NEW YORK (MainStreet) Yes, graduating from college is great but student loans suck! However for many grads, this is becoming a common story. According to the Consumer Financial Protection Bureau (CFPB), student loan debt has risen to more than $1.2 trillion dollars, a more than 20% increase from the year 2011. Furthermore, student loan debt is rising at an alarming rate, only second to household mortgages.
Although the burden of student loan debt can be a bit overwhelming, there may be some relief in sight. The Department of Education offers the Public Service Loan Forgiveness (PSLF) program to individuals who qualify. The PSLF program allows for student loan forgiveness for borrowers who work in the area of public service full time.
Here are some helpful tips to determine if it would work for you:
1.) Consider your boss
"Any federal government, state government, local government, or tribal government entity is an eligible employer for the PSLF Program," says Christine Isett, spokesperson for the Department of Education. "This includes the U. S. military, public elementary and secondary schools, public colleges and universities, public child and family service agencies, and special governmental districts."
Tax exempt entities under section 501 (c)(3) of the Internal Revenue Code may also qualify for the program. In addition, private not for profits that offer public services may also qualify. To determine whether your employer qualifies, visit the Federal Student Aid website.
2.) Don't delay payments
The key to forgiveness is to make certain your payments are timely. According to the Department of Education, borrowers will be granted forgiveness if they make 120 qualifying payments while employed by qualified employers. Borrowers are required to make payments within 15 days of the due date, and the payment has to exceed or equal the required payment.
If a borrower has difficulty making payments, he should contact his servicer to review possible options. Periods of deferment or forbearance, which allow a borrower to cease making payments temporarily, are not qualifying payments for the purposes of PSLF. That being said, the 120 qualifying payments do not need to be consecutive. For example, if a borrower makes 10 qualifying payments, spends 6 months in an unemployment deferment, and then resumes employment with a qualifying employer and also resumes making payments, the borrower will still start at the eleventh qualifying payment when payments resume.
3.) Any student loan won't do
The type of student loan will also determine whether or not it qualifies for loan forgiveness under the PSLF program. According to the Department of Education, only loans made under the Direct Loan Program William D. Ford Federal Direct Loan - will qualify. Therefore loans made under the Federal Perkins Loan (FPL) and Federal Family Education Program (FFEL) will not qualify.
However, there is a work-around. Borrowers can consolidate these loans into the Direct Loan program to take advantage of the PSLF program. But keep mind, you should do your homework or speak with a financial advisor to determine whether consolidating will make sense for your unique financial situation.
4.) Do the math
Since the program allows for forgiveness after ten years, you should consider doing the math first. Selecting the best payment plan is essential. Obviously, if the borrower is repaying the loans subject to a ten-year standard repayment plan, subsequently there will be no remaining balances to be forgiven. However, other payment plans may extend payment terms. Although these plans allow for lower payments, they can also have higher accrued interest payments.
Again, take time to understand what payment plan works best for you. Also, get an understanding of the pros and cons of each payment plan. Most importantly, understand while this program may be a good fit for some it may not be the best fit for all.
For more information and to determine if you qualify, visit the Federal Student Aid website.
Remember: your choice, your future.
--Written for MainStreet by Kemberley Washington, a certified public accountant and professor. Follow her on Twitter or connect with her on Facebook.