Public Service Loan Forgiveness

Public Service Loan ForgivenessEveryone with student loan debt wonders if there’s some secret method to discharging college loans. For some people, there is a way to make a student loan balance disappear, but there are several stipulations. The Public Service Loan Forgiveness (PSLF) program is one of the most popular ways to get rid of student debt. Here’s what you need to know:

What is PSLF?

PSLF is designed to help public service employees bridge the gap between lower paying jobs and high student debt. Approximately 25% of America’s full-time employees qualify for this type of student loan debt discharge. In fact, most people who work in the public sector qualify. Examples of qualifying employees include law enforcement, public health, public education, full-time active duty military, Peace Corps and AmeriCorps volunteers.

How It Works

In order to incentivize public service, PSLF initiatives were created in 2007 to make lower salaried, though still intrinsically rewarding public service careers more appealing financially. In the past, fantastic candidates for public service had decided against government employment in order to make a higher salary. Many times, the reason for needing higher pay was to offset the large amount of student debt accumulated during college. PSLF works by providing public sector employees with lower payments and debt forgiveness after 120 on time payments for their federal student loans. This equals 10 years of on time payments, which may seem overwhelming. However, in addition to debt forgiveness, public service employees can also take advantage of Income Based Repayment Plans (IBR) and Pay As You Earn (PAYE) programs. This significantly reduces the required monthly payments, and in some cases it eliminates the need to make payments while keeping student loans in good standing and allowing public service employees to meet their 120 payments goal.

After the 120 payment stipulation is met, the remaining principal and interest is discharged, meaning you are federal student loan debt free. If you have taken out private student loans to finance your education, you will still be required to pay those debts. Some sources imply that student loan debt discharge or in this case PSLF will result in higher taxes, but section 108(f) of the Internal Revenue Code states that student loan discharge is not taxable. In order to ensure you are not taxed for discharging your loans, be sure to use a reputable accountant or tax service on the year your loans are discharged.

Who Can Qualify

According to the Federal Government, the following people can qualify for PSLF:

Employees of a government organization/public service
Not-for-profit, tax-exempt organizations
Private, not-for-profit organizations that provide public service

A complete list can be found at studentaid.ed.gov.

With many different careers providing a pathway for PSLF, you’ll want to see if you qualify. There are several other options for lowering your student loan repayment and managing student loan debt, but ideally if you work in the public sector you will qualify for this generous loan forgiveness plan.

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