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The College Cost Reduction and Access Act of 2007 established a new
public service loan forgiveness program. This program discharges any
remaining debt after 10 years of full-time employment in public
service. The borrower must have made 120 payments as part of the
Direct Loan program in order to obtain this benefit. Only payments
made on or after October 1, 2007 count toward the required 120 monthly
payments. (Borrowers may consolidate into Direct Lending in order to
qualify for this loan forgiveness program starting July 1, 2008.)
This contrasts with the loan forgiveness of the remaining
balance after 25 years of repayment under the income-contingent
and income-based repayment plans for borrowers who are not employed
full time in public service jobs.
See also the list of
Answers to Frequently Asked Questions about Income-Based Repayment and Public Service Loan Forgiveness
and the list of other student loan forgiveness programs.
The most frequent question about public service loan forgivess is
How do I apply for public service loan forgiveness?.
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Eligibility
The public service loan forgiveness program has several restrictions:
- Term: The forgiveness occurs after 120 monthly payments
made on or after October 1, 2007 on an eligible Federal Direct Loan.
Periods of deferment and forbearance are not counted toward the 120
payments. Payments made before October 1, 2007 do not count. Likewise,
only payments on a Federal Direct Loan are counted.
- What is forgiven? The remaining interest and principal
are forgiven.
- Employment: The borrower must be employed full-time in a
public service job for each of the 120 monthly payments. Public
service jobs include, among other positions, emergency management,
government (excluding time served as a member of Congress), military
service, public safety and law enforcement (police and fire), public
health (including nurses, nurse practitioners, nurses in a clinical
setting, and full-time professionals engaged in health care
practitioner occupations and health care support occupations), public
education, early childhood education (including licensed or regulated
childcare, Head Start, and State-funded prekindergarten), social work
in a public child or family service agency, public services for
individuals with disabilities or the elderly, public interest legal
services (including prosecutors, public defenders and legal advocacy
on behalf of low-income communities at a nonprofit organization),
public librarians, school librarians and other school-based services,
and employees of tax exempt 501(c)(3) organizations. Full-time faculty
at tribal colleges and universities, as well as faculty teaching in
high-need subject areas and shortage areas (including nurse faculty,
foreign language faculty, and part-time faculty at community
colleges), also qualify.
- Eligible Loans: Eligible loans include Federal Direct
Stafford Loans (Subsidized and Unsubsidized), Federal Direct PLUS
Loans, and Federal Direct Consolidation Loans. Borrowers in the Direct
Loan program do not need to consolidate in order to qualify for loan
forgiveness. Borrowers in the FFEL program will need to consolidate
into Direct Loans.
(Beginning on July 1, 2008, FFEL borrowers may
obtain a Federal Direct Consolidation Loan in order to qualify for
public service loan forgiveness even if they had previously
consolidated in the FFEL program. Such borrowers will be restricted to
the income-based repayment, income-contingent repayment and standard
repayment plans. Before July 1, 2008, FFEL borrowers
who have not yet consolidated may obtain a Federal Direct
Consolidation Loan in order to obtain income contingent repayment by
stating that they are unable to obtain income sensitive repayment
terms acceptable to the borrower. Before July 1, 2008, FFEL borrowers
who have already consolidated in the FFEL program are only able to
obtain a Federal Direct Consolidation Loan with income-contingent
repayment terms if their loans have been selected by a guarantee
agency for default aversion.
Note that borrowers who took advantage of the early repayment status
loophole have already consolidated their loans and so are subject to
the more stringent requirements for a subsequent consolidation into
the Direct Loan program.)
Although Perkins Loans are not eligible for public service loan
forgiveness, if they are included in a Federal Direct Consolidation
Loan the entire consolidation loan, including the Perkins Loans, is
eligible for public service loan forgiveness. One may use income-based
repayment and income-contingent repayment on such a consolidation
loan.
Perkins loan borrowers will need to consider the tradeoffs of
including the Perkins loans in a federal direct consolidation loan.
When Perkins loans are consolidated, they lose several favorable
benefits, such as subsidized interest, a 9 month grace period, and a
generous loan forgiveness program.
Although Parent PLUS loans are nominally eligible for forgiveness,
since the definition of Eligible Federal Direct Loan in section
455(m)(3)(A) of the Higher Education Act does not preclude Parent PLUS,
such loans are not eligible for income-based repayment (section
493C(a)(1)) or income-contingent repayment (section 455(d)(1)(D)), so
there will be no financial benefit to
seeking forgiveness for such loans. However, if a Parent PLUS loan is
included in a Federal Direct Consolidation Loan, it will be eligible
for income-contingent repayment (but not income-based repayment), making it
possible to obtain forgiveness. (However, income contingent repayment
is not available for Federal Direct Consolidation Loans that include
PLUS loans for borrowers who entered repayment before July 1, 2006,
per 34 CFR 685.208(a)(1)(ii). Income contingent repayment is available
for Federal Direct Consolidation Loans that include PLUS loans for
borrowers who entered repayment on or after July 1, 2006, per 34 CFR
685.208(a)(2)(iii).)
Grad PLUS loans are eligible for forgiveness. However, the language in
section 455(d)(1)(D) of the Higher Education Act of 1965 precludes the
use of income-contingent repayment for PLUS loans. This is fixed by
section 493C(b)(3), which amends the exclusion to apply to just Parent
PLUS loans. But that amendment is effective July 1, 2009. So until
July 1, 2009, income-contingent repayment cannot be used for Grad PLUS
loans. On or after July 1, 2009, one can use income-contingent
repayment for Grad PLUS loans. (Income-based repayment also becomes
available for all direct loans except Parent PLUS and Perkins Loans on
July 1, 2009.) However, as with Parent PLUS loans, Grad PLUS loans can
become eligible for income-contingent repayment provided that they are
included in a Federal Direct Consolidation Loan and the borrower did
not enter repayment before July 1, 2006. Consolidation loans that
include a Grad PLUS loan are also eligible for income-based repayment
starting July 1, 2009.
Note that borrowers who took advantage of the early repayment status
loophole to consolidate their loans during the in-school period
technically entered repayment before July 1, 2006.
- Eligible Repayment Plans: Borrowers may use
income-based repayment,
income contingent repayment,
standard repayment or a combination of these repayment plans. Payments made
under other repayment plans (e.g., extended repayment and graduated
repayment) do not count. To maximize the amount of forgiveness,
borrowers should use income-based repayment. When income-based
repayment is not available (e.g., prior to July 1, 2009), they should use income-contingent repayment.
If a borrower were to use only standard repayment for repaying their
loans there would be no balance remaining after 10 years and so no
debt to cancel. Standard repayment is only provided as an option to
address situations when a borrower is unable to continue under
income-based repayment because they no longer have a partial financial
hardship and the payments under income-contingent repayment exceed
standard repayment. In such a situation the borrower would use
standard repayment for the remaining payments and obtain some loan
forgiveness at the end of the ten years of payments.
- Taxability: Public service loan forgiveness is not
taxable under section 108(f) of the Internal Revenue Code.
See Taxability of Student Loan Forgiveness
for additional details.
Employer Certification Form
The US Department of Education released an employment certification form
and instructions
on January 31, 2012.
See also the
Dear Borrower Letter.
Use of the employment certification form is recommended but not
required. It is best, however, to submit the form annually or whenever
the borrower changes employers to ensure that the qualifying service
is properly recorded.
Upon submission, the US Department of Education's servicer
will inform the borrower whether the employment reported on the form
satisfies the requirements for public service loan
forgiveness. Borrowers will also be able to track their progress
toward obtaining public service loan forgiveness.
After the borrower has fulfilled the requirements for public service
loan forgiveness (i.e., made 120 qualifying payments while working
full-time in a qualifying public service job), the borrower will need
to file a PSLF application to obtain the loan forgiveness. A link to
this form will be added to this web site when it becomes available.
Bottom Line Advice
Although the details may seem complicated, the advice for taking
advantage of this program is more straightforward.
- Borrowers who will be employed in public service jobs and who have
loans under the FFEL program should obtain a Federal Direct
Consolidation Loan as soon as possible. (Before July 1, 2008, they
will need to consolidate into direct loans by stating that they were
unable to obtain acceptable income-sensitive repayment terms. On or
after July 1, 2008, they will be able to consolidate into direct loans
to obtain public service loan forgiveness.)
- Parent PLUS borrowers who entered repayment on or after July 1,
2006 will need to consolidate their PLUS loans even if they are
already in the Direct Loan program.
- Borrowers should start off with income-contingent repayment, if
they can. They should switch to income-based repayment as soon as it
becomes available on July 1, 2009, if they can. (Consolidation loans
that include Parent PLUS loans are not eligible for income-based repayment.)
Caveats
The public service loan forgiveness program is targeted at students
who pursue public service careers and who have high debt and low
income. Borrowers with low debt or high income will not benefit as
much.
As a back-end loan forgiveness program, the public service loan
forgiveness is an all-or-nothing benefit. If a borrower stops working
full-time in a public service job, even with just a few of the 120
payments left, they get no forgiveness.
The public service loan forgiveness option's main impact is to
remove debt as a disincentive to pursuing a career in public
service. Most borrowers will still earn less in a public service job
than in the private sector, despite the forgiveness. But previously
borrowers were precluded from long-term employment in public
service jobs because the debt-to-income ratios were unaffordable.
Obtaining a Federal Direct Consolidation Loan
To obtain a federal direct consolidation loan,
call the US Department of Education at
1-800-557-7392 (TDD 1-800-557-7395).
If you have not yet consolidated, you can seek a federal direct
consolidation loan in order to obtain an income contingent repayment
plan. Federal direct consolidation loans are available if you haven't
been able to obtain a FFEL consolidation loan, or if you haven't been
able to obtain income sensitive repayment terms acceptable to you or
if you have defaulted on your FFEL loans.
If you have already consolidated, you may find it more difficult to
consolidate into direct loans. Borrowers who have already consolidated
can obtain a federal direct consolidation loan with income-contingent
repayment terms, but only if their loans have been selected for
default aversion by a guarantee agency.
Starting July 1, 2008, you
will also be able to obtain a federal direct consolidation loan in
order to qualify for public service loan forgiveness, regardless of
whether you have already consolidated or not.
If the direct consolidation loan people say that you must have
defaulted on your FFEL loans to consolidate into direct loans, remind
them that this restriction was repealed by sections 7015(c) and
7015(d) of Public Law 109-234, the Emergency Supplemental
Appropriations Act for Defense, the Global War on Terror, and
Hurricane Recovery, June 15, 2006.
If they still give you trouble, ask the
FSA Ombudsman for help.
Be sure to ask for income-contingent repayment or income-based
repayment. The consolidation loan application does not currently include a
checkbox for requesting these repayment plans, so you must
ask for it separately.
Additional Information
Prof. Phil Schrag, a law professor at Georgetown University Law Center
has written a 21-page law review article concerning income-based
repayment and public service loan forgiveness: Schrag, Philip G.,
Federal Student Loan Repayment Assistance for Public Interest
Lawyers and Other Employees of Governments and Nonprofit
Organizations, Hofstra Law Review 36(1), September 2007.
The article includes practical advice
concerning the two programs, as well as detailed examples.
The article can be found at the
Georgetown University Law Center web site and at the
Social Science Research Network.
Prof. Schrag has also written a paper about coordinating loan
repayment assistance programs with public service loan forgiveness:
Philip G. Schrag and Charles Pruett,
Coordinating Law School Loan Repayment Assistance Programs with New Federal Loan Repayment and Forgiveness Legislation,
Journal of Legal Education, May 2011.
The US Department of Education web site provides additional information about
public service loan forgiveness.
