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Loans Could Be Forgiven After 10 Years of Public Service

Student Loans, Student Loan Consolidation

The government hopes a new loan forgiveness program will give students an incentive to consider a career in public service. In exchange for 10 years on the job in a field of public service such as public safety, education, or social work, the Department of Education will erase certain borrowers’ remaining federal student loan debt.To be eligible for this initiative — the Loan Forgiveness for Public-Service Employees Program — you must have either taken out or consolidated your federal student loans through the federal Direct Loan Program, in which you receive your student loan directly from the government rather than through a third-party lender.

Breaking It Down: How the Loan Forgiveness Program Works

The loan forgiveness benefit is available for any federal consolidation loan or any federal parent or student loans you’ve taken out through the Department of Education’s Direct Loan Program. If you took out your federal college loans from a private lender through the Federal Family Education Loan Program (rather than directly from the government through the Direct Loan Program), you’ll have to consolidate your FFELP student loans into the Direct Loan Program in order for those student loans to be eligible to be forgiven.
In addition to holding a federal Direct loan, you’ll also have to meet certain borrower requirements in order to qualify for the loan forgiveness program:
Spend a decade in a public service career. You must remain in a qualifying public-service career, working full-time, for 10 years, during which you must be making payments on the student loans you’re looking to have forgiven. You must still be working in the public-service sector at the time your student loans are forgiven.
Hit the 120 mark. During your 10 years of full-time public service, you must make 120 monthly payments on the Direct college loans you want forgiven. Only payments made after Oct. 1, 2007, will count toward the payment requirement. If you have FFELP loans (college loans that you took out from a private lender and not from the federal government) that you’re consolidating into the Direct Loan Program, you’ll only be able to count the payments you make on your Direct Consolidation Loan after your FFELP student loans are consolidated. Any payments you’ve made prior to Oct. 1, 2007, or to any lender other than the federal government won’t count.
Sign up for a qualifying repayment plan. Your required 120 payments must be made under one (or a combination) of three repayment plans: standard repayment, income-contingent repayment, or income-based repayment, which becomes available July 1, 2009. If you’re enrolled in a different Direct Loan repayment plan, only those payments you make that are at least equal to the monthly payment amount you’d be required to make under the standard repayment plan will count toward your 120-payment requirement.

The Fine Print: How You End Up Paying Off Your Student Loans Yourself

If you’re considering applying for the loan forgiveness benefit, you may want to look into your eligibility for the income-contingent and income-based repayment plans, which allow low-income borrowers to qualify for lower payments and extend their repayment period to 25 years. Only borrowers who are making reduced monthly payments on an income-contingent or income-based repayment plan will likely have a remaining balance left to forgive after making 120 payments on their student loans.
If you’re in the standard repayment plan, which has a repayment term of 10 years, you may find that you don’t have any student loan debt left to forgive after meeting your 120-payment requirement, since your 10-year repayment term is the same amount of time that the government requires you to hold your public-service job before any of your student loans can be forgiven.