Skyrocketing college costs have left many graduates paying off loans for decades—but there may be a light at the end of the debt tunnel courtesy of the federal Public Service Loan Forgiveness program (PSLF).
The program is aimed at helping college graduates who choose careers in public service (defined below). If such a borrower makes 10 years’ worth of timely payments on their loan, they are eligible to have the remainder of their loan balance wiped out. The process of qualifying for the program is complex, but the information below can help you or your loved ones navigate the maze.
Qualifying Employment: The first step in qualifying for PSLF is to be employed in a public service job while you are making payments. This means work through a government organization, a qualifying 501(c)(3) or a private non-profit that provides public services such as early childhood education or health services. Your employer will be able to tell you if they are a non-profit organization. (To learn more about what types of jobs and employers qualify, click here.)
Loan Eligibility: Not all loans are eligible for student loan forgiveness. Currently, to qualify for PSLF, it must be a federal direct loan. This includes direct subsidized and unsubsidized loans, PLUS loans and direct consolidations. Private loans do not qualify. However, you can consolidate non-eligible federal student loans into a direct consolidation loan to make them eligible for PSLF. We recommend checking in with your financial adviser before making that move.
Repayment Plan: In order to qualify for public student loan forgiveness, you must have made 120 qualifying payments under what is called an Income-Driven Repayment (IDR) plan. There are different kinds of IDR plans and they base your payments on factors such as your income, family size and debt size. Typically, the higher your income, the higher your monthly payment will be.
Make Timely Payments: To have your loan forgiven, you must make 120 qualifying payments after October 1st, 2007. These payments must be made on time and in full while you have a job that qualifies. It is important to note that these payments do not need to be made consecutively. That means if you leave one qualifying employer and later return to another qualifying employer, you can continue building towards that 120-payment hurdle.
CARES Act Impact: As a result of the CARES Act passed in March, interest and payments on direct loans were suspended until September 30, 2020. For those under the PSLF umbrella, those suspended payments count towards the 120 payments needed to achieve loan forgiveness. That means you can stop making payments for the time being and still achieve loan forgiveness as originally scheduled.
Navigating student loan forgiveness is not easy, and requirements are subject to change over the next few years. But for those able to qualify, it can be a useful option to help lower your debt burdens and meet your other savings goals. If you have questions about your personal situation or on behalf of your loved ones, please contact your portfolio team. We are happy to help.