Many student loan borrowers’ grace periods will end this month, putting their loans in repayment. To help them start on the right foot, Aaron Weber sat down with Alexander, a counseling specialist with SALT™, to discuss three common sources of repayment confusion: income-based repayment, Public Service Loan Forgiveness, and Teacher Loan Forgiveness. Here’s what he has to say.
Sometimes, when I mention IBR or Pay As You Earn, people tell me they don’t have enough income to make payments based on it. They don’t realize that a payment can go as low as $0 for some people. Yeah, I know—$0 doesn’t seem like a payment. But zero is a number, and you can potentially qualify for a payment that low.
The whole idea behind these plans is to provide a payment that’s reasonable for the amount you make. So, for some people who are unemployed or on a fixed income, that amount is $0. Because of this, IBR can often be better than postponing payments with deferment. With deferment, you just delay. With IBR, you could have a payment customized to your situation. Plus, IBR forgives your loans after 25 years of eligible payments (10 years, if you work in public service), and $0 payments count toward that total.
Teacher Loan Forgiveness
This one is tricky—but it’s still a valuable option for some borrowers.
You don’t just become eligible for this program this by teaching. You have to be a “new borrower” on or after October 1, 1998, and you have to teach full time for 5 years in a row in a low-income school. People get tripped up by that. If you stop for a year, or if you change school districts, you can lose eligibility.
The amount you’re eligible for depends on what you teach, which can add another layer of confusion. However, with a little research, you can take advantage of this program.
Public Service Loan Forgiveness
There are several things that trip people up with PSLF. First, you have to work in a qualifying job—but the requirement is based on your employer, not the job itself. Similar jobs for different employers might not count. For example, a nurse at a for-profit hospital isn’t eligible, but a nurse at a nonprofit hospital is. They both took the same classes and both help sick people, but because of their employer’s tax status, the benefit is different.
Second, you have to make 10 years of qualifying payments. Of course, 10 years is how long it takes to pay your loans off entirely under the standard repayment plan. So, you pretty much need to switch to income-based repayment or Pay As You Earn repayment plan to fully benefit from this program. Even so, if you’re in public service but making pretty good money, you probably won’t get much money forgiven.
Then, there’s the question of which 10 years count. I recently spoke to someone who graduated in 2003 and wanted to know whether he could get PSLF since he’d been in repayment for 10 years. Unfortunately, no payments before 2007 count for PSLF. Also, if you consolidate at any point, it restarts the 10-year clock.
It turns out that this guy consolidated in 2007 specifically to become eligible for PSLF, so he didn’t lose much time for that. But he still won’t get anything forgiven until 2017. He’s on income-based repayment, and will probably get a couple thousand dollars of this benefit when all is said and done. It’s not like he got his college education for free—but a couple grand is nothing to sneeze at!
What loan details trip you up? Post them in the comments, so we can answer them!
(Photo: Sharat Ganapati)