I Work in Public Service and Just Learned My Loan Won’t Qualify for Forgiveness

Question:

Dear Steve,

I have a FFEL consolidation loan for my son’s education that began on 1/2005. Every payment has been made on time to this point. I qualify for the Public Service Loan Forgiveness program as I work for the public with people with disabilities. I found out that because I don’t have a Direct Loan that I can’t get the remaining balance forgiven unless I consolidate to a Direct Loan. Then I would have to pay for another 10 years to qualify. The loans maturation date is 2030, another 13 years. My monthly payment is $226 and the interest rate is 3.0%.

My question is…..would it be worth my while to consolidate to a direct loan and after 10 years apply for the forgiveness. I wouldn’t want the monthly payment to be much more than what I’m paying now. Is there any other forgiveness program out there for my situation?

Doris

Answer:

Dear Doris,

Unfortunately the information given by the Department of Education is very clear about such situations. They state, “You may have received loans under other federal student loan programs, such as the Federal Family Education Loan (FFEL) Program or the Federal Perkins Loan (Perkins Loan) Program. Loans from these programs do not qualify for PSLF, but they may become eligible if you consolidate them into a Direct Consolidation Loan. However, only qualifying payments that you make on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF. Any payments you made on the FFEL Program loans or Perkins Loans before you consolidated them don’t count.” – Source

Now it is possible to take advantage of the program but you’d have to hope you maintain future qualifying public service employment and you’d have to weigh the risks associated with some type of payment reducing income driven repayment program.

Considering the risks associated with the changing landscape on the Public Service Loan Forgiveness program, your relatively low payment already, and the path you are on; I’d stick to the current repayment plan you are on.

It sounds as if you have a Parent PLUS loan that you used to pay for your son’s education. And it sounds as if you previously consolidated your previous loan into on FFEL consolidation loan. If you don’t have any additional loans to bring into a new Direct Loan to consolidation, then your FFEL consolidation loan may not be eligible for reconsolidation with one big possibility.

You may have a loophole to utilize. According to the Federal Direct Consolidation Loan Application and Promissory Note you can “consolidate an existing Federal Consolidation Loan without including an additional eligible loan in the consolidation if I am: Consolidating a Federal Consolidation Loan to use the Public Service Loan Forgiveness Program.”

Since you have such a good interest rate on your current consolidation loan if you consolidate it again your interest rate could more than double. Even if you did consolidate it again your income driven repayment program you’d have to use would be the Income Contingent Repayment (ICR) which would require a payment of 20 percent of your income, after an adjustment for the poverty rate, or “what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.”

To see what the difference in your payment might be, you can use the online repayment estimator. You may just find that the ICR payment might not too far off what you are already paying.

Steve Rhode

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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.