Public service student loan forgiveness can save borrowers big bucks

Federal student loan borrowers who work in the public sector are able to have a portion of their student loans forgiven.

While there are a quite a variety of options for federal student loan repayment terms and deferment programs, one of the biggest savings tools out there for some loan recipients is the Public Service Loan Forgiveness (PSLF) program. The program was developed in 2007 in recognition of the lower pay that employees of public service jobs typically receive. PSLF participants are forgiven a portion of their student loan debt in exchange for that service. 

So what kinds of jobs fit the bill? Qualifying employment includes all 501(c)3 organizations, regardless of their purpose. Other types of work that qualify include “emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly,”  according to the U.S. Department of Education. Guidelines specify that work with labor unions or partisan political organizations do not qualify. When figuring out if the job meets the full-time requirement, it’s important to consider that time spent providing religious instruction, leading worship or proselytizing does not qualify.

Only loans received under the William D. Ford Direct Student Loan Program, also known as Direct Loans, are eligible for the PSLF program. The bad news is that loans through the Federal Family Education Loan (FFEL) and Perkins Loan programs or any other programs (including private student loans) don’t qualify. The good news is that FFEL and/or Perkins loans can be consolidated into a direct student loan consolidation in order to qualify for the program. That’s intentional, not a loophole. Unfortunately, private loans don’t qualify and there is no way to convert a private loan into a federal one. 

It’s important to note that in order to qualify for loan forgiveness:

  • Borrowers must make 120 on-time full monthly payments. Payments don’t necessarily have to be consecutive; for instance, borrowers can count payments made both before and after a hardship deferment approved by the Direct Loan program.
  • Only payments made after October 1, 2007, count towards the 120 payments.
  • The payments have to be made under an approved repayment plan. This means payments that are lowered due to income still meet the requirements. 
  • The borrower has to be working full-time in a public service job at the time each of those 120 payments is made. If the borrower changes jobs, only those payments made while in a public service job count.

So, does it make financial sense to automatically choose a job just because it will qualify a borrower for loan forgiveness? Not necessarily. The borrower should calculate how much debt would actually be forgiven, and then calculate the income difference between each job being considered. A significantly higher income in a stable job over a period of years could easily outweigh the savings that loan forgiveness programs offer, especially if the remaining balance after 120 payments would be relatively low.

For more information about the different types of student loans, see "Student loans are not one-size fits all – make an informed decision."

 For more information about how to fund a student’s education, see "Student loans are a cents-ible way to fund post-secondary education."

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