September 12, 2009
Loan Forgiveness for Careers in SI-Types
The fact of the matter is that school is expensive, any way you slice it, and for those of us considering public service we may not have the allure of high salaries to pull us best and brightest away from the shiny lights and glamour of a career in waiting tables, cleaning highway rest stops, or steaming milk for cappuccinos. This can be a great deterrent for those of us hip on noble pursuits but feeling crunch of student loans, and in 2007 a few bills were passed that aim to remedy the pains of public servants.
So here's a little summary to get you started. I do not claim to be a financial aid expert or professional, so please use this as a jumping-off point for your own research. I'm not gonna lie-Legislativespeak confuses me sometimes.
The College Cost Reduction Act (For Direct Loans)
This Act contains a new Public Service Loan Forgiveness Program, which is pretty much just how it sounds: you go into public service and you may be able to have your loans forgiven. Yay! Librarians are included in eligible participants, but I encourage everyone looking into non-profit (that includes public universities and government organizations) work after graduation to take a peek at the act to see if they qualify.
Basically, you need to do two things:
-Work in public service for 10 or more years
-Pay your loans consistently and on time for 10 years (120 payments).
The years of service do not have to be consistent, but must equal full-time (can be combined from multiple positions, even at different institutions). For full forgiveness you wait until you're finished your ten years, otherwise, you can seek forgiveness after 120 loan payments and get 10% off for each year in public service. (I've gotten some murky information on this-which is why I urge you to seek additional advice when deciding on this program.)
See the ALA posting for details, and definitely check out the summary for details on program guidelines and restrictions. This being my main focus due to my large Direct Loans debt, I have spent a healthy chunk of time looking into this. Two things of which you should be aware:
1. Standard repayment plans-the ones you may gravitate toward because of the 10-year repayment and consequent low(est) interest amount-conflict with this plan, as they are set up to have you paid off in 10 years, which is when your forgiveness would occur. To have anything left to forgive, you must change your repayment plan to something longer than 10 years. Income-contingent plans are a good bet because they base your payments on your household size and income and forgive the remainder after 25 years. This leaves you with a very LARGE overall debt, but as you're off the hook after 10 years, you will most likely end up ahead, possibly by many thousands of dollars. The Finaid.com website has a great article on the plan, and a repayment calculator that will help you estimate your payments and total forgiveness based on estimated salary.
2. The amount that is forgiven at the end of the ten years is counted as "taxable income" that year by the IRS, meaning that if you make $50,000 a year when your forgiveness kicks in, and get $20,000 forgiven, that year you will pay taxes on $70,000 in income. Still, I am of the opinion that paying taxes on $20,000 is better than paying the actual $20,000, but it would be wise to plan ahead.
The Higher Education Act (for Perkins Loans)
This act extends the current Perkins Loan forgiveness guidelines to include a number of public servants, including librarians (with Masters degrees) working in elementary or secondary schools that qualify for Title I assistance, or public libraries serving Title I school districs, and also define librarianship in low-income areas as an "area of national need," qualifying these librarians for $2,000 a year in forgiveness for up to 5 years.
The LIBRARIAN Act (for Perkins Loans)
The Librarian Incentive to Boost Recruitment and Retention in Areas of Need (LIBRARIAN) Act is pretty similar to the Higher Education Act, but with a few differences. It covers school and public librarians, but applies to Perkins loans from graduate school (often a much lower amount than you may have taken in undergrad). Also, loan forgiveness does not occur in $2,000 increments, but as follows:
-15% for first and second years in eligible service
-20% for third and fourth years
-30% for fifth year
These are, of course, simple summaries based on my somewhat limited analysis and what ALA tells me. If you think any of these programs are right up your alley, check into it. Contact your school counselors or financial aid office to see what you have to do to qualify. This is one of those situations where being resourceful and proactive will prove greatly beneficial.
*!!! It's important to remember that these Acts affect certain KINDS of loans, and consolidation may affect your eligibility, so be sure to seek assistance when considering consolidation to make sure you are not disqualifying yourself from thousands of dollars in aid.
Posted by messelti at September 12, 2009 09:16 AM