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?