Student Loans: Forgiveness Programs for Teachers and Public Service Jobs

Thanks to the College Cost Reduction and Access Act of 2007, those who choose to work in public service may have a portion of their federal student loans forgiven after meeting certain criteria. The act was, well, enacted, to encourage those who otherwise might be tempted to make some quick coin by taking a high-paying private sector job to consider working in the public service field. The public service loan forgiveness program could literally save you tens of thousands of dollars on your student loan repayments.

Borrowers must have Direct Loans to be eligible, so those with FFEL loans will need to consolidate into Direct Loans in order to be eligible. They will also need to be using the income based repayment plan, the income contingent repayment plan, or the standard repayment plan. In addition, the borrower must be employed full-time for 120 consecutive months (10 years) and make their Direct Loan payments for each of those 120 months.

There are several opportunities for recent graduates to have a portion of their federal student loan debt forgiven through volunteer work. Some of these ‘volunteer’ positions also pay you real money, so you get a double benefit.

Peace Corps Loan Forgiveness

Peace Corps volunteers can have 15 percent of their Perkins Loans forgiven for each year of service, up to a total of 70 percent. Stafford Loans are not forgiven, but payments may be deferred while serving. Peace Corps volunteers also receive a stipend to pay for living expenses while serving, medical and dental care, transportation to and from the country of service, and a readjustment allowance of approximately $225 per month for each month served.

Americorps VISTA Loan Forgiveness

Americorps volunteers receive a monthly stipend plus an award of $5,350.00 after 12 months of service to use towards student loan repayment. This amount will be increased to $5,550.00 for contracts beginning in 2011.

To see if your job qualifies, you will want to contact Direct Loans at (800) 848-0979 to be absolutely certain.

However, generally speaking eligible public service jobs will include any of the following: military service, government positions, public health (including nurses), public education (including staff and faculty at public universities, law enforcement, public librarians, social workers, and 501©(3) employees. If you change from one public service job to another, you need to make sure that you don’t have a gap in employment of even one business day, otherwise the 120-payment clock starts over.

So if your last day of work is a Friday, make sure your first day at the new job is the following Monday. Sorry, no in-between jobs week-long party . . . save the celebration for the week after your 120^th payment.

The amount forgiven under certain loan forgiveness programs is considered taxable income by the IRS, but debt forgiven under the Public Service Loan Forgiveness program is currently not considered taxable income by the IRS. This is a terrific benefit that will save you from having to pay the big tax bill on the forgiven debt that many other student loan debt forgiveness programs require.

In additional to being eligible to take advantage of the forgiveness benefits listed above, certain teachers can also have a portion of their Perkins loans forgiven. If you teach full-time at an eligible elementary or secondary school (certain schools that serve low-income populations are eligible), you can have 15 percent of your Perkins Loans forgiven in both the first and second years of service, 20 percent forgiven for both the fourth and fifth years of service, and 30 percent forgiven for your fifth year of teaching.

There are also many state-specific student loan forgiveness opportunities for teachers. Check the funding database of the American Federation for teachers and choose, “Loan Forgiveness,” then choose the grade level, position, district type, subject area, and state to locate all forgiveness programs in your area or an area that you would like to teach in.

Good luck, and may you (and your debt) be forgiven!

You may also be interested in this article on how to save with federal student loan consolidation programs.