As of August 2010, when our first child was born, my husband and I owed about $35,000 in student loans.
To make matters more complicated, my husband and I moved to a new state during my pregnancy so he could take a new job. I took a year off from my previous career of teaching (which has now stretched into six years and a new career), plus we bought a house in our new town, even though it took nearly a year to sell our previous residence.
In short, our first few years of parenthood did not look like we were in the best financial shape for welcoming a new baby – particularly considering the fact that costs about $245,000 to raise a child born in 2013 (when we had our second baby) from birth to age 18, according to the USDA. And that nearly-quarter-of-a-million-dollar price tag does not include college costs.
The USDA’s estimates might convince many student loan borrowers that there is no way they can afford a baby while still owing student debt. But it is possible to fulfill your dreams of starting a family before you pay off your student loans.
Here’s how to afford having a baby while you pay your student loans.
Create a post-baby budget ASAP
Before you start trying for a baby (or as soon as you know a little surprise is on his or her way), sit down and calculate your post-baby budget.
Now is the time to estimate your expenses for everything from diapers to childcare to medical care. The First Year Baby Costs Calculator from BabyCenter.com can give you a good introduction to the various costs to consider and what you can expect in your area of the country.
Once you have a sense of how your monthly budget will change post-baby, commit to living on that budget starting today. This will help you get used to living on a reduced amount while also allowing you to bank the extra money to build a financial cushion for when baby arrives.
Reduce your student loan payment
For many expectant parents, no amount of budgeting and fat-cutting can make their current student loan payments work with new baby costs. That’s when it’s a good idea to start exploring options for reducing student loan payments.
This option allows you to postpone or reduce monthly loan payments for up to 12 months during a period of financial hardship.
Since having a baby does not qualify for mandatory forbearance (wherein your lender is required to grant you a postponement of payments), you will have to request your forbearance with your lender and continue making your normal monthly payments until you are officially enrolled in forbearance.
Requesting a forbearance can be very helpful to borrowers without access to paid maternity or paternity leave, since it can put your student loan payments on hold during the time that you are not working.
Apply for an income-driven repayment plan
Uncle Sam recognizes that not all federal student loan borrowers are able to swing the standard repayment schedule, which is why borrowers may enroll in income-driven repayment plans.
These plans allow you to reduce your monthly payment based upon how much you earn and the size of your family.
Pay As You Earn (PAYE) is available for anyone who was a new borrower as of October 1, 2007 and who received a direct loan disbursement on or after October 1, 2011.
PAYE allows your monthly payments to be capped at 10 percent of your discretionary income and your payments will never be higher than what they would be through the Standard Repayment Plan.
REPAYE is very similar to PAYE, except that more borrowers are eligible. Additionally, your cap of 10 percent of discretionary income could be higher than your standard payment amount, depending upon your income.
Income-Based Repayment (IBR) caps your monthly payment at 10 to 15 percent of your discretionary income, depending on when you took out your loans.
To qualify for IBR, you generally need to owe more than your annual salary. Also, like PAYE, you must be a new borrower as of October 1, 2007 and have received a disbursement of a Direct Loan on or after October 1, 2011.
Income-Contingent Repayment (ICR) caps student loan payments at the lesser of two options: 20 percent of discretionary income, or what the payment would be on a fixed, 12-year payment plan, adjusted according to income. Like the REPAYE plan, ICR is available for most borrowers.
Switch to a graduated repayment plan
If you anticipate that your income will increase over the years and you just need a reduction in monthly payments for the first few years after your baby is born, consider a graduated repayment plan.
With these plans, your payments start out lower but increase over time – generally every two years. You can expect payments under such a plan to be spread out over the course of 10 years, which makes this a good option for new parents in fields with strong future earning potential.
Most federal loans are eligible for a graduated repayment plan.
Get on an extended repayment plan
Borrowers are allowed to extend their repayment schedule for up to 25 years and make fixed or graduated payments during that extended time. While tacking more time onto your repayment schedule does mean you will end up paying more overall for your student loans, it can make enough of a difference right now to make starting a family much more financially feasible.
Take advantage of tax breaks
You are probably aware that you can deduct student loan interest from your adjusted gross income (AGI) on your annual tax return. But your little bundle of joy also comes with some helpful tax breaks that can help you to better afford his care and feeding.
The IRS offers taxpayers an exemption of $4,050 (as of 2016) for personal expenses. That means that you do not have to pay taxes on $4,050 of your annual income – and married couples filing jointly can declare $8,100 in personal exemptions.
Once baby makes three, you can claim an additional dependent exemption for the same amount for your new child, meaning a family of three can exempt up to $12,150. This exemption is not phased out until you reach an adjusted gross income (AGI) of $259,400 for singles, and $311,300 for married couples filing jointly as of 2016.
Child Tax Credit
Unlike the exemption, which reduces the amount of income you need to pay taxes on, the child tax credit reduces your tax bill by $1,000 per qualifying child. Married couples filing jointly with an income below $110,000 and single parents with an income below $75,000 qualify for this credit.
The Child Tax Credit is non-refundable, meaning if your tax liability is lower than the credit, you will not get the difference back from the IRS.
For example, a family with two children with a tax liability of $1,500 would actually owe nothing to the IRS because of their $2,000 child tax credit – but they would also not receive the $500 difference in the form of a refund, either.
However, families in that situation may still receive a refund because of the Additional Child Tax Credit.
Additional Child Tax Credit
While the child tax credit is nonrefundable, the Additional Child Tax Credit is. That means that even if you lose out on a refund through the Child Tax Credit, you may still be eligible for one through the Additional Child Tax Credit. Here’s how:
If your Child Tax Credit is higher than the taxes you owe and your earned income is greater than $3,000 for the year, then you will receive your credit refund in one of two ways:
- As the amount of unused child tax credit. In the example of a family with two kids and a $1,500 liability, then unused credit would be $500
- 15 percent of your taxable earned income over $3,000.
You will receive whichever of these two amounts is lower. Form 1040 (Schedule 8812) can help you determine if you are eligible for the Additional Child Tax Credit.
Though this is unreasonably confusing, the good news is that any e-file software will calculate the child tax credit and additional child tax credit computations for you.
You can afford a baby while paying off student loans
Owing money on your student loans is no reason to put your big dreams on hold. It certainly makes sense to work hard to get your financial house in order before you welcome a new baby, but it’s also possible to afford major life changes before you send in that final payment. Just be willing to make savvy financial choices and strategic sacrifices to be ready for the stork’s special delivery.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|