If you're a student or know one... -nik =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= The College Cost Reduction and Access Act of 2007 established a new public service loan forgiveness program that discharges any remaining debt after 10 years of full-time employment in public service - including tax-exempt 501(c)(3) organizations. This contrasts with loan forgiveness for borrowers who are not employed full time in public service jobs: forgiveness of the remaining balance after 25 years of repayment under the income-contingent and income-based repayment plans. Borrowers must consolidate into Direct Lending to qualify for the loan forgiveness. Forgiveness occurs only after 120 monthly payments made on or after October 1, 2007, so October 2017...keep paying! Remaining interest and principal are forgiven. The borrower must be employed full-time in a public service job for each of the 120 monthly payments. Only payments on a Federal Direct Loan are counted. Eligible loans include Federal Direct Stafford Loans (Subsidized and Unsubsidized), Federal Direct PLUS Loans, and Federal Direct Consolidation Loans. Borrowers in the FFEL Program will need to consolidate into Direct Loans. Although Perkins Loans are not eligible for public service loan forgiveness, if they are included in a Federal Direct Consolidation Loan, the entire consolidation loan, including the Perkins Loans, is eligible for public service loan forgiveness. Perkins Loan borrowers will need to consider the tradeoffs of consolidation; they may lose favorable benefits such as subsidized interest, a 9-month grace period, and a generous loan forgiveness program. Parent PLUS and Grad PLUS have some contingencies, but may be eligible for the loan forgiveness program when included in a Federal Direct Consolidation Loan. See the link below for further information. Eligible repayment plans are income-based repayment, income contingent repayment, standard repayment or a combination of these repayment plans. Payments made under other repayment plans (such as extended repayment and graduated repayment) are not eligible. Bottom Line Advice: Borrowers who will be employed in public service jobs and who have loans under the FFEL program should obtain a Federal Direct Consolidation Loan as soon as possible. Parent PLUS borrowers who entered repayment on or after July 1, 2006, will need to consolidate their PLUS loans even if they are already in the Direct Loan program. Borrowers should start off with income-contingent repayment if they can. They should switch to income-based repayment as soon as it becomes available on July 1, 2009, if they can. There are some caveats: under current law, the amount of debt discharged is probably treated as taxable income, leading to a big federal income tax bill after 10 years. Care must be taken to determine that the savings exceed the tax liability. It is also possible that Congress will decide to exclude such loan forgiveness from taxable income before this becomes an issue in 2017. An additional caveat: the loan forgiveness program is targeted at students who pursue public service careers and who have high debt and low income. Borrowers with low debt and/or high income will not benefit as much. Link for more information: http://www.finaid.org/loans/publicservice.phtml
