in a single trade. The National Consumer Law Center has documented that this has created difficulty for borrowers in distress trying to restructure their loans
  • Student loans survive bankruptcy
  • Student loan debts may end up sacrificing hundreds of thousands of dollars of retirement savings if early in their careers they devote themselves to repaying student loan debt without saving for anything else (see saving scenario below)
  • Repayment needs to begin with an accounting of every individual loan. Start with whatever is in your files. Then check to see whether you’re aware of all of your federal student loans. Borrowers can use the National Student Loan Data System website to get the details.
  • Use your annual credit report to track down all lenders of student loans. Not all loans will be on all reports, so make sure to check all three credit bureaus.
  • If you’ve moved or changed your email address since you took out your first loan and haven’t told the servicers about it, be especially vigilant.

Effects of any types of defaulting, late payments or missed payments:

Credit Scores – Debt capacity – Saving for the future

  • Student loans are loosely regulated, and that regulatory weakness is particularly threatening to consumers because they can’t discharge their debts through bankruptcy and escape lenders who are causing them harm.
  • With damaged credit records, they face higher interest rates on car and home loans, rejected rental applications and lost job opportunities.
  • Debt capacity will affect qualifying for larger purchases (i.e. home ownership)
  • Saving scenario:One individual has a pile of student loan debt and spends the next 10 years single-mindedly paying it down before saving anything for retirement. The other starts saving 4 percent a year (plus an annual 4 percent employer match) and increases it by a percentage point each year until reaching the $17,500 annual pretax maximum that the federal government sets for workplace retirement savings plans. The person with the debt starts saving the same amount at the same rate at age 32, once the student loan balance is zero.Both people earn 5 percent annual returns on their investments over time. By the time the pair turn 65, the individual with the 10-year head start will have $1,829,571 in a retirement account in today’s dollars. That’s $396,039 more than the $1,433,532 in the account that belongs to the person who spent a decade paying off student loan debt before saving.

    A year ago, Robert Hiltonsmith, a policy analyst at the liberal public policy organization Demos, produced a report with many different assumptions, including lower retirement savings rates. That study showed a lifetime loss in wealth of nearly $208,000 for an indebted household. About one-third of that figure came from less home equity, while the rest was from lower retirement savings.

Loan Forgiveness Options

Student Debt Relief

All clients will be consolidated into the William D. Ford Federal Direct Program also known as the Obama Student Loan Forgiveness program, where every consolidated loan has forgiveness attached at the end of the term.  At the end of your consolidated loans term, any unpaid balance will be forgiven by the Department of Education. There are a variety of repayment options in the Obama Student Loan consolidation program, and provisions which allow for early forgiveness or principal reduction on your consolidated loan. Call us today to see if you qualify 1-866-921-8053

Teacher Loan Forgiveness

The Teacher Loan Forgiveness program is probably the most beneficial of all the loan forgiveness plans available as teachers not only qualify for early forgiveness, but principal reduction as well. Teachers can be eligible for $5,000 to $17,500 in principal reduction on their loans under certain circumstances in the Teacher Loan Forgiveness program.  The idea behind this principal reduction was to encourage young graduates to enter into a career of teaching, and also to continue that career.  Teachers also qualify for complete loan forgiveness after 10 years of repaying their loans.  For more information go to our Teacher Loan Forgiveness page.

Public Service Loan Forgiveness

You may qualify for public service loan forgiveness if you work full-time in a public service job.  After making 120 payments under certain repayment plans while working full time in a public service position, the balance of your Federal Student Loan would be completely forgiven. For more information go to our Public Service Loan Forgiveness page.

Total and Permanent Disability Discharge

A borrower may qualify for Total and Permanent Disability Discharge on their Federal Student Loans if they are unable to engage in any substantial gainful activity because of a physical or mental impairment. For more information go to our Total and Permanent Disability Discharge page


Pay As You Earn program – In PAYE, and all the other income-based repayment programs, every change to earnings requires a new application to adjust the loan payment. It is not an automatic adjustment when one’s income changes.

In Nonprofit News:

This is the time to get your plan in motion if you are a “wannabe” nonprofit organization.

In the past, the IRS had an onerous process in place to apply for tax exempt status under Section 501(c)(3) status. They have just put into place a streamlined application process and it is live!

The application form is now three pages instead of the much longer and complicated Form 1023. Now you can apply electronically; in fact, you have to.

This new and simple process might not last too long.
“It’s almost like you are filling out a library card application,” said Tim Delaney, President and Chief Executive of the National Council of Nonprofits.
The council has been urging the IRS to review and streamline the long form, but the short form goes “too far too fast, representing radical departures from proven protocols,” it said in a letter to the Office of Management and Budget.

Stay tuned for the next chapter…

Office Closing

In observance of Independence Day, our office will close at 4p Thursday, July 3rd and will be closed Friday, July 4th.

Have a happy and safe 4th of July weekend!

An MJW EA & Company LLC FYI Bulletin:

For all those hardworking teachers out there, starting in 2015, a portion of Connecticut teachers’ pensions will be non-taxable (in Connecticut). In 2015, 10% will be non-taxable. In 2016, 25% and from 2017 on, 50% of pensions will be non-taxable.

If you have any questions, we are here to answer them for you.

Community Forum

MJW EA & Company LLC is starting something new and we want to hear from you:  What do you think about sharing what you’ve learned on various topics?  If you have had experience/insight/fun filling out a FAFSA or AccesHealth form, or if you have come across tricks of the trade in your small business that you want to pass along, we want to share your tips on our Community Forum Page (coming soon to our website).

Send us your story and we will post your tips on our new page (anonymously, if so desired).

We look forward to your feedback!

Check Out Your Links!

We have a new page on our website – and it’s just for you, Small Business Owner!

Email us the link to your website and we will gladly post it on our website on the page.  If you have a Facebook page for your business, let us know and we will follow you on Facebook (we already “like” you!).

We will also be designing and putting up an MJW EA & Company LLC exclusive display board in our office.  Stop in and when you take one of our cards, give us some of your business cards and they will be displayed prominently in our office.

Second Quarter Estimated Taxes Are Due Soon

The Second Quarter of 2014 is winding down and estimated taxes are due again.  If we prepared estimates for you, in the tax return packet we gave you, we provided pre-addressed envelopes and vouchers with the amount due.  Please make sure that your payments are mailed on or before June 16th.  They are also available here for download:

Federal Estimated Tax Vouchers 2014 CT Estimated Tax Vouchers 2014

As always, we are here to answer any questions you may have.