Whether a recent college graduate or a mid-career employee who returned to school, odds are that everyone has student loans to repay. By increasing their Hybrid Retirement Plan voluntary contributions or their contributions to the Commonwealth of Virginia 457 Deferred Compensation Plan or an employer-sponsored 403(b) plan, members can help lower their student loan payments.
Savings Lower AGI
When members make voluntary contributions (up to 4 percent) to their Hybrid Retirement Plan, money is deducted on a pre-tax basis. With pre-tax deductions, members will lower their annual adjusted gross income (AGI). The same concept applies if they make contributions (other than Roth contributions) to the Commonwealth of Virginia 457 Deferred Compensation Plan or an employer-sponsored pre-tax retirement savings plan.
Any borrower with eligible federal student loans who participates in an income-driven repayment plan may benefit from increasing retirement savings. Most of these plans calculate member's student loan payments based on their “discretionary income,” by measuring AGI as a baseline. If they lower their AGI through increased pre-tax retirement savings, then members can generally lower their student loan payments when it’s time to annually verify income with the student loan servicer. Types of income-driven repayment plans that measure AGI include:
- Pay As You Earn Repayment Plan (PAYE Plan)
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
Explore Federal Programs
VRS members also may be eligible for the federal Public Service Loan Forgiveness (PSLF) program. With the PSLF program, an eligible borrower may have a remaining student loan balance forgiven after 10 years of public employment (e.g., VRS-covered employment). By participating in an income-driven repayment plan, contributing more toward retirement, and thereby lowering their annual AGI, members likely can decrease the total amount that they repay on student loans over the 10-year period.
Take Action on Savings
If members wish to increase their Hybrid Retirement Plan voluntary contributions or Commonwealth of Virginia 457 Deferred Compensation Plan contributions, they can log into Account Access on their plan’s website, or call ICMA-RC Investor Services at 1-877-327-5261. If their employer offers a 403(b) plan, they can check with their human resource office. For more information on federal student loans, repayment plans and the PSLF program, visit the Federal Student Aid website.