If you plan to work in public interest, there are three important tools you can use: Public Service Loan Forgiveness, Income-Driven Repayment, and Loan Repayment Assistance Programs.
Public Service Loan Forgiveness (PSLF) offers tax free forgiveness for your eligible Federal Direct Loans after you make 120 qualifying monthly payments while working full time in a qualifying public service position. The benefits can be considerable when combined with an Income-Driven Repayment Plan and a Loan Repayment Assistance Program.
Income-Drive Repayment Plans (IDRs) help by lowering monthly payment amounts. These programs also provide forgiveness to borrowers still repaying their loans after 20 or 25 years (depending on the plan) regardless of their chosen profession. IDRs are the preferred repayment plans for most borrowers working towards PSLF, because they help ensure monthly payments are affordable and that full forgiveness can be received for their work in public service.
Loan Repayment Assistance Programs (LRAPs) are available from a variety of sources, often from schools, employers, states, and the federal government. These programs can help you make payments on your educational loans.
The four steps to earning Public Service Loan Forgiveness
- Step 1: Make sure you have eligible loans.
- Step 2: Make sure you are working full time in qualifying employment.
- Step 3: Make 120 qualifying payments on those eligible loans while you’re in qualifying employment.
- Step 4: Apply for forgiveness!
Only payments made on Federal Direct Loans count toward the required 120 qualifying payments and only Federal Direct Loans will be forgiven. Only Federal Direct Subsidized Stafford, Unsubsidized Stafford (now referred to as Direct Subsidized and Direct Unsubsidized), Grad PLUS, Parent PLUS, and Federal Direct Consolidation Loans are eligible.
This is an important step to consider whenever you are borrowing or consolidating your loans. If you want to qualify for PSLF, make sure you are borrowing federal loans and avoid private or commercial loans, which are never eligible for government forgiveness. If you have FFEL Loans and want to make sure all your loans qualify for PSLF, consolidate your FFEL Loans into a Federal Direct Consolidation Loan. You can learn more about loan eligibility here.
Only certain types of employment qualify:
- Federal, State, Local, or Tribal Government: you may work for any level of government: a local, State, Federal, or Tribal government organization, agency, or entity. You may be employed in any position, with one exception: you may not be a member of the U.S. Congress. However, you may work in Congress or for a Senator or Representative.
- A 501(c)(3) Nonprofit: employment at a nonprofit organization as defined under section 501(c)(3) of the Internal Revenue Code that is exempt from taxation under section 501(a) of the Internal Revenue Code is qualifying employment. While you may be employed in any position, the Department of Education has indicated that religious instruction, worship services, or any form of proselytizing is not qualifying employment. If you are employed by a 501(c)(3) organization that engages in these activities, at least 30 hours or more of your time must be spent on other qualifying activities.
- A Full-Time AmeriCorps Position: working in a full-time position approved by the Corporation for National and Community Service under Section 123 of the National and Community Service Act of 1990 qualifies.
- The Peace Corps: working in a full-time assignment under the Peace Corps Act will count as qualifying employment.
- A private "public service organization": a private public service organization is a nonprofit organization (that is not organized under Section 501(c)(3)) that provides the following services: emergency management; military service; public safety; law enforcement; public interest law services; early childhood education (including licensed or regulated health care, Head Start, and State funded pre-kindergarten); public service for individuals with disabilities and the elderly; 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, as such terms are defined by the Bureau of Labor Statistics); public education; public library services; school library or other school-based services.
You must also be working full-time, which is defined as working in qualifying employment in one or more jobs for the greater of:
- An annual average of at least 30 hours per week (you may combine one or more part-time jobs to reach the required average of 30 hours per week, but each of your employers must qualify);
- For a contractual or employment period of at least 8 months (if, for example, you are a teacher), an average of 30 hours per week;
- Or, unless the qualifying employment is with two or more employers, the number of hours the employer considers full-time.
Step 3: Make 120 qualifying monthly payments on those eligible loans while you're in qualifying employment
Each one of your 120 monthly payments must be made separately, on time, and for the full amount due. In addition, you must be in one of these qualifying repayment plans:
- A Standard Repayment Plan based on a 10-year repayment schedule;
- A repayment plan in which you make monthly payments that are at least as much as the monthly amount required under Standard Repayment over a 10-year repayment period;
- Income-Contingent Repayment (ICR);
- Income-Based Repayment (IBR);
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
IBR, ICR, PAYE, or REPAYE will be the preferred repayment plans for most borrowers earning PSLF because they will help ensure your monthly payments are affordable and that you receive the full forgiveness you have earned in return for your public service. You can learn more about these income-driven repayment plans below.
After you make your 120th qualifying payment, you will need to submit the PSLF application to receive loan forgiveness. The application is under development and will be available before October 2017, which is the earliest that borrowers will begin to be eligible to apply for forgiveness. You must be working for a qualifying public service organization at the time you submit the application for forgiveness and at the time the remaining balance on your loan is forgiven.
In the meantime, you should keep track of your employment!
You will have to show the Department of Education that you have been working in qualifying employment. Therefore, it is important that you keep copies of your W-2s, pay stubs and any other documents you may have that will show your employment history.
In addition to keeping this documentation, you should submit regularly the Employment Certification for Public Service Loan Forgiveness form created by the Department of Education to assist you in tracking your periods of qualifying employment and your qualifying payments. It also will provide you with some certainty that your employment qualifies.
- Dear Borrower Letter
- Instructions for Completing Employment Certification for Public Service Loan Forgiveness
- Employment Certification for Public Service Loan Forgiveness
After you submit the form, you will be notified whether your employment qualifies, the total number of qualifying payments you have made, and how many payments still need to be made before you qualify and can apply for Public Service Loan Forgiveness. While use of the form is not required, it is the only way the Department of Education’s loan servicer will keep track of your progress toward meeting the PSLF eligibility requirements. We suggest you submit the form annually. You also may use the form to cover more than one employer.
Income-Based Repayment (IBR) can significantly reduce the monthly payments of high debt/low income borrowers who have a "partial financial hardship." Borrowers have a partial financial hardship if their annual educational debt payments exceed 15 percent of their discretionary income (defined as adjusted gross income minus 150 percent of the federal poverty level for a family the borrower's size).
Annual student debt payments under IBR are capped at 15 percent of a borrower's discretionary income and, if a borrower is still repaying after 25 years, the government will forgive the amount left on these loans. This forgiveness is currently taxable.
IBR is available for FFEL and Federal Direct Loans.
Pay As You Earn
In 2011, President Obama proposed an initiative known as “Pay As You Earn” to establish a 10 percent payment cap and 20-year taxable forgiveness for new borrowers beginning in 2012. The plan became available on December 21, 2012.
There are two requirements that borrowers must meet to be eligible for these enhanced provisions: 1) Borrowers must have taken out loans after a certain date; and 2) Borrowers must demonstrate a “partial financial hardship.”
Only borrowers who take out loans after a certain date – so called “new borrowers” – are eligible for the plan. This requirement has two prongs:
- First, you must borrow your first federal loan on or after Oct. 1, 2007. If you had federal loans from before Oct. 1, 2007, you can still meet this test if you completely repaid those loans before taking out another loan on or after Oct. 1, 2007.
- Second, you must receive a new loan, receive a disbursement on an existing loan, or consolidate your loans on or after Oct. 1, 2011.
As a result, many borrowers with loans from 2007 and earlier, many students who graduated in 2011 or earlier and many borrowers already in repayment will not be able to benefit from these changes. However, if you do not meet both these requirements, you still may be eligible for IBR or ICR.
The second requirement is that eligible borrowers must have a partial financial hardship (similar to IBR) to be able to enroll in Pay As You Earn. If the annual amount due on your outstanding Federal Direct and FFEL Loans under a standard 10-year repayment plan would exceed 10 percent of your “discretionary income,” you meet this threshold.
Only Federal Direct Loans are eligible for Pay as You Earn, so you will need to consolidate any FFEL Loans into Federal Direct if you wish to take advantage of this plan.
Income-Contingent Repayment (ICR) calculates your monthly payments on the basis of your adjusted gross income (plus your spouse’s income if you’re married and file your taxes jointly), family size, and the total amount of your Direct Loans. You may pay up to 20 percent of your income in ICR and it provides for taxable forgiveness after 25 years.
There is no partial financial hardship threshold you must meet before enrolling in ICR. For this reason, even if you don’t qualify for IBR or PAYE, you still may benefit from ICR.
The REPAYE plan limits monthly payments to 10 percent of your discretionary income. Discretionary income is the difference between your income (as determined by your most recent tax return) and 150 percent of the poverty guideline as determined by your family size and state of residence. Under the REPAYE plan, any unpaid balance is forgiven after payments have been made for 25 years (if loans under the plan were used for graduate school) or 20 years (if loans under the plan were used solely for undergraduate study).
Under the REPAYE plan, if married, your spouse's income is used to determine the eligible amount of discretionary income from which your payment amounts are calculated. Additionally, there is no cap on the amount of your payments. As such, borrowers with high single or joint incomes may find themselves making payments higher than they would otherwise make under the 10-year standard repayment plan.
Unlike the Pay-As-You-Earn, the REPAYE plan does not require the borrower to document a financial hardship in order to participate in the plan.
In order to remain in the REPAYE plan, the borrower must submit an annual certification form which documents any changes in the borrower's discretionary income from the previous year and recalculates the monthly payment amount accordingly.
Enrolling in an Income-Driven Repayment Plan
If you are entering repayment, select the repayment plan you prefer on the Department of Education's IBR/Pay As You Earn/ICR Request form. If you are unsure of your eligibility for – or if you simply want to enroll in the income-driven plan (for which you are eligible) that will provide you with the lowest monthly payment – you can check the box in Section 2 of the form requesting to be placed in the plan with the lowest monthly payment amount.
If you already are in repayment, contact your servicer and request to switch into the plan.
Federal Direct Loan borrowers, and some FFEL borrowers, may apply in one step at studentloans.gov either when entering repayment or switching plans.
Loan Repayment Assistance Programs (LRAPs) are a powerful tool to help you manage repayment of your educational debt.
How do they work?
LRAPs differ from repayment plans, like Income-Based Repayment (IBR), and loan forgiveness programs, like Public Service Loan Forgiveness (PSLF). Rather than lowering your payment amount or providing forgiveness of your educational loans in the future, LRAPs provide funds now to make those monthly payments on your loans.
They may help provide you much needed funds to help pay down any private educational loans (private loans are never eligible for federal relief programs).
It also may be possible to use LRAPs in conjunction with some federal relief programs.
For example: You may be working in qualifying employment for PSLF and enrolled in IBR to receive lowered income-based payments on your Federal Direct Loans. If you qualify for an LRAP, you may be able to use these funds to make those lowered income-based monthly payments until you make 120 of them and the government grants you PSLF!
Where can I find an LRAP?
LRAPs are often available from schools, employers, states, and the federal government. Use the menu options on the right to learn about school and employer-based and state and federal LRAPs. Ask if you have an LRAP available to you!
- Learn more about the Federal John R. Justice Student Loan Repayment Program available to state and federal public defenders and state prosecutors.
What does your LRAP look like? Important questions to ask about any LRAP
What does your LRAP look like? Is there a service requirement? How long can you participate? Equal Justice Works has compiled some basic questions to ask about any LRAP.
You have to meet all of these very specific requirements in order to earn forgiveness. If you have questions, be sure to sign up for a free informational webinar or get a copy of our comprehensive ebook, Take Control of Your Future.