Student loan debt was a topic of debate during the 2020 presidential election, and the Biden administration has since signaled a willingness to explore it further during his first term in office. In the meantime, there may be a light at the end of the debt tunnel courtesy of the federal Public Service Loan Forgiveness program (PSLF).
PSLF is aimed at helping college graduates who choose careers in public service (defined below). If a qualified 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 four steps below can help you or your loved ones navigate the maze-like qualification process.
- Qualifying Employment: The first requirement for PSLF is to work in a public service position when you are making payments. This means a civil service, 501(c)(3) or a private non-profit employer that provides public services such as early childhood education or health care. Your employer will be able to tell you if they are a government or non-profit organization. (To learn more about jobs and employers that fit the bill, click here.)
- Loan Eligibility: Not all student debt is eligible for forgiveness. To qualify, 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 speaking with a financial adviser before making that move.
- Repayment Plan: The next qualifier is making 120 loan payments after October 1, 2007 under what is called an Income-Driven Repayment (IDR) plan. The various IDR plans base your payments on factors like income, family size and debt size. Typically, the higher your income, the higher your monthly payment.
- Timely Payments: Finally, your payments must be made on time and in full while you hold a qualifying job. It is important to note that these payments do not need to be made consecutively. If you leave one qualifying employer and return to another later, you can continue building toward that 120-payment hurdle.
Requirements for student loan forgiveness are subject to change over the next few years. In the meantime, the PSLF may be a useful option to help you lower your debt burden and meet other savings goals. If you have questions, please contact your wealth management team at any time—remember, we are The Planner You Can Talk To.
This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.
The Planner You Can Talk To is a trademark of Adviser Investments, LLC, registration pending.
© 2021 Adviser Investments, LLC. All Rights Reserved.