Public Service Loan Forgiveness and Income-Based Repayment (CCRAA of 2007)

The College Cost and Reduction Access Act of 2007 contains two programs of which you should be aware: 1) Income-based repayment for student loans and 2) Public Service Loan Forgiveness. The Department of Education has promulgated regulations on these programs which are quite complex, but the basic details of each program are described below, which includes links to websites with more information.

Income-Based Repayment

Students who have borrowed Federal Stafford Loans or Federal Graduate PLUS loans may be eligible for a new Income-Based Repayment (IBR) plan. This option will be especially helpful for those who will be entering public service positions and other positions that are modestly compensated. A borrower under the above programs is eligible to choose the IBR plan if he or she can demonstrate a “Partial Financial Hardship,” which is a circumstance where, based on your adjusted gross income (AGI), the payments you would be making under a Standard 10-year Repayment plan would exceed 15% of your remaining income above 150% of the Federal Poverty Line based on your family size. IBR calculators are available at http://www.finaid.org/calculators/ibr.phtml and http://www.ibrinfo.org/update_73008.vp.html to help determine if you might be eligible. Eligibility for IBR will be checked annually by your lender and you will have to provide written consent for your lenders so they can check your AGI and tax information. You must also certify your family size annually. Failure to do so will result in your family size being counted as one, which is disadvantageous for any family of more than one. After 25 years of making payments, the remaining balance of your loans will be paid by the Department of Education.

Public Service Loan Forgiveness

In addition to IBR, the Department of Education has implemented a program where law graduates working full time in the government sectors or for a 501(c)(3) corporation will be able have the balance of their loans forgiven after 10 years (120 CONSECUTIVE OR NON-CONSECUTIVE monthly payments)! Full time is defined as an annual average of 30 hours per week or the number of hours the employer considers full time. This program would apply to prosecutors, public defenders, legal aid attorneys, attorneys working for cities, attorneys working for a non-profit, and even attorneys who are not doing legal work but still working for the government or a 501(c)(3) organization. Those working for Americorps and the Peace Corps after law school would also be eligible.

In order to take advantage of this program you MUST, MUST, MUST consolidate your loans into the Federal Direct Program. Loans that are eligible to be consolidated include Federal Graduate PLUS loans (NOT PARENT PLUS LOANS), Federal Perkins Loans, and Federal Stafford Loans. Drake participates in the Federal Family Education Loan Program instead of the Federal Direct Program, so any loans made at Drake MUST be consolidated before payments begin counting towards the 10-year term (Caveat: Once loans are consolidated into the Direct Program, all grace periods are forfeited, so if you just have Federal Stafford Loans you might wait six months before consolidating). Loans can be consolidated by filing an online application at https://loanconsolidation.ed.gov/appentry/appindex.html or a paper application available at http://www.loanconsolidation.ed.gov/borrower/bapply.shtml or by calling 1-800-557-7392.

Once your loans are consolidated, you will need to begin making payments under the IBR or the ICR plan (payments made under any other extended or graduated plan are NOT eligible). Payments on consolidated, eligible loans while you work in public service employment count towards the 120 payment requirements. Payments made before October 1, 2007 do not count (if applicable). The authority on this program is Equal Justice Works, an organization which has an entire webpage dedicated to helping students decide if this option would benefit them. Up to date information and changes in the Public Service Loan Forgiveness Program, including a helpful checklist of the steps students should perform to take advantage of public loan forgiveness, is available at http://www.equaljusticeworks.org/node/215.  This site also contains information about tax consequences, especially in regards to married graduates.

Public Service Employment is verified by the Department of Education after 120 eligible payments have been made. The Department of Education will be drafting a form that will enable public service employees to apply for forgiveness after 10 years.

Both of these opportunities are discussed in great detail in a recent law review article by Philip Schrag (36 Hofstra L. Rev. 27).

IMPORTANT INFORMATION REGARDING PUBLIC SERVICE LOAN FORGIVENESS

Heather Jarvis is a leading expert on public service loan forgiveness topics.  She has provided the law school with the following links to help students complete the loan forgiveness process correctly.

• Department of Education's Letter to Borrowers about the process

• Instructions for Completing the Employment Certification for Public Service Loan Forgiveness form

• Employment Certification for Public Service Loan Forgiveness form

Ms. Jarvis is also available to answer questions on her forum.


We cannot guarantee that this information is free of omissions or errors and bear no liability for how the content is interpreted or used.