When to Expect a Government Service Loan Forgiveness

Each Monday, we address one of your pressing personal finance questions by seeking advice from several financial experts. If you have a general question or money issue, or just want to talk about something PeFi-related, leave it in the comments or email me at alicia.adamczyk@lifehacker.com.

This week, a question came in via email from John:

I am a federal employee, and one of the potential benefits of being a federal employee is the ability to use the Public Service Loan Forgiveness (PSLF) program. If you are unfamiliar with the program, if you work in a public service industry (public school teacher, government or federal employee, most nonprofit organizations, etc.) within 10 years, they will pay off the remaining balance of student loan debt.

I have been participating in the program for over a year, but I am not sure if it will be financially justifiable to carry this debt for a full 10 years. After working in the private sector for several years and having paid a significant portion in excess of the monthly minimum, I have reduced the amount to the minimum monthly minimum required to pay an acceptable benefit.

I will see some savings from the program in 10 years, but I am curious if it would be wiser to pay a higher monthly rate to pay off sooner. Is there a way to determine if it is better to continue the program by paying the monthly minimum rather than overpaying and paying off the loan early?

Thanks for the question, John! I reached out to several experts to find out what they had to say. A word of caution: This issue affects everyone in different ways – if you need personalized advice, you should see a financial planner.

Focus on your priorities

There are many things to consider when answering this question. None of the options are wrong, it just depends on your personal financial priorities: no debt or building a financial safety net.

According to Brianna McGurran, student loans expert at NerdWallet, forgiving government loans only makes sense if you’re using an income-driven repayment plan, which doesn’t sound like your situation . Otherwise, it is likely that you will be able to pay off your debt in 10 years.

“Typically, on these plans, the payout does not affect the accrued interest, so your balance goes up,” says McGurran. “And that makes forgiveness much more valuable after 10 years.” You can read more about income-driven repayment plans here .

In truth, the pursuit of student loan forgiveness can get quite expensive. “The longer the loan lasts, the more interest you have to pay,” says Michael Lux, Sherpa from Student Loan . “Borrowers who are able to repay the loan more quickly may be in a better position.”

To find out how much of your debt will be forgiven in 10 years, use the Department of Education’s Repayment Estimator by clicking Show Payment Estimates in the Public Service Loan Forgiveness section. Once you see the amount of debt that will be forgiven, you can determine if you should wait or pay off sooner. “For some borrowers, getting out of debt is an important financial priority,” says McGurran. “It really comes down to personal preference.”

You will also want to consider the limitations of the forgiveness program and your future career path. The Trump administration has proposed canceling the program for new borrowers in the past, and analysts said changes need to be made to keep the costs from being too prohibitive. The American Bar Association (ABA) is currently suing the Department of Education for removing certain lawyers from the program. At least for now, it looks like it won’t affect people already enrolled in the program, but it still needs to be considered.

“They also need to consider whether they will work for a government employer [for] enough time to forgive the debt,” Lux says. “In some cases, it makes more sense to choose a higher-paying job in the private sector.”

And if you do continue with the program, make sure you understand the qualifications that can be confusing and scalding for borrowers in the past . For example, according to US News , only federal direct loans are eligible and you must make 120 payments on time. You also need to work for a government organization or non-profit organization, or serve in the American Corps or Peace Corps – you said you work in the private sector, so are you sure you qualify?

With that said, if you are eligible, you could use the flexibility of PSLF to create your security system. “Make sure you set aside at least 10 percent of your income for retirement and that you have a contingency fund that includes at least three months of core spending,” McGurran says. “These are important goals that I would recommend that you achieve before you pay extra on loans.”

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