Student Loan Forgiveness
In our September 2016 blog post, we highlighted the various options for funding college education, including student loans. If you have already graduated from college and have outstanding student loan debt, you may be wondering what your options are for reducing what can sometimes be a significant burden. For individuals working in the public service sector, there is a student loan forgiveness program that may help. A federal program called the Public Service Loan Forgiveness (PSLF) program was created with the passage of the College Cost Reduction and Access Act of 2007.
Requirements of the Program
In order to qualify for the PSLF program, several requirements must be met pertaining to both your employment in the public service sector and also the student loan debt you owe. According to the Federal Student Aid office of the U.S. Department of Education, an individual must work for a qualifying employer which includes organizations such as government organizations at any level (federal, state, local, or tribal), non-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code, and other types of not-for-profit organizations that provide certain types of qualify public services. Specifically excluded are organizations such as labor unions and partisan political organizations, among others. Assuming you work for a qualifying employer, you then must meet the full-time requirements. This is generally defined as meeting your employer’s definition of full-time or working 30 hours per week, whichever is greater.
In addition to having qualifying employment, a borrower must meet the requirement for a qualifying student loan. A qualifying loan is considered any loan the borrower received under the Direct Loan program. Private education loans and loans through other federal programs (such as the Federal Perkins Loan) do not qualify. If you have a Direct Consolidation Loan through the U.S. Department of Education, you may also qualify.
The third basic requirement is to make qualifying monthly payments under a qualifying repayment program. According to the Federal Student Aid office website, payments are only eligible as qualifying monthly payments if they were made:
• after October 1, 2007,
• under a qualifying repayment plan (see below),
• for the full amount due as shown on your bill,
• no later than 15 days after your due date, and
• while you were employed full-time by a qualified employer.
You must make 120 qualifying monthly payments, but they need not be consecutive. Monthly payments do not qualify if they were made while your loan was in an in-school status, the grace period, a deferment, a forbearance, or default. A qualifying repayment program includes all of the income-driven repayment plans and the 10-year Standard Repayment Plan.
Tracking Your Progress and Applying for Forgiveness
The earliest any borrowers eligible under the PSLF program could qualify for forgiveness is October 1, 2017. This assumes a borrower met the employment requirements for all ten years since the program’s inception and made 120 qualifying monthly payments. However, if you think you qualify for this program, it still is a good idea to track your progress. The Federal Student Aid office has provided an Employment Certification for Public Service Loan Forgiveness form on their website (found here). By submitting the certification form to FedLoan Servicing, they will let you know if you have been making qualifying monthly payments and what your current status is. They also encourage borrowers to submit this form at least annually and whenever you change jobs.
Upon making your 120th qualifying monthly payment, your loans are not automatically forgiven. You must submit the PSLF application to receive loan forgiveness. The application is currently under development and will be available prior to October 2017. According to the Federal Student Aid office’s website, you must be working for a qualified public service organization at the time of submission in order to receive forgiveness and at the time of having your remaining balance on your loan forgiven.
In summary, in order to qualify for the Public Service Loan Forgiveness program, you must meet the qualifying employment and monthly payments requirements. Whether you qualify for this loan forgiveness program or not, managing debt involves making complex decisions. At River Capital Advisors, L.C., we act as the personal chief financial officer for our clients and help guide them through the myriad of financial decisions one must make, whether it be debt management, purchasing a home, or saving for retirement. We offer a variety of services from hourly planning to comprehensive financial planning that will fit any budget. If we can be of assistance, please contact us.
This article was intended to provide a general overview of these requirements. Borrowers should always contact the Federal Student Aid office of the U.S. Department of Education to see if they qualify. For more information on the requirements of the Public Service Loan Forgiveness program, visit the Public Service Loan Forgiveness website.