If you’re on Idealist you’re likely looking for an opportunity that will allow you to make the world a better place. But if you recently (or not-so-recently) graduated from college you’re likely also wondering how you can pay down your student loans while pursuing a job that will help change the world…but might not pay very much.
The Public Service Loan Forgiveness program is designed to encourage indebted graduates to pursue public service careers in spite of student loan debt. Public Service Loan Forgiveness provides affordable monthly payments based on income and an opportunity to earn substantial loan forgiveness for those who remain in public service for ten years or longer.
A student loan borrower must make 120 qualifying payments to earn for Public Service Loan Forgiveness. You’ll need to:
- Make the right kind of payments,
- on the right kind of loans,
- while working in the right kind of job,
- 120 times, and
- prove it.
The right kind of job
Qualifying public service employment under Public Service Loan Forgiveness is full-time paid work in the government, a 501(c)(3) nonprofit, and a few additional nonprofit positions. “Full-time” is an annual average of at least 30 hours per week, unless your employer requires a greater number of hours for full-time status. Borrowers can work more than one part-time position and still be in the “right kind” of job if your combined hours are at least 30 hours a week on an annual average.
Download the Employment Certification Form from studentaid.ed.gov. Complete the employment verification process every year and submit the form annually and every time you leave an employer.
The right kind of loans
Only Federal Direct Loans are eligible for Public Service Loan Forgiveness. If you started borrowing student loans (like Stafford loans and GradPLUS loans) before July 2010, you might have borrowed federal student loans from a bank or private lender through the FFEL program (Federal Family Education Loans). If so, you must consolidate FFEL loans into Federal Direct Loans for those loans to be eligible for Public Service Loan Forgiveness. Be careful deciding whether to consolidate Perkins loans, because they have their own cancellation provisions that would be lost upon consolidation.
Check out the National Student Loan Data System at www.nslds.ed.gov to find a complete listing of all your federal student loans.
Unfortunately, private student loans are never eligible for Public Service Loan Forgiveness.
The right kind of payments
Qualifying monthly payments include only those made under an income-driven repayment plan or a payment of at least the amount due under a standard ten-year repayment schedule. Qualifying payments do not need to be consecutive but be careful to get the payments in on time, because late payments don’t count toward forgiveness.
Income-Driven Repayment Options
If your debt is relatively high as compared to your income, the income-driven repayment plans provide significant advantages. Monthly payments are established as a percentage of income so that when you don’t earn a lot, your payments are low. The income-driven options require annual income verification and other paperwork, and because monthly payments are low, interest charges will be correspondingly high.
- “Pay As You Earn” (PAYE): Payments made under PAYE can count towards the 120 payments required to earn forgiveness. Under PAYE, annual payments are capped at 10 percent of “discretionary income”. But for now, PAYE is only available for “new borrowers” (those who (1) did not owe any balance on a federal student loan on October 1, 2007, and (2) got a federal student loan on or after October 1, 2011). President Obama just announced plans to expand PAYE to borrowers with older loans, but that won’t take effect until December 31, 2015.
- Income-Based Repayment (IBR): Payments made under IBR can also count towards Public Service Loan Forgiveness. Under IBR, annual payments are capped at 15 percent of “discretionary income.” IBR is available without regard for when you borrowed.
Understand that once you make your 120 qualifying payments, you’ll need to apply for forgiveness and demonstrate that you met the requirements of the program.
The details are tricky, there is lots of red tape, and getting the documentation right is important. Be sure you understand all the fine print! Get more information about Public Service Loan Forgiveness from the Department of Education.