by Alexandra Rice, NerdWallet, The Motley Fool Feb 2nd 2014 12:15PM
Updated Feb 2nd 2014 12:16PM
Taking out loans is often a given when it comes to paying for higher education. But paying those loans back isn’t always necessary. One federal program, known as the Public Service Loan Forgiveness Program, of PSLF, offers a way out of full loan payments for students who choose to work in public-sector jobs.
Established in 2007 under the College Cost Reduction and Access Act, the PSLF Program will begin to lighten loan burdens for qualifying borrowers in 2017.
If you want to take part in this program, the most important first step is enrolling in a repayment plan that makes sense with PSLF. If you start paying back your debt in 2007 on a standard 10-year repayment plan, you won’t have anything to pay back come 2017, says College Financing Group co-founder Rick Ross. As the program most benefits borrowers with high debt and low salaries who need additional time to pay down their debt, signing up for a Direct Loan Program repayment plan as soon after graduation as possible is crucial in order to fully benefit from PSLF. These repayment plans are the real essence for borrowers, Ross says.
Who is eligible?
Some of the most common public-service occupations that offer loan forgiveness are teacher, nurse, police officer, firefighter, government employee, public defender, U.S. Armed Forces member, and AmeriCorps or Peace Corps volunteers. You must work in the public sector for 10 years — or the time it takes to make 120 payments — to qualify for PSLF.
To be eligible, borrowers must first make 120 payments toward the initial balance of their loans while working full-time in the public sector. That means a minimum of 10 years of loan payments while working in a public-service job for a qualifying employer. Additionally, payments must be made under a Direct Loan Program repayment plan. These include the Income-Based Repayment Plan, the Pay As You Earn Plan, the Income Contingent Repayment Plan, and the 10-Year Standard Repayment Plan (though, as mentioned, this would generally be paid off by the time PSLF would kick in).
Under the PSLF Program, borrowers who qualify can be excused from paying the following loans: Federal Direct Stafford (subsidized and unsubsidized), Federal Direct PLUS, and Federal Direct Consolidation loans. Borrowers cannot be in default to be eligible for forgiveness. Federal Family Education Loans and Perkins Loans are not eligible for forgiveness under this program; but, Ross says, borrowers can consolidate those loans into Direct Loans to qualify for forgiveness.
“A lot of students today have three or four different servicers. So students are just trying to make sense of it all,” Ross says. “Nobody is reaching out to those borrowers. There is no outreach from the colleges, and there is no outreach from the servicers, other than about the specific loan they are servicing. So most students are just slugging it out, making their payments.”
But with the right information, borrowers can save thousands of dollars by enrolling in programs such as PSLF. It’s not a get-out-of-jail-free card, but loan forgiveness programs may be the next best thing. Even though it could be eliminated with a change in administration, Ross says he doesn’t think PSLF will go away anytime soon. “At least for many people,” he says, “they’re still paying something” at the end of the day and contributing to the loan payment. So students looking to go into public service should count on this being around for a while and as a good option for eliminating debt.