Students on the campus of the University of Notre Dame

Alfredo Sosa | The Christian Science Monitor | Getty Images

Earlier this year, CNBC tracked down one of the first people to receive a public service loan discount.

“I feel pretty lucky,” said Kevin Maier, a full professor at the University of Southeast Alaska.

He really should.

The Ministry of Education has just published The data of the number of borrower loans it canceled under the program – only 206. More than 40,000 borrowers have requested cancellation.

This means that only 0.85% of requests were approved.

The Civil Service Loan Cancellation Program was enacted by President George W. Bush in 2007 and allows some nonprofit and government employees to write off their federal student loans after 10 years of on-time payments.

About 25 percent of American workers are in the public service and could, in theory, be eligible. However, student loan managers delay and deny borrowers access to the rebate program, according to at the Consumer Financial Protection Bureau.

Some 32,000 borrowers were turned down for failing to meet program requirements, and nearly 12,000 more were turned down for missing information.

With the help of a student loan expert Marc Kantrowitz, we’ve resolved some of the most common misunderstandings about the program that trip people up.

Here are the three basic requirements of the program:

  1. Your loans must be federal direct loans.
  2. Your employer must be a government organization at any level, a 501 (c) (3) nonprofit, or some other type of nonprofit organization that provides a public service.
  3. By the end, you must have made 120 qualifying and on-time payments under an income-based repayment plan or the standard repayment plan.

Believe it or not, these are just the basics.

Some of the other points you should know: As part of the public service loan forgiveness, your debt is forgiven tax free.

Your private loans cannot be canceled; only federal loans are eligible for the public service loan exemption.

Kantrowitz said some people assume they will be entitled to a pardon after 10 years of payments. However, it’s not about how long you’ve been paying, but how many payments you’ve made. Maybe you took a leave of absence from the public service, for example, stopping your payment time for a few months or years. It is after 120 eligible payments that your loans will be eligible for a discount.

On that note, if you miss a payment, or change jobs, your clock is not reset. Your eligible payments do not need to be consecutive.

Some people wonder if their employer matters if they are a contractor for the government. Not always, Kantrowitz said. “Government contractors themselves have to be qualified organizations for their employees to qualify for a public service loan discount,” he said.

The best way to find out if your job qualifies for the public service is to complete the so-called employer attestation form.

Many people think they should fill out this form; in reality, it is optional. In theory, you can wait until you’ve made all 120 payments and then apply, Kantrowitz said. “But, it can be easier if you fill out the employer certification forms from the start, especially if one of your former employers no longer exists,” he said.

You must complete this form at least once a year and keep a record of your confirmed eligible payments.

More from Personal Finance:

Here’s what you need to qualify for a utility loan discount
The government can cancel student loans if you meet these requirements
Education ministry fails on civil service loan cancellation: senators

There are 14 ways to pay off your student loans, but to be eligible for the Public Service Loan Waiver, you must be enrolled in one of these four income-based repayment plans: income-based repayment, income-based, pay-as-you-go reimbursement – income reimbursement and revised pay-as-you-go reimbursement.

Standard repayment plan is also eligible, but under it you would have paid off your loans in 10 years anyway.

Others believe that consolidating their loans will not affect the forgiveness. This is wrong, Kantrowitz said.

“Loan consolidation resets the clock for the cancellation of public service loans,” he said.

More and more businesses are asking people to ask for a loan forgiveness. You shouldn’t be paying for this service, Kantrowitz said. “If you have to pay money to get money, it’s probably a scam,” he said. “You can go to StudentLoans.gov to change your repayment plan and do the job yourself for free.

The process is expected to take less than half an hour, Kantrowitz noted, adding that applicants should also “take whatever the lender says with a grain of salt.” Ask for confirmation from the education department, school counselors, or a college financial aid administrator.

It also allows you to take stock of your situation with a non-profit organization such as The Institute of Student Loan Counselors, an organization that offers free advice and dispute resolution. The National Foundation for Credit Counseling also certifies student loan counselors.

Have you had a bad experience refinancing your student loans? Did the process save you less money than you thought? We want to hear from you. Please email me at [email protected]


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