Source
r/personalfinance•
stormdaemon

Aiming for 10-year forgiveness in Public Service Loan Forgiveness (PSLF) for my student loans. Is this a good idea?

Debt

I currently owe about $120,000 (4.5% interest) in student loans that I have consolidated under the Public Service Loan Forgiveness (PSLF) program. I work at a non-profit so I will hopefully qualify for loan forgiveness in 10 years rather than the traditional 25 years.

I make about $75,000 annually, which calculates to a little over $500 for the monthly payments. However, due to size of the loan the $500 monthly payment is going entirely into paying the interest and none of it is deducting from the principle.

My current financial situation is that I really can't afford to pay much more than the monthly minimum, and the interest is such that paying more than the minimum seems pointless since it barely puts a dent in the monthly interest increases. So my approach is essentially to pay the monthly payments while aiming for 10 year loan forgiveness knowing that the principle balance will never actually decrease with the monthly amount. Since forgiveness for the PSLF program is not considered taxable income I won't take a tax hit on the year the loan is forgiven.

Is this a valid approach to dealing with my student loans? If there are any glaring problems with this approach, can anyone recommend any other options for me other than this?

Posted Dec 30, 2015, 6:13 PM UTC

38
Chuck_Peligro•

Make sure you're eligible. Certain non-profits, such as labor unions, are ineligible. There's a form you can submit to DoE along with input from your employer that verifies whether you are currently eligible or not. Print it out from the PSLF program, have personnel enter the required information, and mail it to DoE. They will get back to you to confirm whether or not you can take advantage of this.

3
stormdaemonOP•

The organization is eligible. I've worked here for almost 3 years at the point and have turned in the form you mentioned 2 times with no issue thus far, thankfully.

1
darthjude•

Also understand that if you get married the minimum payment can/will go up based on changes in income. My wife qualifies for the program however the minimum payment for the program basically negates any benefit.

It works off of a persons taxes so married folks can file separately and qualify for the lower payment but this gets into changes in marginal tax rates and further complicates other items that can end up changing actual amounts saved - at the end of the day, it can get pretty complicated is my point I guess.

1
p_bio•

I am currently in about test 6.5 under this program and have had no issues so far. I just submit the employer verification annually to make sure they are tracking my qualified payments.

In terms of getting married, if you were to, you could always file separately so that your wife's income wouldn't be used in the payment calculation. It just really depends on your tax situation is that will save you money each month. For me it doesn't so my payment is pretty high because my AGI includes my wife's income.

Otherwise the program should be good for your situation.

1
darthjude•

Happy cake day!

There is a point that paying the minimum payment based on AGI (if it is relatively high) over ten years would repay the loan (or almost entirely repay it), so you are not getting much, if any, benefit. Plus, if you leave your job for whatever reason and don't go into a qualifying position you lose all the opportunity cost associated with the higher 'qualifying payment'.

1
Fitbit99•

I am also using this approach. As far as I can see, there are the following potential issues:

  1. You lose your public service job and cannot find another one.
  2. They cancel the program and don't grandfather us in.

I figure I can't really worry about either of these issues. You can lose any job. All I can do is do my job well and make those payments. I must confess to paranoia about potential dissolution of the program but I'm 35+ payments in. Like you, my payments don't cover principal. I simply cannot afford to make payments large enough to start making a substantial dent in things, even if I seriously reduce my standard of living. I think you have to go all in for PSLF, especially if you're already several payments in.

2
stormdaemonOP•

It sounds like we are in very similar situations. I am also about 3 years into the program and I share the same paranoia about losing my non-profit status and/or the PSLF program being cancelled altogether.

From my research there is still some speculation about whether or not this program will be cancelled or a cap instituted for loan forgiveness. [This article] (http://www.usnews.com/education/blogs/student-loan-ranger/2015/08/19/public-service-loan-forgiveness-common-questions-answered) speculates that cancellation in unlikely without a grandfather clause and that, if they choose the cap approach, that the proposed cut-off for forgiveness would be at $57,500.

Of course, this is all speculation so I'm trying to not to worry about scenarios beyond my control. :)

2
Fitbit99•

Yeah, I think for my own sake I need to stop with all the fretting. I've committed to this program and that's that.

1
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1
yes_its_him•

While I'm not an expert per se, I understand this is a good program, though it's still early in the process, there have been no ten-year experiences to date.

Maybe also check on r/studentloans.

1