If you have student loans and have considered working in the public sector, you’ve probably heard about Public Service Loan Forgiveness (PSLF). When you see your loan totals upon graduation, loan forgiveness may sound like a wonderful prospect. It may even sound to good to be true. Take a good look at these risks and considerations before putting all your eggs in the PSLF basket .
What is Public Service Loan Forgiveness?
To encourage college graduates to find full-time work in public service careers, the current Public Service Loan Forgiveness plan was started in 2007.
According to the plan, if the graduate makes 120 on-time payments under one of the eligible federal repayment plans while working for a qualifying public service organization, the remaining principal and interest on the loan are forgiven.
What’s the Catch?
If you are planning to take 10+ years to pay off your student loans, there isn’t any harm in trying to meet the public service and on-time payment requirements of the PSLF plan and hoping to receive forgiveness after a decade of payments.
If you aren’t sure you want to stay in public service for a full ten years, or you’d like to be debt free sooner than that, you might just want to bite the bullet and focus on paying off your loan ASAP. If for whatever reason, you can’t keep to the program or the program doesn’t work for you, you would have been accruing interest in the meantime and have a higher total loan repayment amount than if you had directed more money earlier towards repayment.
Risks and Considerations
The Program is New
Since the first payments in the current program started in October 2007, no one has actually had loans forgiven yet. Those who started the program will be coming up on their 10 years of repayment in 2017. Until then, we won’t have anyone’s personal experience to learn from.
Government programs are always changing and every year Congress re-visits the funding formula that provides for the program. There is no way to know how long this program will last. Ultimately, even if the program changes, the loan is your responsibility. When you signed up for the loan, you promised to repay the full amount.
A lot can happen in ten years. It’s hard to plan for (let along bank on) all the circumstances that could prevent you from fulfilling your end of the PSLF bargain. For example:
What if you can’t find a qualifying job in the public sector?
What if you want to have a family and stay home with your children?
What if you are injured or, for whatever reason, have to leave your job?
What if you really want a career change five years down the road?
I think I might give myself a stroke stressing for 10 years about whether or not we’ll be able to make 120 payments while being employed full-time at a qualifying public service organization. There are just too many risks and “what if”s for me.
For us, Public Service Loan Forgiveness isn’t even an option since my husband is working at a for-profit law firm. I can, however, relate to those in public service professions, because our salary is comparable to many of them. Even with a low salary and high debt, you can still pay off debt faster than the standard plan. Sure it will take sacrifice, hard work, creativity, and diligence, but it will bring peace of mind and you will make you stronger. You CAN do this!
It’s Your Turn
- Are you eligible for or planning to use the Public Service Loan Forgiveness program?
- Do you think the risks of PSLF are worth the potential benefit?
Lily @ The Frugal Gene says
This is quite helpful (and scary!)
10 years is too scary of a bet for me to sleep easy at night. I’m researching for a friend and I’m honestly glad it’s not me who is fearing a cancelled program.
Whitney Drew says
I am a teacher in a low income school. I went back for a Master’s degree and did not think long term. I took out A LOT of student loans. I am taking advantage of the loan forgiveness offered by the government. Even though I understand that it is my debt, and I am responsible for it, I am very appreciative of the government helping pay for my schooling. After all, I am working for a very low wage for the government. I have been working for 5 years without a raise, and will not be getting one anytime soon. (Not to mention the extremely stressful conditions brought on by poor parenting, testing, and government interference in education.) Even so, I enjoy my job and see myself sticking it out for at least 10 years. I am at a great school with a wonderful staff and feel comfortable with my position. I am relying on an unstable government, but I have faith in the Lord that I will make it out of my bad debt with or without help.
Michelle Rafter says
Right on Whitney!!! I have a masters degree in Environmental Management and have landed a job at a public health department working for county. I haven’t had a raise in eight years and my student loan debt is at 180,000 with accrued interest. With my salary there is no way I could repay this . So for me its great as long is they really do actually forgive my loan after the ten year period. Pray nothing changes with this program.
Leah Krieger says
Thank you for this. I struggle with the risk of this program as well, but as a single woman with a low-moderate income and almost $80k in debt I really don’t know if there is any other option. I could begin aggressively putting aside money, but then I would have no money for other savings, but paying slowly doesn’t seem to tackle the debt as well.
I really feel at a loss when it comes to my loans. I am currently not even paying my interest which in itself is about $200 per month. Any other thoughts or ideas?
I probably would have considered something like this if I ever worked in public service. But I agree with you- that’s a pretty big bet to make that you’ll be sticking it out all 10 years.
It does look appealing at first and it might work perfect for some people, but it’s too much of a risk for my liking.
Heather :) :) :) says
I actually have a huge student loan debt to pay off still…but I would never want to participate in this program, even if I did qualify for one simple reason…I want to pay this off as soon as possible 🙂 🙂 I’ll really be able to attack this debt head on starting in November….I make my final payment for braces/orthodontics in October!!!
I just started budgeting again and I got out of that habit and was getting stressed…so back to budgeting on paper 🙂
Love and hugs from the ocean shores of California, Heather 🙂 🙂
We are eager to get ours paid off as soon as possible as well. For us it’s worth it to work hard for a couple years and be done with student loans! Good job getting back into budgeting!
Although I no longer have student loan debt, the thought of doing something like this would scare me. Unfortunately our government has a long list of failed programs and I certainly wouldn’t want to be at their mercy when it comes to my own personal finances. My motto has always been that I created my debt and I will be the one to repay it!
That’s a great motto! 🙂
I personally do not think that I would be interested in PSLF. I think that their are too many variables. Much like you I would have a problem with worrying for ten years about my debt being paid off.
Also, in my opinion, the government is not very reliable in doing things right. While I obviously haven’t had experience with this particular program, my husband was in the Army for 9.5 years. We have had SEVERAL bad experiences with the VA be it housing loans, college assistance, or medical help. While they always manage to get it right in the end it normally involves tons of phone calls, paperwork, and time (that many people don’t have). Actually, the VA has a program where if you are a combat veteran who takes out student loans and graduates they pay back $500 or $1000 a year (I don’t remember which) that you stay in the military. They paid my husband’s loan back one year (and was late) and didn’t the second year. We didn’t even fight it because the time and energy put in wasn’t worth the payoff. So to think that the government would be in charge of paying off my loan SCARES me. So glad ours are paid off!
I have heard similar issues from friends who have spouses in the military. Thanks for adding that perspective. I’m glad that you’re done with student loans!
Forgot to add the inherent inequities when some folks get something for nothing and others don’t. As you mentioned, you don’t qualify for the program, but your hubby isn’t rolling in the dough. There are only so many high paying jobs out there and they may not be compatible with the borrower’s circumstances. My brother has a better paying job, but it is in a city where I would never consider raising my kids. He has no kids, so no problem! When I got out of law school, I had a 2 year old and was 8 months pregnant with my second child. I went the corporate route so I could get at least ONE day off a week, unlike in the big Boston firms where 7 days weeks were so common. My pay was less but the trade off was worth it.
Although I have long ago paid off my student loan debt I love your site! We are currently working to pay off our mortgage in a total of 8 years.
That’s great that you paid off your student loans and that you have an awesome mortgage goal!! Thanks for sharing Virginia!
Stephanie, once again a valuable post! I personally would also add the moral obligation that when I borrow money I pay it back regardless of how I use the funds! (for a car, a house or an education) That is the essence of borrowing, not taking 🙂
That’s how I feel– we borrowed with every intention of repaying our loans.