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Student Loans and the New Public Service Loan Forgiveness Program
Last Updated: April 5, 2011
The recently enacted College Cost Reduction and Access Act (CCRAA) creates a new loan forgiveness program for borrowers who hold public service jobs. Borrowers who meet the requirements outlined in the law may be eligible to have a portion of their student loan debt forgiven. The CCRAA, which went into effect in October 2007, provides for the cancellation of the remaining balance due on eligible student loans after the borrower has made 120 monthly payments on those loans, while employed in specific public service fields.
President George W. Bush signed the CCRAA into law on September 27, 2007. The legislation was enacted to make college more affordable for low- and moderate-income students by phasing in a number of positive changes. The benefits added by the CCRAA take many forms, including increased grants, lower interest rates, and loan forgiveness for public servants. The Act was generally effective October 1, 2007; however, specific provisions of the Act have later effective dates.
The Provisions of the Act
Effective Dates: Borrowers must have made 120 monthly payments after October 1, 2007 in the Ford Federal Direct Loan Program. Effectively, this means that loan balance cancellations will not be granted until October 2017 at the earliest.
Eligible Loans: Any non-defaulted loan made under the Direct Loan Program, which includes the following types of loans:
- Federal Direct Stafford/Ford Loans (Direct Subsidized Loans)
- Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans)
- Federal Direct PLUS Loans (Direct PLUS Loans); for parents and graduate or professional students
- Federal Direct Consolidation Loans (Direct Consolidation Loans)
NOTE: Borrowers may have to meet additional eligibility requirements to consolidate these loans into a Direct Consolidation Loan. To determine the type of loan you have, you can access the National Student Loan Data System.
Eligibility of Other Federal Loans: Although loan cancellation is only available for loans made and repaid under the Direct Loan Program, borrowers with loans made under other federal student loan programs may be eligible if they consolidate those loans into the Direct Loan Program. Loans that are eligible for consolidation into the Direct Loan Program include:
- Federal Family Education Loans (FFEL) (includes Stafford, PLUS, and Consolidation Loans)
- Federal Perkins Loans
- Certain Health Professions and Nursing Loans
Eligibility Requirements - Repayment Plans To be eligible to have remaining balances cancelled, the borrower must not be in default on the loan(s) and must have made 120 monthly payments on the eligible loan(s) beginning after October 1, 2007. (Earlier payments do not count toward meeting this requirement). Payments must have been made under any one or a combination of the following Direct Loan Program repayment plans:
- Standard Repayment Plan with a 10-year repayment period
- Income Contingent Repayment (ICR) Plan
- Income Based Repayment IBR Plan
- Other Direct Loan repayment plans, but only payments that are at least equal to the amount that would be required under the 10 year Standard Repayment Plan may be counted toward the required 120 payments.
Eligibility Requirements for Employment in a Public Service Job: To be eligible to have remaining balances cancelled, the borrower must:
- Have been employed in a public service job during the (entire) period in which the borrower made each of the 120 monthly payments.
- Must be employed in a public service job at the time of loan forgiveness.
What Constitutes an "Eligible" Public Service Job?
The act defines eligible public service jobs as those full-time jobs in these fields:
- Government
- Military Service
- Public Health
- Public Library Sciences
- Public Education
- Public Child Care
- Public Service for the Elderly
- Public Service for Individuals with Disabilities
- Public Interest Law Services
- Emergency Management
- Public Safety
- Law Enforcement
- School Based Library Sciences/other School Based Services
- Certain Tax-Exempt Organizations
- Faculty Teaching in high-needs areas (TBD by the Secretary)
- Faculty Member at a Tribal College or University (Full-time)
Additional FAQs That May Help
If my Loans are Held by a Private Loan Company I won't Qualify for this Program? This is true; However, beginning July 8, 2008, the law allows students with Federal student loans with private companies to consolidate or reconsolidate into the direct loan program in order to qualify for the public service loan forgiveness.
I do not Qualify for Either Income Contingent or Income Based Repayment; Will I Qualify for this Program? Borrowers who remain in the standard repayment plan will have no need for forgiveness after 10 years of payments because their loan will have been paid in full. Payments made under extended repayment plans will be ineligible if they are less than the amount calculated under the standard 10 year repayment plan. The law only allows public servants with salaries low enough to qualify for income based or income contingent payment plans to be eligible for forgiveness of debt (over and above the amount that can be paid off in 10 years).
SUMMARY: Only borrowers with a high debt-to-income ratio or consistently low income will qualify for loan forgiveness under this program. It is not designed to bail out those with the means to pay their debt responsibly. And, with all new legislation, there may certainly be tweaks and further clarification provided as time goes on. For more information, you can visit the National Association of Financial Aid Administrators or any of the sources linked within this article.
Links for more information on Student Loans or Student Loan Consolidation.
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