Longtime Public Servants Can Erase Student Loan Debt

By Dawn Handschuh, Personal Finance Writer   

If you're saddled with student loan debt and loan repayments stretching on for years, you may catch a break and be granted loan forgiveness if you work in a public service job.

The debt-forgiveness provisions of the College Cost Reduction and Access Act, enacted last fall and effective July 1, 2008, erase the student loan debt of public service employees — police officers, firefighters, enlisted military, public school teachers, and those working in public-interest law, public childcare, or social work, or for local, state, and federal government — as long as certain criteria have been met.

  • Borrowers must have made 10 years' worth of monthly payments (120 in total) since October 1, 2007. (Earlier payments don't count toward the 120-payment eligibility requirement
  • Borrowers must have been employed full-time in public service during the loan repayment period.
  • Only Federal Direct Loans, including Stafford and PLUS loans, are eligible for loan forgiveness. However, if you have federal loans held by a private lender, you can consolidate into the Direct Loan program to qualify for the loan forgiveness program.
  • The loan cannot be in default.

Since borrowers must pay down loan debt for 10 years to be eligible, the earliest borrowers can take advantage of the loan forgiveness provision is 2017. Those who stand to benefit include borrowers who've made payments based on the income-contingent payment plan rather than the standard repayment plan; under the latter plan, loans would be paid off after 10 years anyway.

Caveats

  • Signing up for an income-contingent payment plan that extends your repayment schedule will also increase the total amount you'll pay in interest over the life of the loan. That's why it's important to make sure you're committed to remaining in public service for the minimum 10-year period.
  • If you have a federal loan backed by a private lender and are considering loan consolidation in order to qualify for loan forgiveness under this law, make sure to first explore other loan forgiveness programs for certain types of loans, such as the Perkins loan, before proceeding.

For more information, visit Student Aid on the Web, a federal government website.