The Public Service Loan Forgiveness (PSLF) program was established after Congress signed into law the College Cost Reduction and Access Act (CCRAA) in 2007, yet not many people know about it. The PSLF can reduce or eliminate federal student loan balances for individuals who work full-time at a public service organization (nonprofit) for ten years. Examples of public service organizations are school districts, educational service centers, hospitals and health care systems, and governmental and public service agencies.
The purpose of the program, according to Karen Fessler from Innovative Student Loan Solutions, is to “encourage/recruit individuals to enter vitally important public service sectors …as full-time employees.”
If your loans are not in default, it may very well be worth your while to review information at PSLF or contact one of the agencies available to verify your eligibility and assist you with the paperwork associated with the program.
Student loan debt
Here is an example: A full-time employee at OSU Extension looked into this and found they qualified for 100% loan forgiveness. Given their income (a spouses’ income is not included into the calculations) and their family composition they qualified for loan forgiveness in an amount nearly $60,000 in excess of their total loan plus interest.
Therefore, 100 perecent loan forgiveness. To remain eligible, this individual must remain employed full-time with a nonprofit for ten years and have an income that doesn’t go above an amount set for their circumstance. If they do start to earn an income above that set amount during the ten years, they may need to make some payments.
Your total federal loan amounts and family composition can determine the amount of loan forgiveness you are eligible to use. The amount of your personal income is used to determine your eligibility. If your loan plus interest amount is greater than the amount of your forgiveness, you make loan payments for 10 years (120 monthly payments) and then the remainder of the loan is forgiven.
Those 120 monthly payments are likely at a reduced amount per month as the amount is tied to income, family size, and the amount of the individual’s debt to income ratio. This ratio is determined by dividing monthly debt by monthly income. After the 120 payments are made, the balance is forgiven.
There can be a break in payments but they must be accounted for by contacting the program. Certain life events qualify, and it is the responsibility of the individual to be aware of what steps to take. There are entities that, for a fee, will assist in the application process and review the person’s account throughout the ten-year period to ensure steps are not missed that would jeopardize the loan forgiveness.
Karen Fessler equates what they do with a tax preparation expert, “You don’t know what you don’t know.” The company will educate borrowers about the program, complete an analysis and customize an analysis of the projected ten-year savings, even if the borrower chooses not to utilize their services and provides their support throughout the 120-month process.
Melanie Hart is a guest columnist and Greene County OSU Extension Family & Consumer Sciences Educator.