Relieving student loan debt: the Public Service Loan Forgiveness Program

26 January 2011 –  We have posted a number of stories on the student debt issue which you can read by clicking here.   Bill McDonald who writes the L4L blog has also been running a series titled “A Student Loan Repayment Toolbox” which you can access by clicking here.

One of the programs he features and which we wrote about last year is the Public Service Loan Forgiveness Program.  It affects a large number of Posse List members who have Federal direct loans.  Quoting from Bill’s blog:

“In 2007, Congress created the Public Service Loan Forgiveness Program, a program specifically designed to provide graduates with more options in planning their careers. The PSLFP rewards lawyers (and other graduates) who pursue careers in public service by discharging the principal and interest remaining due on the borrower’s Federal Direct Loans after the borrower has made 120 monthly payments while working full time in a public service job. In other words, if you devote ten years of your life to public service, and make your student loan payments during that time, your remaining qualifying federal student loans will be forgiven.

“Public service” is fairly broadly defined, and includes working for tax-exempt organizations, prosecutor’s or public defender’s offices, legal advocacy groups, the military, public safety and law enforcement organizations, public schools and libraries, public health care organizations, and the government. The rules for which federal loans qualify for forgiveness are somewhat complicated, and should be reviewed carefully, but in some cases consolidation can be used to bring federal loans that would not have otherwise qualified (particularly loans issued under older programs such as Perkins loans) under the PSLFP umbrella. Also, note that the 120 monthly payments may be made under either a standard repayment plan, an income-based repayment plan, or an income-contingent repayment plan. Using either of the latter two options in conjunction with the PSLFP will provide an even greater overall benefit to the borrower, as more principal and interest will remain outstanding at the end of ten years.

One more benefit from this generous program: while, ordinarily, loan forgiveness is considered a form of income and subject to federal taxation, loans forgiven under the PSLFP are tax-free. All in all, the program goes a long way towards providing attorneys with the room to consider options in public service employment that student debt responsibilities might otherwise have prevented”.