It might sound too good to be true, but some borrowers can get their student debt wiped away. At least in theory.
The government’s Public Service Loan Forgiveness Program promises to cancel any remaining student debt for those who work for the government or non-profits and have been making continuous payments for 10 years. It encourages people who have big student loans to stay in lower-paying jobs that serve the public.
Many teachers, public defenders, Peace Corps workers, and law enforcement officers fit the qualifications. More than 400,000 people have applied for the program so far.
No one has seen their debt canceled yet. The first borrowers to receive forgiveness won’t be eligible until after October of this year, which is 10 years from the creation of the program.
But signing up for the program can be a confusing process. You need the right kind of loans, the right kind of job, and need to also be enrolled in an income-driven repayment plan.
The Consumer Financial Protection Bureau has received complaints from borrowers who were told they were not enrolled after years of making payments they thought counted towards the 120 needed for debt relief. Dozens of people have told CNNMoney that they, too, have had trouble signing up despite being careful to dot all their i’s and cross all their t’s.
In an ongoing lawsuit, four lawyers have sued the government, claiming they were misled into believing they qualified for the loan forgiveness program, but the Department of Education later said they did not. In a court filing submitted in March, lawyers for the government suggested that borrowers may not be able to rely on prior notices from their loan servicers about whether they qualify.
Here are five steps to take to make sure you’re eligible.
1. Find out if your job qualifies.
There are three different types of jobs eligible.
First are government jobs. This includes, federal, state, local and tribal government entities, as well as the military, Peace Corps and AmeriCorps positions.
Second are people who work for a 501(c)(3) non-profit.
Third are people who work for a non-profit that doesn’t have 501(c)(3) status, but provides a public service. The Employment Certification Form has a long list of what kind of services qualify, but it’s not all-inclusive. Emergency management, public safety, public interest legal services, early childhood education, and public service for the elderly are some of the ones listed.
(Teachers who have worked in low-income districts for five years may qualify for a different loan forgiveness program that cancels up to $17,500.)
Full-time employment for the program is considered working at least 30 hours per week, or meeting your employer’s definition of full-time work — whichever is greater.
2. Submit the Employment Certification form annually.
It’s suggested — but not required — that you ask the loan servicing company to certify that your employer qualifies on an annual basis. Otherwise, you risk finding out that your job doesn’t qualify after making years of payments.
Keep records of your forms because you’ll have to officially apply for loan forgiveness after making ten years of payments.
3. Make sure you have the right kind of loan
There are different kinds federal student loans, and only the Direct Loans qualify for the program. If you borrowed money for college prior to 2008, it might mean you have a different kind, like the Federal Family Education Loan.
If that’s the case, you’re not entirely out of luck. You can consolidate your loans so that they qualify. But be aware that you might lose qualifying payments you already made prior to consolidating.
At this point, your loans will be transferred to FedLoan Servicing, the only company contracted by the government to handle loans in the Public Service Loan Forgiveness program.
4. Enroll in an income-driven repayment plan, each year.
You must be enrolled in an income-driven plan for at least some of your repayments. These plans cap your monthly bill at a certain portion of your income. You need to reapply for them each year by submitting updated income information.
If you’re in the standard repayment plan, you’ll be finished paying off your loans in ten years anyway — so they’ll be nothing left to forgive.
5. Make 120 qualifying monthly payments.
FedLoan Servicing will tell you how much you need to pay each month for the payment to count toward the 120 needed to receive debt forgiveness. If you pay any less, it won’t count. And if you pay more, it will still only count as one payment. It needs to be made no later than 15 days after the due date.
Any payments you make while in school, during the six-month grace period after school, or while in deferment or forbearance do not count toward the 120.
There’s a chance you might end up in forbearance while your annual income-driven repayment paperwork is processed. The CFPB has also received complaints that this process can take months and that during that time, the 10-year clock essentially stops.