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Sep 12, 2012

A Little-Used Path to Reduce Student Loan Debt

Much has been written about the heavy student loan burden of America’s young people.  Yet few people are familiar with a Federal program to address excessive student loan debt.  It is a complex program that requires much documentation over a long period.  But if someone’s student loan debt is pushing them into more lucrative jobs that zap their energy, I do know that working for a nonprofit can restore than energy if loan debt can be eliminated as a barrier to a nonprofit career.

In 2007, Congress created the Public Service Loan Forgiveness Program to encourage individuals to enter and continue to work full-time in public service jobs. Under this program, borrowers may qualify for forgiveness of the remaining balance due on their eligible federal student loans after they have made 120 payments on those loans under certain repayment plans while employed full time by certain public service employers.

Yes, it requires ten years of loan payments while working for a qualified public service organization. After you make your 120th qualifying payment, you will need to submit the PSLF application to receive loan forgiveness. The application is under development and will be available prior to the date when the first borrowers will be eligible for PSLF Program forgiveness, in October 2017. You must be working for a qualified public service organization at the time you submit the application for forgiveness and at the time the remaining balance on your loan is forgiven.

Eligible employers are plentiful.  Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a non-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for PSLF purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes.

A private non-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the IRC may be a qualifying public service organization if it provides certain specified public services. These services include emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly. The organization must not be a labor union or a partisan political organization.   Generally, the type or nature of employment with the organization does not matter for PSLF purposes. However, when determining full-time public service employment at a not-for-profit organization you may not include time spent participating in religious instruction, worship services, or any form of proselytizing.

If you know someone who worries about their student debt, you owe it to yourself to at least check out the fact sheet on this program.  It is not a quick fix, but since student loan debt cannot be eliminated by filing for bankruptcy, it is a lifetime burden that just might be worth ten or so years of effort.