Ask for student loan forgiveness
In an effort to aid highly indebted college graduates who go to work in critical but often low-paying professions, Congress passed a law in 2007 that aims to wipe out their federally guaranteed student loan debt.
Public Service Loan Forgivenessallows people working in qualifying jobs to have federal loans forgiven if the borrowers are unable to repay their debt in 10 years of regular payments. Once you've made those 120 payments while employed in the right job, the remaining interest and principal are forgiven.
Which jobs? Among others:
- All government jobs, whether federal, state or local.
- Military service.
- Police and fire departments.
- Public education and public health care.
- Social work.
- Public and school libraries.
- Public-interest legal services.
- Education in high-need areas.
- Nonprofit, tax-exempt 401(c)3 organizations.
The catches
If you're in trouble right now, the program isn't going to help. Forgiveness comes only after 10 years of steady payments. And because standard student loans are only 10 years in length, most borrowers would have their loans paid off before there was anything left to forgive. But there are alternative repayment plans that can leave a substantial balance even after 10 years. Some qualify for forgiveness; some don't.
Many borrowers, for example, reduce their payments by choosing a graduated repayment plan, whereby payments rise over the years as income does, or an extended repayment plan, which can stretch up to 30 years. Neither of those plans qualifies.Other borrowers have turned to income-based options that limit the payment to a percentage of their paychecks, then forgive whatever's left after 25 years of payments. Those loans do qualify.Last, only payments made to the federal Direct Loan program count, and only those made after the law was enacted, in October 2007.
The steps
Make sure your job qualifies.Most jobs in government, emergency services, public health and public education do. Compare the costs of repayment plans.
Go to FinAid.org and fill in the worksheet. (The income-contingent plan is the only extended repayment plan that's now available to people wanting to qualify for the Public Service Loan Forgiveness program.) In July 2009,a second program, involving income-based repayment, became available that allows for smaller monthly payments. See "Can you get a student loan bailout?" to find out more about the program and click here to figure your payments under that program.
Consolidate into the Direct Loan program. Go to the Federal Student Aid site and fill out the online application.
Make 120 on-time payments.
Apply for forgiveness.
To find out more about the Public Service Loan Forgiveness program, go to IBRinfo.org or FinAid.org.
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