We all know student loans aren’t what they used to be.
The interest rates are higher than they were a decade ago and tuition has increased exponentially, leading to an epidemic of student loan debt the likes of which our nation has never seen before. With this being the case, teachers, social workers and pubic servants of all kinds are particularly vulnerable – being that this line of work often requires a high level of education in return for relatively low paying positions.
Enter Public Service Loan Forgiveness – is it too good to be true? Is it worth it? What will happen to my credit score? How will it affect my taxes? These are the questions we are trying to answer as we research the program and share our findings with you all.
At present there are a few different programs available for student loan forgiveness, for the purpose of this blog we are speaking specifically about the Public Service Loan Forgiveness program (see link below) . Lets start with a little background on this particular program.
This program was designed to help students who find employment as public servants, this includes teachers, social workers, police officers – basically anyone employed by the government or a non-profit agency. This program promises to forgive/absolve the remainder of your student loan after 120 qualifying monthly payments. If you have significant (read 50k or more in loans ) you may want to consider this program.
When viewing the details of this program, it should be noted that this program exists to adjust the monthly payments to fit your income and lifestyle needs. Unlike most repayment plans, the existence of this program is not to pay off your loan quicker or to even make a dent in the overall amount you owe – the purpose is to allow you the “breathing room” to live while you make consistent “adjusted” payments and work in public service. After 120 consistent payments the remainder of your student loan debt is absolved/forgiven.
If you are interested here is what you should know up front
-This program is specific to federal student loans – private loans do not apply
-You must be employed with a qualifying agency for 6 months before you are eligible to apply
-You must work full-time (30 hours a week is considered full-time) to qualify for the program
-Only certain federal loans apply – however you have the option to consolidate your loans – so most federal are eligible.
-You can choose a repayment plan that is suitable for your needs, the amount of your monthly payment can be adjusted based on your income. remember, the point of this program is to make consistent payments – not to pay off the loan itself.
-You must make 120 qualifying monthly payments before forgiveness can occur – that means 10 years of payments (note: you will be on an adjusted payment plan)
-You will need to verify your employment status yearly to maintain your eligibility
-Forgiveness is not automatic, it is your job to notify the program upon completion of your last qualifying payment. There is a form you will need to submit to verify your status.
-At the time of your 120th payment you will need maintain your employment status with your government or non-profit agency to be granted forgiveness. (so don’t quit your job before the paperwork is done!)
-Upon completion of your 120th payment and proper submission/receipt of paperwork the remainder of your loan will be forgiven in full.
-You should know that interest on your loans will be accruing throughout the course of your repayment plan. Assuming all things go as planned your loan will be absolved upon completion of 120 payments, however while your in the program – your debt to income ratio can look very skewed due to the accrued interest! As far as I can tell, this is the biggest drawback. Typically most college graduates spend the 10 years after graduation settling into their adult life and often seek to buy homes, upgrade their vehicles, start families etc… if you are considering this program you will want to carefully examine how this program will effect your credit.
Is this program all its cracked up to be? Time will tell and soon we will know…
Because this program began in 2007 the first round of eligible recipients will be applying to have their loans forgiven in fall of 2017. We will definitely be watching to see how this plays out and will be posting blogs on this topic as it unfolds!