PRIVATE STUDENT LOANS
Getting out of debt is a major priority for many college students completing their degree. Employment in public service has options to assist on paying back federal student loans.
When considering employment after graduation, working in public service may be a good option. Traditionally, jobs working in public service have had lower starting salaries than many jobs in the private sector. However, working in public service offers the ability to eliminate student loan debt, something that many college graduates carry today.
The College Cost Reduction and Access Act of 2007 allows for the discharge of remaining student loan debt after 10 years of full-time employment in public service. It is required that the borrower must make 120 payments as part of the Direct Loan program in order to obtain the benefit.
Borrowers can remain eligible for this program while using income-based repayment, income contingent repayment, standard repayment or a combination of these repayment plans during the 120 required payments.
So take for example a student that pursues a career in social services after completing a Master’s in Public Administration. Combined undergraduate and graduate school Stafford loans is $65,000. Let’s say the starting salary is about $29,000. This would additionally qualify the student for an Income Based Repayment plan, lowering the required payment to about $170 per month. (Loan payment amount will increase to reflect increased income) If the student repays a total of $30,000 during the 120 required payments, the remaining $35,000 is forgiven and not required to be paid back.
Just remember, if income rises in the future, then payment amount will be required to increase. Unless stuck with the exact same salary for 10 years, don’t expect to qualify for the same low payment amount throughout. Public service loan forgiveness combined with IBR establishes budget breathing room for students with high debts and low income making public service employment a viable option.
Also any debt discharged under the public service loan forgiveness program is considered non-taxable. This is a big benefit, here is why. Normally the IRS would consider the forgiveness of $35,000 in student loan debt as a taxable event. The borrower would normally be responsible for about $8000 in income taxes, but because it was under the public service loan forgiveness program, there are no additional taxes to pay.
It is required that public service employment be held during the entire 10 years as well. If you leave the public service job before the 120 months are up, you no longer qualify.
From FinAid.org, a list of qualified public service jobs:
Emergency management, government (excluding time served as a member of Congress), military service, public safety and law enforcement (police and fire), public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations), public education, early childhood education (including licensed or regulated childcare, Head Start, and State-funded prekindergarten), social work in a public child or family service agency, public services for individuals with disabilities or the elderly, public interest legal services (including prosecutors, public defenders and legal advocacy on behalf of low-income communities at a nonprofit organization), public librarians, school librarians and other school-based services, and employees of tax exempt 501(c)(3) organizations. Full-time faculty at tribal colleges and universities, as well as faculty teaching in high-need subject areas and shortage areas (including nurse faculty, foreign language faculty, and part-time faculty at community colleges), also qualify.
Check out IBRInfo.org for some info on Income based repayment options on Stafford loans.
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