What is the Public Service Loan Forgiveness Program?
In 2007, the College Cost Reduction and Access Act (CCRA) set up a new forgiveness program for college loans that will discharge any debt that is left over after 10 years of being employed full-time in the public sector. There are some stipulations to this forgiveness, such as the borrower must have made the full 120 payments (12 monthly payments per year for 10 years) as part of their program in order to obtain the forgiveness. Obviously, since the standard repayment plan for college loans is 10 years in order to completely pay off the debt, this the CCRA will not apply to everyone and is only useful in certain situations and with certain loans.
In order to be eligible for the public service loan forgiveness program, you must first satisfy certain requirements both in your type of debt and in your employment.
- Employment Requirements: As a borrower, you must have full-time employment throughout the 120 payments (10 years) that will qualify you for forgiveness. This means that if you go to work privately out of college for 1 year, and then go to work for the government, that first year of payments will not count – you will still have to work 10 years (making monthly payments) in the public sector job in order to qualify for the loan forgiveness program. The types of jobs that qualify include:
- Emergency Management
- Health Care Practitioner & Support
- Public Safety & Law Enforcement
- Public Education
- Social Work in a public or family service agency
- Public interest legal service (prosecutors, public defense attorneys or legal advocacy on behalf of low-income communities at a nonprofit firm
- Public library and school library librarians
- Full-time Faculty at Tribal Colleges
- Part-time Faculty at Community Colleges
- Loans that are eligible: Federal Direct Stafford Loans (whether they are subsidized or unsubsidized loans) Federal Direct Consolidation Loans, and Federal Direct PLUS Loans
- Borrowers of other type of loans: such as those in the FEEL program, can consolidate to Federal Direct Consolidation loans in order to gain eligibility for the Public Service Loan Forgiveness Program. Perkins Loans may be consolidated to be included as well.
- Eligible Payments: Payments made before October 1st, 2007 do not count toward the Service Loan Forgiveness Program.
The repayment plans for standard student loans has them paid off in ten years whether you borrowed $1,000 or $100,000, so if you are in the standard program, loan forgiveness is not going to do anything for you. Those who are in income-based repayment plans or income contingent repayment plans which usually generate a repayment schedule significantly longer than ten years are the ones that stand to benefit most from loan forgiveness. These repayment programs allow for your monthly payment amount to be based on your income level and other factors such as the size of your family.
One final factor to consider when it comes to the Public Service Loan Forgiveness Program is the tax benefit. The program is not taxable under IRS code 108(f), which means you will not have to report the forgiveness as gain.