You took out student loans to go to college, and then you started a career in public service,Â asÂ aÂ police officer, a teacher, a nurse, a social worker.Â Â
Good news: The government wants to reward you for your service. After 10 years, you could be eligible for student loan forgiveness, wiping out an average of $58,000 in loan debt.
Good news, that is, ifÂ you’re one of the 206 people who have qualified for the federalÂ program. Not so much if you’re one of the 41,000 others who have applied and been denied.
The form to request forgiveness is deceptively simple: It’sÂ just two pages, not including instructions. But there are anyÂ number of ways to get tripped up. And borrowers who wait 10 years to apply might discover that they’ve made crucial mistakes at some point along the line.
Many of those mistakes can be overcome if caught in time.Â That’s why the Department of Education encourages borrowers to submit an employment certification form every year, or every time you change jobs. It’s the best way to raise your hand to let the government know you’re interestedÂ in loan forgiveness.
Requirements for the program are set by law. Neither loan servicers nor the Department of Education can waive them. But some borrowersÂ sayÂ servicers have lied to them about their eligibility for the program in order to keep them in higher-margin loans. So it’s important to understand each of the four major requirements:
Work in a qualifying public service job
“Public service job” is defined in the law. ItÂ includes full-time employment (at least 30 hours a week) in:
â–º Any level of government, including the military, public safety, law enforcement, the Peace Corps or Americorps;
â–º Public education, including early childhood education;
â–º Social work in a public child or family services agency;
â–º Public interest legal services, including prosecution, public defense, or legal aid in aÂ low-incomeÂ communityÂ as part of a nonprofit organization;
â–º Public or school-based libraries;
â–º Public service in child care, service for individuals with disabilities, or the elderly;Â
â–º Any other work at a tax-exempt public charity established underÂ 501(c)(3) of the tax code;
â–º Teaching at a tribal college or inaÂ high-needs areaÂ asÂ determined by the Department of Education;
Not qualified: Labor unions, partisan political organizations, for-profit organizations.Â
Some of these qualifications can get tricky, especially in the non-profit realm. For example: Work for a religious organization could qualify, but time spent on religious activities wouldn’t count toward full-time status.
Have the right kind of student loan
Only direct loans from the U.S. Department of Education are eligible. Stafford loans, Perkins loans, and Parent PLUS loans are not eligible. Rule of thumb: If your loan doesn’t have the word “direct,” it’s the wrong kind of loan.
But that doesn’t mean you can’t still pursue loan forgiveness. Just consolidate your existing loans into a direct loan, and future paymentsÂ couldÂ be eligible.
Have the right kind of repayment plan
There are eightÂ kinds of repayment plans for student loans. To take advantage of the program, borrowers should be in an income-based repayment plan, or get into one as soon as possible. Those plans include:
â–º Pay As You Earn,
â–º Revised Pay As You Earn;
â–º Income-Based Repayment Plan;
â–º Income-Contingent Repayment Plan.
(If you’re in an Income-Sensitive Repayment Plan, you’re in the wrong kind of loan. Make sure you have a direct loan.)
There’s an exception.
Thousands of borrowers who thought they were on track for forgivenessÂ learned last year that they were in the wrong kind of repayment plan all along. For them, Congress hasÂ created a new program, called Temporary Expanded Public Service Loan Forgiveness, or TEPSLF.Â
Congress in MarchÂ set aside $350 million â€“ first come, first servedÂ â€“ for borrowers who had been paying on a graduated, extended, consolidated standard or consolidated graduated payment plan.
Here’s theÂ hitch: For those payments to qualify, they must have been at least as much as the borrower would have paid in an income-based plan.
Payments in the standard repayment plan also qualify. But that plan is designed to pay off loans in 10 yearsÂ â€“ so there won’t be any balance left to forgive. To fully take advantage of the program, switch to an income-based repayment plan.
Make the right number of payments
Borrowers must have madeÂ 120 monthly paymentsÂ sinceÂ Oct.Â 1, 2007.
Late payments â€“ those madeÂ after theÂ 15-day grace periodÂ â€“ and partial payments don’t countÂ toward the 120 payments.Â That means the earliest possible opportunity to apply is 10 yearsÂ â€“ for borrowers with perfect repayment records.Â ForÂ others,Â it might be longer.
Optional payments don’t qualify. So ifÂ you’re not required to make a payment because you’re still in school or haveÂ been grantedÂ a deferment or forbearance, any payments you make won’t count unless you check with your loan servicer first.
Some borrowers have reported having monthly payments rejected because they paid too much. A double payment, for example, won’t necessarily be counted toward the next month’s payment, unless you’ve made arrangements with your servicer.
For many borrowers, paying off student loans earlyÂ before paying other debtÂ is a bad idea because the interest rate â€“ currently 5.05 percent for undergraduate loansÂ â€“Â is farÂ less than credit card and other consumer debt. Plus, that’s money that won’t be refunded when the balance is forgiven.Â
Again, a missed payment shouldn’t be fatal to your application, as long as you catch up. But it will delay your forgiveness. If you make 12 late payments over 10 years, for example, you won’t be eligible for forgiveness until at least 11 years (assuming you don’t miss another payment).Â Â
Public Service Loan ForgivenessÂ is not the only way to discharge student loan debt, but it is one of the most generous. There is no limit on the amount of student loan debt that can be forgiven under PSLF.Â
Other programs exist for teachers in low-income schools, and certain teachers and public service workers with Perkins loans.Â Â
The Department of Education may cancel loans in cases of death, total permanent disability, identity theft, unauthorized loans, or closed schools.
More good news: Unlike other canceled loans, the forgiven loan balance is not taxable, according to the Internal Revenue Service.
How to get help
If you’ve been denied student loan forgiveness and are disputing the decision, you’re required to continue makingÂ regular payments. If the Department of Education ultimately rules in your favor,Â excess paymentsÂ couldÂ be refunded to you.
If you believe your application was denied in error, the Department of Education’s student loan ombudsman might be able to help explain your options.
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