How a Pregnancy and Kids Impact Student Loan Payments
Student loans can make life difficult for young families.
Some families delay having kids because of student debt, and others find that student loans are one of the biggest obstacles when raising children.
However, there are many student loan resources and strategies available for parents and expecting parents.
Federal Student Loan Management for Parents
Having kids often means lower monthly payments on federal student loans. Some borrowers even qualify for additional relief.
The good news is that there are a ton of options available. The bad news is that it takes a bit of planning to find the best approach.
While there are programs specifically for borrowers on parental leave and working parents, most parents will simply need to tweak their current student loan strategy.
Help Specifically for New and Expectant Parents (Parental Leave and Working Mother Deferments)
Assistance for working mothers and parents on maternity leave sounds excellent, but this resource is so limited that I nearly didn’t include it in this guide.
For starters, both of these programs are only available to borrowers who took out their first student loan before July 1, 1993. Secondly, the aid only applies to certain types of federal loans. Finally, both programs only provide deferments to borrowers.
If you are interested in learning more about the Parental Leave and Working Mother Deferments, this page offers more details.
Fortunately, there are better options available to new and expectant parents. These options were not explicitly designed for parents, but they still provide far better assistance.
Lower Monthly Payments on Income-Driven Repayment Plans Like IBR, PAYE, and REPAYE
The income-driven repayment (IDR) plans are one of the biggest perks of federal student loans.
A huge advantage for growing families is lower monthly payments. As your household size increases, discretionary income goes down, and requirements payments drop. In short, having kids means lower student loan bills.
To see how your student loan payments might drop, check out the Department of Education’s Loan Simulator. Borrowers can adjust income and family size to see how monthly payments change.
Requesting a Monthly Payment Change During Pregnancy
One other convenient aspect for young families is that monthly payment recalculations can happen as soon as a pregnancy occurs. This is helpful because it means parents with a newborn don’t need to put IDR payment recalculation at the top of their list once their child is born.
The IDR plan request form says that borrowers who expect kids can immediately adjust their family size:
Thus, as soon as a pregnancy occurs, it is often a good idea to request a lower monthly payment on your IBR, PAYE, or REPAYE plan.
The Math on Filing Seperately May Change
A growing family can also shift the math on whether or not couples should file taxes jointly or separately.
Borrowers on the Income-Driven Repayment (IDR) plan and the Pay As You Earn (PAYE) plan have the option of filing their taxes separately to exclude their spouse’s income from monthly payment calculations. As your family gets larger, the benefit of filing separately may also increase. This rule also applies to couples who both have student loans.
Parents will need to weigh the benefits of lower monthly payments against the potentially higher tax bill from filing separately. This math makes tax season a bit more complicated, but it is worth exploring as the potential savings are significant.
Private Loan Planning for Borrowers with a Kid on the Way
Private student loans have a reputation for being far less flexible than federal loans.
This lack of flexibility certainly applies to new parents. Each private loan is different, but the vast majority of lenders offer very little assistance to young families.
However, there are a couple of potential opportunities to make life with student loans a little easier.
Getting Help from Lenders During Paternity Leave
Your lender is highly unlikely to have a forbearance or deferment option for paternity leave.
However, many private loans do offer a hardship deferment or forbearance. If you are on an unpaid or reduced pay paternity leave, you may qualify for a break in payments.
Keep in mind that interest will continue to accrue during any payment pause. Thus, borrowers should only explore this option if a temporary break from payments is the only help they need.
Lowering Monthly Payments
Some private student loans give borrowers the option of a longer repayment length. If your current repayment plan pays off your loan in five years and you switch to a play that pays off the loan in ten years, your monthly bill will be much smaller.
Another option is to consider a private student loan refinance. Depending on your credit score and current loan terms, you may be able to refinance and get a significantly lower interest rate and monthly payment.
Sherpa Tip: A successful refinance usually requires a strong credit score and debt-to-income ratio.
If you are a parent who is about to leave the workforce or take a lower-paying job, it is better to refinance before this change happens.
Other Financial Considerations
As you consider the impact of student debt, it is also important to remember that other forms of financial relief are available to parents.
High costs like daycare and medical bills make raising a child expensive, but other resources are available beyond student loan help.
Tax season can help reduce the financial strain of having children.
Parents can qualify for a tax credit for each child and a child care credit for daycare and babysitting costs.
The list of tax breaks for parents is quite extensive and can provide much-needed budget relief.
Building Up Your Emergency Fund
Another important financial consideration for new and expectant parents is their emergency fund.
An emergency fund for a family of four should be larger than the emergency fund for a single person.
If you are getting your finances in advance of having children, building up the emergency fund is a great idea.
Refinance Private Loans to a Fixed-Rate Long-Term Loan whenever possible.Recalculate your IDR Payments as Soon as You are Pregnant.
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