How To Pay For College

Loan Forgiveness Programs

If, after college, you enlist in certain occupations or programs, the federal government will cancel all or part of your Federal Student loans. This practice is called Loan Forgiveness. To qualify, you must:

  • Perform volunteer work;
  • Perform military service;
  • Teach or practice medicine in certain types of communities; or,
  • Meet other criteria specified by the forgiveness program.

Public Service Loan Forgiveness

On September 27, 2007, President Bush signed the College Cost Reduction and Access Act (CCRAA) into law. The CCRAA creates a new loan forgiveness option for Direct Loan borrowers who hold public service jobs. Federal Family Education Loan (FFEL) borrowers may take advantage of public service loan forgiveness by consolidating or reconsolidating their FFEL loans into the Direct Loan program.

Currently, borrowers with only FFEL loans can only consolidate or reconsolidate into the Direct Loan program if

  • they are unable to obtain a consolidation loan with a FFEL lender OR
  • if they are unable to obtain a consolidation loan with acceptable income-sensitive repayment terms OR
  • they intend to apply for loan forgiveness.

To qualify for public service loan forgiveness, a 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 during the time he or she makes the qualifying monthly payments;
  • Be employed in a public service job at the time the remaining balance on the borrower's eligible loan is forgiven; and
  • Have already made 120 monthly payments on one (or some combination of) the following eligible Federal Direct Loans on or after Oct. 1, 2007;

It is important to remember that for public service loan forgiveness, all 120 payments must be made on or after Oct. 1, 2007. Payments made before Oct. 1, 2007, do not count toward the 120 payments required to qualify for loan forgiveness. Borrowers with loans made before this provision are still eligible for loan forgiveness, but their past loan payments will not count toward the 120 payments required for forgiveness.

Payments made under the standard repayment plan and payments made under other Direct Loan repayment plans that are no less than what a borrower would pay under a standard 10 year repayment period count toward the 120 payments necessary for forgiveness. But eventually a borrower would need to enter into either the income contingent or the new income-based repayment plan to be eligible for forgiveness. Borrowers who remain in the standard repayment plan would have no need for forgiveness after 10 years of payments because the loan will have been paid in full. Payments made under extended repayment plans would be ineligible if they are less than the amount calculated under the standard 10-year repayment plan. Borrowers will need to consider whether they are willing to work in a public service job for the 10 or more years required for loans to be forgiven.

For a fact sheet on Loan Forgiveness for Public Service Employees, click here.


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