Student loan forgiveness through public service

*Note: The loan forgiveness programs I’ll discuss here are available in the U.S. I don’t know what’s happening in other countries — but I would love to learn. I have some international readers, so if you know of loan forgiveness programs available in your country (or know why your country doesn’t have the same student loan debt problem as the U.S), please add a comment or send a link to the info!

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Many of my close friends work in public service. They have modest incomes but most have large amounts of debt, usually from student loans from college and/or graduate school. Most of them also avoid dealing with their finances.

They might feel the personal finance is too complicated or completely uninteresting. Or they are too nervous to take a close look at their own financial picture. It stresses them out to even think about their money situation, let alone talk about it with someone else. For example: I’ve offered to help my sister many times and she still hasn’t taken me up on it. (Hi sis!)

A big part of why I’m so interested in personal finance: People who are passionate about helping others shouldn’t have to worry about their finances. Debt is stressful. Not feeling in control is incredibly stressful. People who are helping others should especially have their money moves on auto-pilot and feel confident about handling emergencies — so they can focus on more important stuff like saving the world.

Avoiding learning about your money or not talking to someone you trust may make you miss out on opportunities to seriously strengthen your finances. The student loan forgiveness programs I describe below are powerful tools.

Student loan debt, compared to other forms of debt such as consumer credit card debt or home mortgage debt, is the most flexible debt but also the most rigid. Deferment, forbearance, cancellation and changes to minimum payments based on income are all possible. However, there is almost no way to discharge student loans, even after filing bankruptcy.

For those working in the public sector (i.e. non-profit, educational institutions), there are programs (in the U.S.) that may cut your student loan debt. Here are the programs that have helped me, my friends and family:

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Public Service Loan Forgiveness Program (PSLF)

Who qualifies? People who work in the public sector and have government student loans.

What do I need to do?

1. If you only have loans under the Direct Loan program, you’re set. If not, consolidate your loans so that all loans (FFEL, etc.) are classified under Direct Loans. You can do this using your loan provider’s website.

2. Complete the employer certification form so that you can make sure your type of employment fits the requirements for loan forgiveness. Do this once a year or at least every time you change jobs. It’s really only required at the end but doing this year ensures that you are eligible for the program. Also, doing it every year speeds up the paperwork at the end.

3. Choose the Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), or Pay As You Earn plan. Pick the one that will give you the lowest minimum monthly payment. Your loan provider’s website will have a calculator for you to decide. These are the only plans eligible for this loan forgiveness program.

4. Make 120 on-time payments (at least 10 years) while working under eligible employers. After that, the rest of the loan balance is cancelled and forgiven.

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Teachers have special programs available to them too: 

Teacher Loan Forgiveness

Who qualifies? Teachers who work for five consecutive years in low-income schools and have government student loans.

What do I need to do? At the end of the five years, complete this form and have your principal sign their part.

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Teacher Loan Cancellation

Who qualifies? Teachers of certain subjects or that work with low-income populations and have Perkins loans.

What do I need to do? Complete the forms from your Perkins loan provider every year. You will need to give proof such as a letter that you are employed for the upcoming school year and that you completed the previous year. Then at the beginning of every year your loans will be deferred. At the end the school year, part of your loans will be cancelled depending on the number of years you’ve been teaching and requesting loan cancellation:

  • 15 percent canceled per year for the first and second years of service
  • 20 percent canceled for the third and fourth years
  • 30 percent canceled for the fifth year

So at the end of five years, 100% of your loans will have been canceled.

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My story: Interestingly, I didn’t know about these programs until the end of graduate school… and I thought I was a personal finance nerd. I found out after the financial aid office had over a hundred of us, and we were one of many sessions, sit through a “loan exit workshop” right before graduation. The financial aid reps gave each of us forms listing how much we owed, how much we will have paid by the end of the payments (a lot), and where to send the check.

I am grateful that they had the exit workshop. But some info they provided was incorrect, such as not being able to ever cancel Stafford Loans (you can). And I definitely would have appreciated knowing all of this at the beginning of grad school. Or better yet, before even applying and agreeing to take out loans.

My hope with this post is that people working in the public sector will use every resource available to pay off heavy loan burdens with modest salaries — ahead of schedule and for less interest. And that’s probably why the government created these programs. So read as much as you can on loan forgiveness programs. Please let me know if you find others I’ve left out.

For people thinking of going into the public sector and getting a new degree: if you have a passion for something, try to go for it without going into debt. And that might mean not going to college or grad school (right now at least). There might be alternative programs or experiences that will get there faster. Maybe your future or current employer will help pay for courses or workshops. Take time to seriously plan and talk about your finances. Then your money worries won’t overshadow your goals.

Other resources:

  • Fin Aid.org’s guide to loan forgiveness.
  • American Student Assistance is a non-profit based in Boston, MA that serves as a resource for anyone looking for info or help with understanding their student loans.
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One comment

  1. […] and distributing a tool-kit for public service workers to navigate student loan forgiveness programs (their cheat sheet is something I will be sharing with the many teachers, nurses, and community […]

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