With 43 million Americans struggling to pay of their student loan debt, more and more people are looking for ways to reduce the burden of those seemingly never-ending monthly payments.
If you have federal student loans, you may be familiar with some of the available repayment options, like those that can reduce your monthly payments based on your income or delay your payments right after you finish school.
But there’s one program that a lot of people overlook, often because they aren’t aware of it or they don’t think it will apply to them. It’s called the Public Service Loan Forgiveness Program. And there’s more to the story — and a lot more money available — than many people think.
Borrowers eligible for loan forgiveness
Student loan borrowers must meet certain requirements to be eligible for the program. In order to qualify, you must be a full-time employee at a federal, state or local government agency or work full-time an a nonprofit organization. The idea is to provide some relief to borrowers who choose a career in public service over a high-paying job right out of college.
According to the Federal Student Aid website, here are the specific qualifying careers:
- Government organizations at any level (federal, state, local, or tribal)
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
- Other types of not-for-profit organizations that provide certain types of qualifying public services
Also, only certain types of federal loans are eligible, including:
- Federal Direct Subsidized Stafford/Direct Loans
- Federal Direct Unsubsidized Stafford/Direct Loans
- Federal Direct PLUS Loans
- Federal Direct Consolidations Loans
Read more: Student Loan Guide
Borrowers must be enrolled in a qualifying payment plan, and after 10 years of on-time payments, the remaining balance of your loans are eligible for forgiveness. There is currently no limit on the amount that borrowers can have forgiven. And if you take advantage of certain qualifying repayment plans, you can reduce your minimum monthly payments, which would also then reduce the total amount you’d pay over the required 10 years of payments.
The U.S. Department of Education introduced the program back in 2007 (so no loans have actually been forgiven yet). Since the program became available, only about 300,000 borrowers have taken the necessary steps to have their loans forgiven.
And according to one report, about 4 million borrowers could be eligible.
Since qualifying requires 10 years of on-time payments, you want to make sure you start working toward eligibility as soon as you can. If you want to see if you’re on the right track, you can get more details and fill out a form on the student aid website here.
3 ways to get the most out of the Loan Forgiveness Program
If you want to be eligible for loan forgiveness through the Education Department’s program, here are a few things to keep in mind!â€‹
1. Choose the right loans or consolidate the loans you have
In order to qualify, you must have a federal direct loan through the U.S. Department of Education. There are ways for other federal loans to qualify, but only if you consolidate them into a federal direct loan. Here’s how to do that.
And remember, private student loans do not qualify for loan forgiveness. In fact, private loans should always be your last alternative when it comes to financing your education. Here’s more on why.
2. Find a public service career that qualifies
Only certain areas of public service qualify, based on the government’s definition of public service work. So if you want to make sure you will be eligible for loan forgiveness, pay close attention to the careers that will meet the requirements.
3. Take advantage of repayment plans
In order to have your loans forgiven, you must first make 10 years of on-time monthly payments. If you have a 10-year loan, you’ll pay it all off before you can have any of it erased.
So if you want to take full advantage of loan forgiveness, consider a qualified repayment plan that extends the life of your loan and reduces your monthly payments. The new Revised Pay As You Earn (REPAYE) program caps monthly payments at 10% of your discretionary income and stretches the total cost of your loan over 20 to 25 years. That way you’ll be paying less each month and then after 10 years, whatever is left on the loan will be forgiven.
Don’t qualify for forgiveness? See how new refinance options can reduce your student loan debt.
One more option: Loan assistance programs
A 2015 study found that 49% of Millennials with student loan debt would rather their employer offer student debt relief assistance instead of 401(k) benefits — revealing just how desperate people are to get rid of their debt. And more companies are taking note.
Government agencies and some private employers offer loan repayment assistance programs as a way to help employees cover student loan payments. So if you’re working in public service and your employer offers repayment assistance, you’ll pay even less over the 10-year period of required payments — before having your loans forgiven. If you don’t qualify for loan forgiveness but your employer offers repayment assistance, the extra money can help you manage your monthly payments and get your total debt paid off much quicker.
Part of the idea behind repayment assistance is to help young workers start saving retirement — by helping them cover their monthly student loan payments. By providing that extra money each month, employers can help young workers can get their loans paid off and still have enough to save for their future.
Just to give you an idea, the U.S. military offers active-duty, enlisted service members up to $65,000 in student loan payments. Federal agencies can cover up to $10,000 of an employee’s student loan payments each year.
Now, more and more private employers are offering these types of programs as well. And when it comes to choosing one, the fewer strings attached the better. Check out this report from Bloomberg on companies now offering these kinds of debt relief benefits.
Important note: Unfortunately, the student loan debt industry is ripe with scammers looking to prey on vulnerable people who are desperate to get their debt paid off quicker. So if you get an offer in the mail or via email, do some research on the company before considering any offers.
And just like everything else, if an offer seems too good to be true, it probably is!