Campus Compact

Educating citizens • building communities

Campus Compact > Initiatives > Policy and Advocacy > College Cost Reduction & Access Act: Public Service Loan Forgiveness

initiatives.jpg

College Cost Reduction & Access Act: Public Service Loan Forgiveness

Overview

Income-Based and Income Contingent Education Loan Repayment Plans

Purpose of Public Service Loan Forgiveness

Getting Started

Frequently Asked Questions

Additional Resources

Overview

The College Cost Reduction and Access Act, which includes provisions to allow students better access to college and an improved ability to pay off post-education debt, is now fully in place. Although George W. Bush signed the act into law in 2007, many pieces of the act became active only in July 2009.

Much of this information is still being developed, and students are largely unaware of the significant financial benefits now available to them. Campus Compact has created a guide to help members navigate the details of this law, including summaries of key provisions, tips to help students get the most out of the plans, and helpful links for further information.

Briefly, the act includes two debt forgiveness plans, one based purely on the financial ability to pay and one based on career choice. The Income Based Repayment plan, which became active on July 1, 2009, is arguably the best loan-repayment plan available today for students with a high debt-to-income ratio. The Public Service Loan Forgiveness plan allows for total loan forgiveness after 10 years of payments for students working for nonprofit or governmental organizations.

Campus Compact is supportive of this law and committed to its promotion for the benefit of students. We hope that you will find the information in this guide helpful and will pass it along to students on your campus that may benefit.

Back to top

Income-Based and Income-Contingent Education Loan Repayment Plans

A number of loan repayment plans are available, but the Income-Based and Income-Contingent plans are among the best because they allow students to make payments based on their income and family size. Further, these plans allow for loan forgiveness after either 10 or 25 years depending on career choice. Traditional repayment plans allow for only 10 years of repayment and are often unmanageable for people starting work with relatively low salaries.

Quick Tips for the Income-Based Repayment Plan

  • Under a 25-year repayment plan you may owe more money due to interest accumulation than if you paid in 10 years; however, payments will be lower throughout.
  • It is possible to be making a substantial salary, even into six figures, and still qualify for Income-Based Repayment depending on your debt level.
  • You may choose to file taxes as “married filing separately,” which allows you to have the adjusted gross income calculated solely on one person’s income instead of two. This will allow for lower monthly payments.

Income-Based Repayment

This repayment plan allows for the lowest monthly payments and is ideal for those who have a high debt-to-income ratio.

  • You must show at least partial financial hardship (high debt-to-income ratio) to qualify for Income-Based Repayment. In order to determine eligibility, contact your lenders. If you do not know who your lenders are go to http://www.nslds.ed.gov/nslds_SA/
  • For an estimate as to whether you would qualify and what your monthly payments would be, go to http://www.ibrinfo.org/calculator.php.
  • The plan is available for both Direct and Guaranteed (Federal Family and Education) student loans such as Stafford, Grad PLUS, and consolidation loans. It is not available for Parent PLUS, Perkins loans, or private loans. It is not available for consolidations loans that include Parent PLUS, but it is available for consolidation loans that include Perkins (see the FAQs, below).
  • Monthly loan payment is 15% of monthly discretionary income. Discretionary income is determined by the difference between your (and your spouse’s, if applicable) monthly-adjusted gross income (AGI) and 150% of the federal poverty line, based on family size. This is recalculated on a yearly basis as your salary adjusts.
  • Currently, after 25 years of repayment, any remaining debt is forgiven regardless of your career choice. Be aware that at that time, the debt forgiveness is considered income and is therefore taxable.
  • For further information, please visit www.ibrinfo.org or http://www.nchelp.org/initiatives/IBR/IBRImplementationGuide05112009.pdf
Quick Tips for the Income-Contingent Repayment Plan

  • If you can qualify for income-based repayment, your monthly payment will be lower than under the income-contingent repayment plan.
  • Under a 25-year repayment plan you may owe more money due to interest accumulation than if you paid in 10 years; however, payments will be lower throughout.
  • You may choose to file taxes as “married filing separately,” which allows you to have the adjusted gross income calculated solely on one person’s income instead of two. This will allow for lower monthly payments.

Income-Contingent Repayment Plan

This repayment plan is for anyone who does not qualify for the Income-Based Repayment Plan.

  • This plan is available only for Federal Direct Loans. Grad PLUS loans are eligible as of July 1, 2009. The plan is not available for Federal Family Education Loans (FFEL), parent PLUS, or private bank loans. You can choose to consolidate FFEL loans into federal direct (see federal direct loan consolidation).
  • The amount paid each month is the lower of the following two formulas: 20% of your monthly discretionary income (defined as the adjusted gross income minus the federal poverty line based on family size and state) or the amount you would have repaid under a standard 12-year repayment plan multiplied by an income percentage factor determined on the basis of income and marital status.
  • Currently, after 25 years of repayment, any remaining debt is forgiven regardless of your career choice. Be aware that at that time, the debt forgiveness is considered income and is therefore taxable.
  • For an estimate of monthly payments go to http://www.finaid.org/calculators/icr.phtml#help3
  • Eligible payment with the I.C.R. plan since October, 2007, qualify towards 120 payments for Public Service Loan Forgiveness http://www.finaid.org/loans/icr.phtml

Back to top

Purpose of Public Service Loan Forgiveness

The purpose of this plan is to allow students to opt for careers in government and nonprofit fields while still allowing them to get rid of debt in a reasonable period of time.

Quick Tips for Public Service Loan Forgiveness

  • If you are earning under 150% of the federal poverty level based on family size, your loan payments will be $0, but they will still count toward your 120 monthly payments for loan forgiveness.
  • If you choose a 10-year standard repayment plan you will pay off the entirety of your debt in 10 years and receive no debt forgiveness.

Basic Requirements for Public Service Loan Forgiveness

  • Must make 120 qualifying payments while working full-time at an eligible nonprofit or governmental organization (see the FAQs, below). As long as you continue to work for a nonprofit or government organization, you may switch jobs during the 10-year period and still qualify for loan forgiveness after 10 years.
  • Must be an eligible Federal Direct Loan (see FAQs). Federal Family Education Loans may be consolidated (depending on the type) into Federal Direct Loans and become eligible (see FAQs).
  • Must have employment with the government, a 501(c)(3) not-for-profit, AmeriCorps position, or PeaceCorps position (see FAQs for a more detailed list).
  • Must be utilizing a qualified repayment plan such as an Income- Based Repayment Plan or an Income-Contingent Repayment Plan, and the loans must not be in default. Other direct loan program repayment plans are eligible, including the 10-year standard repayment plan so long as the monthly payment is equal to or greater than that under the standard 10-year plan.
  • For further information please visit http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp.

Back to top

Getting Started

  • To sign up or change your repayment plan (both I.BR. and I.C.R.) go to the direct loan servicing website at www.dl.ed.gov. You can also call 800-848-0979 for further assistance.
  • There is currently no enrollment paperwork available for the Public Service Loan Forgiveness as no payments will be made until October of 2017 at the earliest. However, you must be enrolled in the I.B.R. or I.C.R. plan and make eligible monthly payments to be receive loan forgiveness after 10 years. It will be important to maintain employment records and income information for the application process.
  • Stay up to date by registering for email updates on Ibrinfo’s website at http://www.ibrinfo.org/updates.vp.html.

Back to top

Frequently Asked Questions

Q. Which loans are included in the direct loan program?

A. The following loans are included:

  • Federal Direct Stafford/Ford Loans (Direct Subsidized Loans)
  • Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans
  • Federal Direct PLUS Loans (Direct PLUS Loans) for parents and graduate or professional students
  • Federal Direct Consolidation Loans (Direct Consolidation Loans)

Q. How do I consolidate my loans into Federal Direct?

A. Visit http://loanconsolidation.ed.gov/loanholder/lconslproc.html to get a step-by-step description of the loan consolidation process. You must have at least one federal loan in order to consolidate additional FFEL loans into the consolidation.

Visit https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp once you are ready to apply for loan consolidation.

Q. Which other federal students loan qualify for public service loan forgiveness?

A. Federal Perkins Loans; certain Health Professions and Nursing Loans; Federal Family Education Loan (FFEL) Program Loans, including Subsidized Stafford Loans, Unsubsidized Stafford Loans, Federal PLUS Loans (for parents and graduate or professional students), federal consolidation loans (excluding joint spousal consolidation loans)

Q. Which jobs qualify for Public Service Loan Forgiveness?

A. The borrower must be employed full time (in any position) by a public service organization, or must be serving in a full-time AmeriCorps or Peace Corps position. For the purposes of the Public Service Loan Forgiveness Program, the term “public service organization” means:

  • A federal, state, local, or Tribal government organization, agency, or entity (includes most public schools, colleges and universities);
  • A nonprofit organization under section 501(c)(3) of the Internal Revenue Code that is exempt from taxation under section 501(a) of the Internal Revenue Code (includes most not-for-profit private schools, colleges, and universities);
  • A Tribal college or university; or
  • A private organization that is not a for-profit business, a labor union, a partisan political organization, or an organization engaged in religious activities (unless the qualifying activities are unrelated to religious instruction, worship services, or any form of proselytizing) and that provides the following public services:
  • Emergency management;
  • Military service;
  • Public safety;
  • Law enforcement;
  • Public interest law services;
  • Early childhood education (including licensed or regulated health care, Head Start, and state-funded pre-kindergarten);
  • Public service for individuals with disabilities and the elderly;
  • Public health (including nurses, nurse practioners, nurses in a clinical setting, and full-time professionals engaged in health care practioner occupations and health care support occupations);
  • Public education;
  • Public library services; or
  • School library or other school-based services.

Q. If I am on the Income-Based Repayment Plan and my salary increases significantly, will I be disqualified from the program?

A. No, once you qualify you will not be disqualified unless you choose to be. Your payments, however, will increase to reflect in an increase in your salary.

Q. If I switch out of the nonprofit field for a few years, can I still qualify for Public Service Loan Forgiveness?

A. Yes; however, only payments made while working for a nonprofit or governmental organization qualify. If you had made 60 payments before switching to a business field and return three years later, you will begin with payment 61. While you were outside of the nonprofit/governmental field you will need to have continued making payments to prevent your loans from going into default.

Q. What is considered full-time employment to qualify for Public Service Loan Forgiveness?

A. Full-time is defined as an annual average of at least 30 hours a week, or the number of hours your employer considers full-time, whichever is GREATER (unless you work for multiple public service employers, in which case only the “30 hours a week” definition applies). For teachers and other public service employees whose typical employment period is for 8 months or more, the full-time guideline is working an average of at least 30 hours per week during that period.

Additional Resources

Back to top

Thanks for your continued outstanding leadership at Campus Compact. Your publications and programs are always top-notch. I sincerely appreciate all you have done for us in the trenches."

-William F. Moeller, Director, Center for Civic Education and Service, Florida State University