Feature Articles: Loans
Public Service Loan Forgiveness Program
Adapted from MU Office for Financial Success Finance Tip of the Week blog by Graham McCaulley, Assistant Extension Professor & State Specialist, Personal Financial Planning, University of Missouri Extension
For many students this time of year marks graduation and, for some, graduation prompts thinking about student loans. Those graduating high school may be anticipating the disbursements of their first student loans in a few months to cover new tuition expenses. While those graduating college may be expecting the end of student loan deferment and the beginning of repayment in the coming months. No matter where one is on the continuum of student loan debt, it is always important to think about the long term realities of student loans, including repayment options. This article outlines one possible option for students who may go into careers in public service jobs.
What’s a public service job?
The definition of what is considered a public service job is fairly broad. Any employment with a federal, state or local government agency, entity or organization or a non-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for Public Service Loan Forgiveness (PSLF) purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes. Some private, non-profit employers that are not tax exempt can even be considered qualifying employment for the PSLF program, provided the employer provides certain public services (e.g., public health, safety, etc).
What types of loans are eligible?
Loans are either:
- Federal — Made and/or regulated by the government, including Direct Loans, Federal Family Education Loans (FFEL), and Federal Perkins Loans; or
- Private — Made by a bank/private lender and generally carry higher fees and interest rates than federal loans. (For more information, see Avoiding deceptive student loans.)
Private loans are not eligible for loan forgiveness programs, and not all federal loans are either. Visit the Federal Student Aid website for a list of debt cancellation/forgiveness programs and which types of federal loan types are eligible for each program.
Regarding the PSLF program, only direct loans are eligible (i.e., loans you received under the William D. Ford Federal Direct Loan Program). Federal Family Education loans and Perkins loans are not eligible, however, they do become eligible if you consolidate them into a direct consolidation loan.
What do I have to do to get my debt forgiven?
- Work full-time. At least an annual average of 30
hours per week. For purposes of the full-time requirement, your
qualifying employment at a not-for-profit organization does
not include time spent participating in religious instruction,
worship services or any form of proselytizing. If you are a
teacher or other employee of a public service organization under
contract for at least eight out of 12 months, you meet the full-time
standard if you work an average of at least 30 hours per week
during the contractual period and receive credit by your employer
for a full year's worth of employment. If you have multiple
eligible jobs, you must work a combined average of at least
30 hours per week.
- Make 120 on-time, full, monthly loan payments. Basically,
you have to put in 10 years of full, on-time payments before
you can be eligible for the remainder of your loans to be forgiven.
On-time payments are those that are received by your Direct
Loan servicer no later than 15 days after the scheduled payment
due date. Full payments are payments on your Direct Loan in
an amount that equals or exceeds the amount you are required
to pay each month under your Direct Loan repayment schedule.
- Be paying back your loan through a qualifying repayment plan. You cannot necessarily choose a repayment plan that will greatly lengthen your repayment period so that you are eligible for most of your loans to be forgiven. For example, 30-year extended repayment plans are not eligible for the PSLF program. However, the income-based repayment (IBR) plan and the income-contingent repayment (ICR) plan are eligible. The 10-year Standard Repayment Plan is also eligible, however, after meeting the PSLF requirement of 120 consecutive payments, there would be no debt left to forgive!
Deciding whether or not the PSLF program is right for you depends on many factors, mainly how much student loan debt you have and how much money you will make during the first 10 years of your public service career. The more debt you have and the less you will make, the more attractive an option the PSLF may be for you (as payments tied to your income will be less when you make less money). Alternately, if you make a high income you may very well have paid off or be close to paying off your student loans by the time you get to the end of the 10 year requirement under the PSLF.
There are many repayment options for student loans. A good first step would be to use the Federal Student Aid repayment calculator to see what all your options may be. You can find additional information and tips in the Student Loans section of the MU Office for Financial Success website. Again, whether you are just starting to take out loans or have been paying them back for years, it is always good to consider your repayment options and realities. Even though the PSLF program may help some (and does encourage public service jobs), you will still end up paying back a substantial amount of the debt you take out, so never take out more loans than you need.
Link to original blog:
Public Service Loan Forgiveness Program, posted May 23, 2013
Last update: Monday, May 18, 2015