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

Student 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:

• “Pay As You Earn” plan (a new plan available at the end of 2012);
• Income-Based Repayment Plan;
• Income-Contingent Repayment Plan; and
• Standard Repayment Plan.

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.