Do you have a large amount of federal student loan debt? Do you look at the obscene balance on your monthly statements and think to yourself, “Wow. I’m going to be paying this off for the rest of my life.” Well, you might not have to.
In 2007, Congress passed the College Cost Reduction and Access Act, which created the Income-Based Repayment program (also known as “IBR,” described in one of my earlier posts below). IBR and another repayment program, the Income-Contingent Repayment program (“ICR”), calculate a unique monthly payment amount for borrowers with relatively high amounts of federal student loan debt compared to their income. IBR and ICR keep your monthly payments low. The Act also provides two ways to get your loans forgiven.
If you are on the IBR or ICR plan, and if you make regular, on-time payments for 25 years, whatever remains (principal and interest) after that time will be completely forgiven. Period. 25 years is certainly a long time, but keep in mind that the IBR and ICR plans keep your monthly payments low and manageable- and if you were to pay off your entire federal student loan balance with those low payments, it could take you significantly longer than 25 years. What’s more, if your IBR or ICR payment amount is 0 (which can happen if you have a very high debt load and very low income, or if you are eligible for an economic hardship deferment), those months will still count towards your 25 years, even though you’re paying nothing.
There is an even better option for those borrowers who work in public service. The Public Service Loan Forgiveness program (“PSLF”) provides for complete forgiveness of your federal student loans after only 10 years of regular, on-time payments, if you work in public service. The types of jobs that qualify for PSLF are state, local, and federal government jobs (including the military, public schools, and public health centers), and 501(c)(3) non-profit organizations. Other types of professions may also be eligible for PSLF as well, if they meet certain criteria. The program does not have to be consecutive, meaning you can work in public service for 5 years and qualify for PSLF, leave for the private sector, and then return to public service sometime thereafter to complete your remaining 5 years of the program.
If you are participating in the PSLF program, it is crucial that you keep records of your payments and your employment history. The program is still very new, so no borrower has reached the 10-year mark (the first borrowers will do so in October 2017). We do not know at this point how heavily the Department of Education will scrutinize those borrowers seeking loan forgiveness after 10 years, so it is absolutely critical that you keep annual records that clearly identify the employer, shows that the employment meets the definition of “public service,” and includes dates of employment and proof of work in a full-time capacity.
Stay tuned for my upcoming post on certain federal loans that are eligible for special loan forgiveness.
