Understanding the Public Service Loan Forgiveness Program
What repayment plans qualify for Public Service Loan Forgiveness?
Many youth and young adults need to take out loans to assist them in paying for their higher education costs. There are programs available to help with some of the debt. If you are employed by a U.S. federal, state, local or tribal government or not-for-profit organization, you might be eligible for the Public Service Loan Forgiveness Program (PSLF). I recently learned that you must be signed up under certain repayment plans to be considered for the Public Service Loan Forgiveness Program. The Public Service Loan Forgiveness Program forgives the remaining balance on direct loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
According to the Student Aid website, qualifying repayment plans include all of the income-driven repayment plans (plans that base your monthly payment on your income). Income-drive repayment plans are designed to make your student loan debt more manageable by reducing your monthly payment amount. If you need to make lower monthly payments or if your outstanding federal student loan debt represents a significant portion of your annual income, one of the following income-driven repayment plans may be right for you:
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Pay As You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR Plan)
While payments made under the 10-year Standard Repayment Plan are qualifying payments, you would have to change to an income-driven repayment plan to benefit from the Public Service Loan Forgiveness Program. Under the 10-year Standard Repayment Plan, your loans will be paid in full once you have made the 120 qualifying Public Service Loan Forgiveness Program payments and there will be no balance to forgive. Before you change to an income-driven repayment plan, however, you should understand that your payment may increase under these plans depending on your income and the amount that you owe. If this is the case for you, and you do not wish to pay this higher amount, then the Public Service Loan Forgiveness Program may not benefit you.
The following repayment plans do not qualify for the Public Service Loan Forgiveness Program:
- Standard Repayment Plan for Direct Consolidation Loans
- Graduated Repayment Plan
- Extended Repayment Plan
- Alternative Repayment Plan
As a part of our work, Michigan State University Extension provides career education programming. To learn more about the positive impact of MSU Extension and Michigan 4-H career preparation, money management and entrepreneurship programs, read the Impact Report: “Preparing Michigan Youth for Future Employment.” For more information or resources on career exploration, workforce preparation, financial education, or entrepreneurship, contact 4-HCareerPrep@anr.msu.edu.