Student Loan Forgiveness?

[BrooklineBiker]

Hi everyone,
Has anyone here looked into getting their loans forgiven under the Public Service Loan Forgiveness Program?  (If you are unfamiliar with this option see http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service#what-is-the-public.) What do people think of this option? For my part, it seems to be a long shot option: I started nonprofit work in October 2006 so I am not eligible for forgiveness until October 2017, assuming the program lasts that long and that all my loans and repayments qualify. I could likely raise my income by 1/3 in the private sector and am wary of waiting that long in a low-paying job, knowing that this program could be repealed out of existence with no notice. By the way, are there other loan forgiveness programs out there with more immediate benefit?
Thanks,
Neil

[NV Teacher]

I took advantage of the teacher loan forgiveness program probably 7 years ago.  I was able to have $5000 of my loan forgiven after working 5 years at a Title 1 school.  It was a simple one page form that was signed by the principal.   It worked and was easy for me but it sounds like you are in a totally different position.

[rubybeth]

I think it's a good option but you need to do the math. I looked the same program when I graduated with my MLIS (master of library and information science), however, I was making quite a bit more in my first job (in public library administration) than I had anticipated, plus I had my DH's income, and figured out that by paying off my student loans ASAP, I would save as much in interest as would be 'forgiven' after 10 years of regular payments, so it would be a wash.

However, my sister is a speech language pathologist with a quite large student loan for grad school (about 4x what mine was but she went to a top 10 school) and discovered she loves working in public schools (originally wanted to be in hospital setting), so she got on the IBR payment plan and enrolled in the program (had her school fill out the form that shows she is eligible). Yes, it's possible the program could go away and she'll be on the hook for her debt, but at this point, she's just trying to save as much as she can and not go into more debt. She is young and single and doesn't make very much relative to how awesome she is at her job. :) Also, I think it's good that she's had the forms submitted already, so if the program is ever done away with, if there's any type of 'grandfathering in' option for those already on track to do it, she would fall into that category.

[BrooklineBiker]

Hi Rubybeth & NV Teacher,
Thanks for your replies! Good information!
Neil

[imustachemystash]

I looked into it but was not eligible because I started working part time after having a baby.

[TrulyStashin]

The first step is to make sure your loans qualify.  If they're private loans, they probably don't.  Also, if I recall correctly, the law that expanded the forgiveness program passed in 2008 or '09 and federal loans taken out prior to that are not eligible.  You also need to make sure that your job qualifies.

Until these questions are answered in the affirmative, there's not much point in analyzing whether it's the right financial choice.

[Rural]

  Also, if I recall correctly, the law that expanded the forgiveness program passed in 2008 or '09 and federal loans taken out prior to that are not eligible.  You also need to make sure that your job qualifies.

Loans taken out earlier do qualify, or so the Feds tell me. Payments made earlier on those loans don't count toward the required payments, however.

[rubybeth]

  Also, if I recall correctly, the law that expanded the forgiveness program passed in 2008 or '09 and federal loans taken out prior to that are not eligible.  You also need to make sure that your job qualifies.

Loans taken out earlier do qualify, or so the Feds tell me. Payments made earlier on those loans don't count toward the required payments, however.

Payments have to be under specific repayment plans, it can't just be any payments made: http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service#what-is-a-qualifying

[BrooklineBiker]

  Also, if I recall correctly, the law that expanded the forgiveness program passed in 2008 or '09 and federal loans taken out prior to that are not eligible.  You also need to make sure that your job qualifies.

Loans taken out earlier do qualify, or so the Feds tell me. Payments made earlier on those loans don't count toward the required payments, however.

Payments have to be under specific repayment plans, it can't just be any payments made: http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service#what-is-a-qualifying

Hi Rubybeth, Rural, & TrulyStashin,
Thanks for your very helpful replies. One further question. Do any of you know of other nongovernment loan forgiveness programs that might be a fit for me? I am an attorney who works for a 501(c)(3) nonprofit but does not practice law. I have had MOHELA (US DOE) and ACS (formerly KHESLC) loans in repayment since 2002.
Best,
Neil

[rubybeth]

This website lists loan forgiveness programs: http://collegesavings.about.com/od/financialaid/a/loanforgiveness.htm I also got a lot of google hits when I searched "student loan forgiveness programs lawyers" so you might want to try that search, as well.

[BrooklineBiker]

Hi Rubybeth,
Thanks again for your help.
Best,
Neil

[RootofGood]

Hi, my wife and I have over $100k in student loan debt.  We don't plan on paying much of it back because we are in the Income Based Repayment plan and gosh darn it I'm retired so our income is low enough where our monthly payment will be zero.  We also have 3 kids so that helps in the payment calculation formula (it is based on household size).  23.5 more years and they will forgive any balance not repaid. 

Once the kids leave the house over the next 17 years our repayment may creep up from zero to something higher, but probably no more than a couple thousand per year max (if we have tons of income from dividends and IRA withdrawals).

The 10 year Public Service Loan Forgiveness looks very sweet if you can stomach 10 years of working for the government or a non profit.  I opted not to choose that path even though I worked for the govt.  In hindsight it was a smart choice because I was only at the government job for 2.5 years. 

This IBR/PSLF program is awesome if your income happens to be low (due to crappy pay or your mustachian ability to craft a stream of income).  Couple this with Obamacare subsidies and it literally pays to look poor on your 1040.

[GradMinus]

In case you are not aware: the balance written off at 25 years under the IBR program is taxable.

[RootofGood]

In case you are not aware: the balance written off at 25 years under the IBR program is taxable.

I'm aware, and figure they'll fix it by making it non-taxable.  Last thing you want to do politically (other than shut down the govt apparently) is hit people who can't pay their student loans (ie IBR applicants) with a big tax bill. 

If they don't waive the taxation of forgiveness of student loan debt, then I'll plan zero taxable income that year.  After inflation it will be about $40000 written off in today's dollars.  No biggie tax burden wise.

[BrooklineBiker]

Hi Grad Minus and Root of Good,
Thank you both for providing some additional information. I need to figure out what repayment plan I am under.
Best,
Neil

[RootofGood]

"You serious, Clark?"

We qualify for income based repayment due to large household size and moderate AGI.  The program sets our payment based on a formula, and the formula says our payments are zero or close to it.  Or at least that will be the case once Mrs. RootofGood quits working too. 

Crazy program, I know. 

[BrooklineBiker]

Hi,
If possible, I would like to keep the thread responsive to my original inquiry. I remain open to receiving recommendations on how to get the most out of the loan forgiveness program. Are there any restrictions on applying for the Income Based Repayment plan?
Best,
Neil

[Psychstache]

Not really from what I found. I sent in the paperwork to request an IBR payment and the public service tracking form (a form that your supervisor signs that says you have been working for public entity X) and they switch your payments over.

They ask that in order to help with tracking qualifying payments, you send in the tracking form once per year. There is not much more to do right now other than wait till we get closer to 2017 when the first 'class' will be eligible for PSLF.

[rubybeth]

Not really from what I found. I sent in the paperwork to request an IBR payment and the public service tracking form (a form that your supervisor signs that says you have been working for public entity X) and they switch your payments over.

They ask that in order to help with tracking qualifying payments, you send in the tracking form once per year. There is not much more to do right now other than wait till we get closer to 2017 when the first 'class' will be eligible for PSLF.

This is what my sister did as well. Unfortunately, she'd already made a year's worth of payments on a non-qualifying payment plan for forgiveness, but she changed jobs and we're not sure the first job would have qualified her. It just would have meant lower payments her first year out of school, which would have helped with her savings.

[RootofGood]

Hi,
If possible, I would like to keep the thread responsive to my original inquiry. I remain open to receiving recommendations on how to get the most out of the loan forgiveness program. Are there any restrictions on applying for the Income Based Repayment plan?
Best,
Neil

If you want to do the PSLF program, you will have to have Direct Loans and not FFEL or "Stafford" student loans (mine were called Stafford back in the late '90's and early 2000's).  You can consolidate into a Direct Loan to qualify to apply for PSLF.  In my case, this would have meant losing the interest rate reduction that my lender (CFNC) offers that equates to a 2.25% reduction for the life of the loan. 

Here's a link to more info beyond what I quote below: http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service#what-loans-are-eligible

Only loans you received under the William D. Ford Federal Direct Loan (Direct Loan) Program are eligible for PSLF. Loans you received under the Federal Family Education Loan (FFEL) Program, the Federal Perkins Loan (Perkins Loan) Program, or any other student loan program are not eligible for PSLF.

If you have FFEL Program or Perkins Loan Program loans, you may consolidate them into a Direct Consolidation Loan to take advantage of PSLF. However, only payments you make on the new Direct Consolidation Loan will count toward the required 120 qualifying payments for PSLF. Payments made on your FFEL Program or Perkins Loan Program loans before you consolidated them, even if they were made under a qualifying repayment plan, do not count as qualifying PSLF payments. In addition, if you made qualifying payments on a Direct Loan and then consolidate it into a Direct Consolidation Loan, you must make 120 qualifying payments on the Direct Consolidation Loan.

I need to write a blog post about PSLF and IBR! 

[BrooklineBiker]

Hi Root of Good,
Thanks! This is great information!
Best,
Neil