In 2012, over 70% of students graduating from four-year institutions were carrying student loan debt along with their diplomas. With the average student loan debt being $29,400*, it’s no wonder this is being termed a crisis.
While some graduates accept the fact that they will be paying student loans for the next couple of decades, others are still in denial because their loans are deferred or in forbearance. Some scramble to repay those loans as fast as possible and others look for alternative methods of taking care of their loans.
One of those alternative methods for dealing with student loan debt is student loan forgiveness. The idea of having your loans forgiven has some undeniable appeal for students weighed down by debt.
There are several different federal programs that offer student loan forgiveness. The terms and conditions vary by program, and programs vary by student loan type. One of the most well-known ways to receive student loan forgiveness is through the Public Service Loan Forgiveness (PSLF) Program.
What is the Public Service Loan Forgiveness Program?
Working in the private sector is much more profitable in just about any field than public service. The Public Service Loan Forgiveness program entices graduates to choose employment in public service even though it doesn’t pay as well.
Here’s how it works:
The Public Service Loan Forgiveness Program “forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.”**
A qualified monthly payment is one that is made:
- after October 1, 2007
- under a qualifying repayment plan
- for the full amount shown as due on your bill
- no later than 15 days
- while you are employed full-time by a qualified employer
The 120 monthly payments don’t have to be consecutive. Ten years is the minimum amount of time it could take to receive forgiveness, though it could be much longer.
Qualifying employment for PSLF is not based on the particular work you are doing, but rather who you are working for. For example, you should qualify if you’re employed by:
- Federal, state, local, or tribal government organization or agency
- Tax-exempt non-for-profit organizations
- Private not-for-profit organizations that provide services such as law enforcement, public health, public education, military service, public safety and more.
If you are interested in learning more, check out the details about the Public Service Loan Forgiveness Program.
We now qualify!
We recently announced a big change in our finances. Mr. SixFiguresUnder had been working as an attorney at a small law firm, but left that job and took a job as an attorney for the State of California. Since he was building a nice client base (and had a lot of matters already in the works), he has also opened his own part-time solo practice. An attorney “side hustle,” if you will.
Honestly, it hadn’t even crossed my mind that we would qualify for the Public Service Loan Forgiveness Program now that my husband is working for the state. Until readers started to ask about it, I hadn’t even thought about it.
I checked with my husband to be sure, and he said that his job would definitely qualify. In fact, some of the other attorneys in his office are planning on (I prefer to say “hoping for”) forgiveness.
Why we aren’t going to use the Public Service Loan Forgiveness Program
Even though my husband is working at a job that qualifies for loan forgiveness, we are not interested in seeking student loan forgiveness. Here’s why:
We’re impatient. We don’t want to wait 10 years to be debt-free. The burden of this debt hanging over us is real and we are eager for it to be gone as soon as possible so we can move on with our life and finances. Ten years is too long.
It’s too risky. We don’t trust that the program will still be around or have funding in ten years. With the way that government programs change, there is no guarantee that the program will even exist ten years from now. As of now, no one has received loan forgiveness through the PSLF program, since it hasn’t been ten years from Oct 1, 2007 yet.
It could be expensive. If for whatever reason we don’t qualify when the ten years of service are up, then we will have a hefty student loan bill which will have been growing for ten years! No thank you! We would rather pay extra now and get it paid off!
Case in Point
Just last week I read about two law school graduates who work for the state and have been making their required student loan payments for five years already. They thought they were halfway to loan forgiveness, but recently found out that their payments had not been credited toward the Public Service Student Loan Forgiveness Program because their loans weren’t the right kind.
You would think that someone who had been through law school would be able to do a thorough investigation on the program qualifications and be certain he or she met the criteria before investing time into the program. Apparently it’s confusing.
In order to qualify for PSFL, your loans must be Direct Loans or they must be consolidated into a Direct Consolidation Loan from other specific Federal loan programs. At this point they can consolidate their loans into a Direct Consolidation Loan and then work ten additional years for the state.
For five years they had been banking on forgiveness, paying only the minimum required. They thought they were half way to having their loans forgiven, but instead, they’ll be paying on their loans longer, with more interest.
Instead of seeking loan forgiveness through the Public Service Loan Forgiveness program, we will just hustle and pay off these student loans ourselves as soon as possible. The sooner we get them paid off the sooner we will be free and we can move onto other financial goals! Our current goal is still to be debt-free by the end of 2016! That’s waaay better than 2026!
How About You?
- Would you be interested in the Public Service Loan Forgiveness Program if you qualified?
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