The Public Service Loan Forgiveness Program – Too good to be true?

student loan debt

cost of educationStudent loan debt is at $914 billion in the US. Like many law school grads, I’m contributing to that number. I graduated with a lot of student loan debt. Naturally, I was excited about the possibility of some of that debt being forgiven under the Public Service Loan Forgiveness Program.

The Public Service Loan Forgiveness Program is designed to encourage individuals to enter public service. Under the Program, individuals in public service may have the balance of their student loans forgiven after 10 years. Sounds great, right? Maybe — whether you’ll benefit from the Program will depend on your total debt, your adjusted gross income, and the type of loan you have.

Too Good to Be True?

No debt forgiveness program should be overlooked. However, the Public Service Loan Forgiveness Program is not a student loan debt panacea for those working in public service.

First, the Public Service Loan Forgiveness Program only applies to Federal Direct Loans. Private loans and other types of federal loans — like Perkins or FFEL loans — do not qualify.

Additionally, only certain payment plans are eligible for this program:

The standard repayment plan is 10 years. So, if you’re on the standard plan, you receive no benefit from this program: you’d have $0 balance to forgive. Effectively, you only stand to benefit from this program if you qualify for the Pay As You Earn, Income-Based, or Income-Contingent Repayment plans.

With these plans, income, family size, and your spouse’s income (if you file a joint tax return… which you need to do to claim the student loan interest deduction) factor into your eligibility and will determine your payment amount. When I plug my loan amount (huge), family size (3 and a cat), and joint income (modest) into the Income Contingent Calculator, my payment is actually more than the Standard 10-year plan amount. This means I won’t benefit from the Public Service Loan Forgiveness Program, even though I’m working for a qualified employer.

Bottom Line on the Public Service Loan Forgiveness Program

Whether you’re in repayment or a law student concerned about financing your education, you need to research your options. The Public Service Loan Forgiveness Program may benefit you. However, remember you still must make 10 years of payments on your loans no matter what, you need to remain in public service for 10 full years, and there’s a chance you won’t see a benefit from this program because of your income level.

What about you?

Disclaimer: I’m not a student loan or finance expert. This post does not constitute advice of any kind. It is your responsibility to determine your eligibility for the Public Service Loan Forgiveness Program, student loan repayment plans, and other programs.

3 thoughts on “The Public Service Loan Forgiveness Program – Too good to be true?

  1. Anna

    if you are on maternity leave (ie FMLA) doesn’t that count as time employed. I believe my employer considers you employed at that time.

  2. WSBA

    These are great points, Kelly! Yes, many students (me – Julia – included) just select the lowest payment option, which does not qualify. Maybe a recent grad can chime in as to whether they were made aware of this program during exit counseling.

  3. Kelly L

    Julia –

    I agree that the Public Service Loan Forgiveness Program promotes a good public policy – mainly that new lawyers and other professionals should not be deterred from public service due to student debt. But, the program has a myriad of requirements that prevent most public service professionals from benefiting. First off, you definitely need to be a lawyer (or hire a lawyer) to understand the requirements and set up your repayment plan properly: 1) you need to be in a “public service” position, but many public service-oriented positions don’t meet the definition; 2) you need to be full-time, which means either 30 hours or more a week or the “employer’s definition of full time”, whichever is greater; the result being that any payments made while on maternity leave or working part-time as a new parent don’t count either; and 3) you need to set up your payment plan properly.

    You discussed the last requirement extensively, but what you didn’t address is that most students aren’t given proper financial counseling with respect to payment plans. All students, not just law students, can qualify for this program, and most don’t have the tools to navigate the complex requirements. Most students just select the payment plan with the lowest initial payment, which is usually a graduated extended payment plan that doesn’t qualify the student for the program.

    Again, I think the policy is a good one, but the Department of Education and Universities should be advising students on how to benefit from it. Most importantly, policy makers should do something to lower the cost of tuition. As a new lawyer strapped with over 100k in student loans, I constantly question whether I can or should remain in public service.

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