One of the most common ways to discharge student debt is through the Public Service Loan Forgiveness Program. Getting your debt erased by this method is a long haul: You’ll need to make 120 monthly payments while working for 10 years for what the U.S. Department of Education considers a “qualifying employer.” This category includes just about any job in government, at the federal, state, local or even tribal level. Teachers, planners, librarians, engineers and other types of public-sector workers qualify. Prosecutors and public defenders, for instance, can have their law school loans erased if they work as public-sector attorneys for a decade.
Many nonprofit positions also qualify for the Public Service Loan Forgiveness Program, although there are exceptions, including labor unions, partisan political organizations and nonprofits not considered 501(c)(3) organizations by the IRS. To qualify for Public Service Loan Forgiveness, you’ll need to work full time, defined for the purposes of this program as at least 30 hours a week. In one of many caveats, time spent on religious instruction, worship and other explicitly faith-based activities doesn’t count toward the 30 hours a week.
The Public Service Loan Forgiveness Program also places a number of conditions on what can be considered a “qualifying payment” toward the ultimate goal of 120 monthly payments. You only get credit for one payment per month, for instance, no matter what amount you pay. And any payments made while you’re in the grace period, deferment or forbearance don’t count toward the 120 monthly payments. In one borrower-friendly policy, the Department of Education doesn’t require you to make 120 monthly payments in a row. So if you work in a public-sector job, move to the private sector, and then move back to government employment, your previous payments while you worked for a qualifying employer still count toward your 120-payment total. In another twist, AmeriCorps or Peace Corps volunteers can use their Segal Education Award or Peace Corps transition payment to make a single lump-sum payment that can count for up to 12 qualifying Public Service Loan Forgiveness payments.
If all of these caveats apply to your situation, you’ll need to take a few steps. First, you must submit the Public Service Loan Forgiveness Employment Certification form. If your employer meets the guidelines, your loan automatically will be transferred to FedLoan Servicing. You’ll also switch your repayment plan from the standard 10 years to an income-driven repayment plan that extends the term to 20 or 25 years. And you’ll need to file a new certification form if you switch employers. Debt forgiven under the Public Service Loan Forgiveness Program isn’t taxable, so you need not worry about a nasty surprise after 10 years.