Public service loan forgiveness

June 27, 2008 11:40 AM

So, is there any reason not to go for the new public service loan forgiveness program?

I work at a nonprofit that qualifies for the program; my wife works for a small museum technology firm and makes even less than I do. We have loans from college and graduate school spread across four banks - all of them can be consolidated.

We're both pretty clueless about financial things. Based on some very rough calculations, I think that if we were making income-contingent payments, we'd be paying a couple hundred less per month than we are now, a difference that would actually make a huge change in our day-to-day finances.

So really, my question is this: what are we not taking into account? Are there any pitfalls associated with government consolidation? Are there any caveats or loopholes in the forgiveness program? Since the program is so new, I'm having trouble finding much information about it online. I can only assume that other MeFites are in similar situations right now, so if you have more information about how the program works, this might be a good place to post it. Thanks.

posted by roll truck roll to Work & Money (11 answers total)

I consolidated my student loans with federal Direct Loans in 2001 at something ridiculous like 2.5%. The only downside to federal consolidation is that it resets the payment clock, which has the potential to increase the total amount of interest you pay. If your interest rate goes down, you pay above the minimum, or don't care because the loan will get wiped out in ten years, it's no longer a downside.

My wife had $5000 of her federal loans forgiven for teaching in low-income schools. It took three re-submissions of her forgiveness applications, with the last accompanied by a letter from her school's superintendent, but it finally went through. Good documentation helped her case.
posted by zsazsa at 12:27 PM on June 27, 2008

The downside is the generally lower income from working in this sector. I work for 501(c)(3) (a small, private college) and can speak from experience. If the debt you eliminate is less than the income you forego, you get the idea.

Nice to know if I stay here for 10 years I can get my remaining student loan debt forgiven.
posted by AstroGuy at 12:33 PM on June 27, 2008

Does this apply to college professors at state schools? (licks chops)
posted by mecran01 at 2:29 PM on June 27, 2008

How does this work for Grad Plus loans? Does it?
posted by T.D. Strange at 2:41 PM on June 27, 2008

FYI - the interest rates for consolidating federal loans is going down about 3% on July 1 (to about 3.5 or 3.75 - I can't remember the exact number)
posted by miss meg at 2:54 PM on June 27, 2008

Best answer: This is second hand (as in my roommate did a ton of research into it not me), but from what I've heard the main issue is that while the bill has passed the rule have yet to be promulgated by the relevant federal agency. So the problem is it's unclear just what jobs would be covered and could potentially disqualify you. One of the biggies I see as being an issue is after 10 years in a nonprofit, you won't be paid great, but your pay certainly will have gone up. If at year 9, you are $2,000 over the pay cut off will that make you revert back to the 25 year program? Do the 10 years have to be consecutive? What if you have a part time job on the side? What if you're laid off and have to take a regular job for a while to make ends meet? If you are currently in public interest, I can't think of a whole lot of reasons not (doesn't appear you would be any worse off), but last I heard (which was in the last 2 months) there were still a LOT of questions to be answered.

If you want more info you can memail me and I get some more specific details/websites from my roommate who has literally talked to everyone she can get her hands on about and not gotten far.
posted by whoaali at 5:02 PM on June 27, 2008 [2 favorites]

the issue i have heard is that the terms of many loans are 10 years anyway, so there won't be anything left to forgive. my own loans are for longer than that, so i'm not sure where that comes from, though.
posted by thinkingwoman at 10:01 PM on June 27, 2008

Response by poster: thinkingwoman, that is true per "standard" repayment schedules. Income-contingent repayment takes considerably longer on a nonprofit salary.
posted by roll truck roll at 10:31 PM on June 27, 2008

Response by poster: (Or at least, that's what I've pieced together from various sources so far.)
posted by roll truck roll at 12:54 AM on June 28, 2008

Best answer: I can't get the link to work at the moment, but I seem to remember that Equal Justice Works has a good explanation of the Act on their website. I'll re-post if I can get the link to work later today.
posted by pril at 2:12 PM on June 28, 2008

Response by poster: I'm assuming this is the page pril was talking about. There's a lot of useful information there; it filled in many of the gaps for me.
posted by roll truck roll at 8:31 AM on June 29, 2008