We know that debt matters when you are considering graduate schools and also the types of jobs you take after graduating. The Federal Public Service Loan Forgiveness Program (FPSLFP) and the Income-Based Repayment (IBR) plan are two options that will allow some borrowers to be eligible for loan forgiveness after 10 years of qualifying employment and loan payments.
The IBR plan considers your adjusted gross income, the size of your debt and the size of your family—and may lower your monthly loan payments. And if you work in the public or nonprofit sectors, the Public Service Loan Forgiveness program may cancel your remaining debt (principal and interest) after 10 years and 120 qualifying payments.
You may be eligible for Public Service Loan Forgiveness if you:
- Hold a job in the nonprofit or public sector for at least 10 years (not necessarily consecutive);
- Participate in the Direct Loan program, or consolidate all current loans into Direct Lending;
- Have a high debt-to-income ratio;
- Participate in the IBR, PAYE or some combination over the course of 10 years of qualifying employment;
- Make 120 timely payments; and
- Re-affirm eligibility each year.
Will Public Service Loan Forgiveness Help Me?
The public service loan forgiveness program will not benefit all borrowers--particularly those with a low debt-to-income ratio.
Please review these sample cases to illustrate what types of borrowers might benefit from the program:
Sara: Sara borrowed $80,000 in qualifying federal student loans, and took a job at a nonprofit after graduation where she made $50,000. After five years, Sara received a promotion and made $60,000 a year. Sara's monthly payments for the first five-year period were $420/month, and her payments after promotion were $550/month, instead of $920/month under the standard 10-year repayment plan. She saves $370-500/month. Sara will likely qualify for loan forgiveness in the amount of $52,000 after she has made 120 qualifying payments.
Max:Max borrowed $20,000 in qualifying federal loans to pay for college and graduate school. He became the CFO for a nonprofit after graduation, where he earned $90,000 a year. Max would likely not qualify for the public service loan forgiveness program because he had a low debt-to-income ratio.