6 Steps to Forgiving $45,000 in Student Loan Debt

by Lisa Bertagnoli

The average college graduate in the United States carries more than $35,000 in student loan debt. If only students could wave a magic wand over that pile of debt and make it disappear.

Actually, there is such a wand. But it takes discipline, paperwork and maybe a career adjustment or two to make this particular magic work.

"This is not a gift without work, but it is a gift," said Ruth Pusich, director of financial aid at Elmhurst College in suburban Chicago. Pusich knows what she's talking about: She has five daughters, four of whom managed to get at least some of their college debt forgiven.

Student loan forgiveness has existed in some form for decades. For instance, VISTA, Peace Corps and AmeriCorps -- as well as military service, some teaching jobs and some legal positions -- offer loan forgiveness in exchange for service.

In 2007, Congress considerably broadened forgiveness with the College Cost Reduction and Access Act. The act forgives a portion of certain kinds of student loans for students who choose public service as a career path.

The 2007 law expanded the definition of "public service" to emergency management, military service, law enforcement, public safety and working in a public child or family service agency or a tribal college. It also includes working for a 501(c)3 nonprofit (not counting religious instruction at a religious nonprofit), in public service law, public service for people with disabilities or the elderly, public education, early childhood education, public library services and school library services.

Four types of loans qualify: Federal Direct Stafford/Ford loans, Federal Direct unsubsidized Stafford/Ford loans, Federal Direct PLUS loans and Federal Direct consolidation loans. (For more information, do an online search for "US Federal Student Aid Public Service Loan Forgiveness.")

Now, here's where the magic wears off.

First, graduates must make 120 on-time loan payments -- that's 10 years' worth -- before they are eligible for loan forgiveness, and they must be employed by an eligible organization the entire time they're making those payments and when they apply for loan forgiveness.

The forgiveness pays off the balance of the loan (up to $45,520), but does not reimburse for the initial 120 payments. The 120 payments must be made under one of four repayment programs -- income-based, income-contingent, standard repayment with a 10-year period and other direct-loan programs.

For new college grads wanting to take advantage of the new program, Pusich offers six steps to get started:

1. Meet the Loan and Repayment Plan Requirements

"Your payment plan must extend over at least 10 years so you can make the required 120 payments," Pusich explained.

2. Understand What You Sign

"The key to all of this is getting graduates to actually read and understand the information they're given," Pusich said.

3. Make Sure You Qualify

One of Pusich's former students spent 10 years teaching in a low-income school. She applied for Stafford loan forgiveness (under a different loan-forgiveness program) only to discover that her loan was disbursed on Sept. 25, 1998, five days before the eligibility date of Oct. 1, 1998.

4. Sign Up for Auto-Pay

With automatic withdrawals from your checking account, you can ensure you pay on time.

5. Keep Up with Paperwork

The 2007 law comes with a forgiveness form and paperwork to file regularly as you make your way to loan forgiveness.

"Make sure you know what is required -- don't make any assumptions," Pusich said.

6. Explore Your Options

Loan forgiveness isn't for the public sector only. One of Pusich's daughters, an occupational therapist in the private sector, had a portion of her loan forgiven via a stipend from her employer.

Student loan forgiveness is a good thing -- after all, who doesn't want a (fairly) free $45,250, which is the cap amount for reimbursement? Still, look at the big picture before making what amounts to a 10-year career choice.

Consider income and do the math: Your profession's salary in the private sector might make working there -- and paying off your loan -- more financially sound than working in a lower-paying public-sector job for a decade. Additionally, 10 years is well into one's professional life; make sure public service is part of your overall career path.

More Ideas to Pay Off Your Debt Fast:

1. Free yourself from credit card debt this year. Learn how to pay 0% on your balances for up to 21 months in The Top 4 Balance Transfer Credit Cards for 2019.

2. Slash your car payments. If you're paying 6% APR or more, it's time to know The Top 3 Reasons to Refinance Your Car Loan.

3. Eliminate your student loans: 7 Simple Ways to Pay Off Any Size Student Loan.

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