Sunday, January 15, 2017

Student Loans: Public Service Loan Forgiveness

I don't frequently discuss my place of employment during the course of this blog, but I had an interesting experience to share.  I teach in a local high school.  I went into the office and asked the appropriate person to complete a section of a form for me.  Of course this person did exactly as requested, then just before I exited the room, asked me what the form was for.  I told this person that I wanted to document my employment for the purposes of student loan forgiveness.  I was shot back a look that made me feel certain that this person had no clue what I was talking about.  Of course that made me really uncomfortable.  I am absolutely incapable of  leaving someone in the dark about a financial opportunity they ought to look into.  So, I explained the Public Service Loan Forgiveness Program.  This person didn't realize that if you work for certain entities, you can have you student loans forgiven!  Not knowing something this important could cost some serious dough!

So, let me explain to you, as I did to this person.  The federal government has a program for employees of governmental or non-profit agencies called the Public Service Loan Forgiveness Program.  First, it's important to see if you even qualify.  In order to qualify, you must work full-time for a government agency or non-profit.  If you can successfully check off both of those boxes, this may be for you.

Next, you need to make sure you are on an approved payment plan.  If you are not already on an income based payment plan, you need to get on one asap!  Technically any of the repayment plans that use your income to determine the payment are approved payment plans.  The standard 10-year repayment plan is technically approved as well, but you don't really want to pick that one.  You see, once you are on an approved payment plan you have to make 120 qualified payments, the rest of the balance will be forgiven!

Now does it make sense why you don't want to be on that Standard 10-Year Plan?  If you paid all of your payments under that plan, you wouldn't have any balance left to forgive!  That certainly doesn't make sense with your cents, does it?

After you've made 120 qualified payments, you need file a form to apply for the loan forgiveness.  This is super important because if YOU don't file the application, NOTHING will happen!

This all sounded really easy didn't it?  Well, it really is pretty easy.  There are a few special "extra" items that you might want to investigate further.  For example, they only count on payment per month toward your 120, so there is no way to make it less than 10 years of paying.  Additionally, you won't have to pay federal income tax on the forgiven amount.  I was pretty surprised to learn that one myself.  Moreover, you can periodically file a form that helps you to track your progress toward forgiveness.

Regardless, I don't want to overwhelm you with more information that what's truly useful to you as you get started, but what I will say is this:  if you are looking at this, and think that you qualify for this program, you need to take action immediately.

Get on the phone and call your loan servicing company.  Ask them about this program, and get on a qualifying plan.  They should know ALL about it, and should be able to provide some guidance.  Furthermore, you are your own best advocate and researcher.  I wrote an article about the various options for student loan repayment plans that you can read in order to arm yourself with information before you call your loan company.  It is called Student Loans:  Repayment Plans Explained.  If you want more information beyond that, I recommend going to Federal Student Aid.  This is a government website, and it is full of really useful information.

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