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Student Loan Forgiveness
The Ins and Outs of Federal Student And and Loan Forgiveness
If you are an ‘indentured servant’ to Student Loan Debt, one of the best hopes for retiring that ‘monkey on your back’ of student loan debt is ‘PSLF’ or ‘Public Student Loan
But you have to be careful and plan accordingly. PSLF will forgive the balance on your Direct Loans. Note, I said ‘Direct Loans’. And you have to make 120 qualifying monthly payments.
Now you have to be working for a type of service or business which qualifies for Public Student Loan Forgiveness.
Qualifying Employment Types
Government employment qualifies you for Public Student Loan Forgiveness. And, yes, you can be working at the municipal level, state level, federal level or tribal level. Now let’s say you in the military. Does that employment qualify? Yes, of course. If your paycheck comes from a government, then you would have qualified employment.
Not For Profit Services
What is this? Technically under the Internal Revenue Code the service or business must qualify under Section 501(c )(3) of the Internal Revenue Code. What are some of services or businesses which would qualify you for PSLF?
Non-profits which are tax exempt qualify for Public Student Loan Forgiveness. Hospitals would qualify for such employment if the hospital is a non-profit hospital but make certain that the hospital is a 501(c )(3) entity. Working for an ambulance company could qualify for PSLF if again, it’s a 501(c )(3) entity. Other services which can qualify for Public Student Loan Forgiveness would be Public Interest law firms like Legal Aid. Visiting Nurses, Girl Scouts, Boy Scouts, Museums, schools, and the list goes on. Go to Google and simply type in ‘list of non-profit entities’ and you’ll be amazed at the number of non-profits. One way to check on the legal status of a business you believe is a non-profit, is as follows:
Step #1: Go to www.irs.gov which is the IRS website. Non-Profit 501(c )(3) entities must file a tax return which is Form 990. Anyone in the public can request a copy of the non-profit’s tax return.
Step #2: In the search field, type ‘Form 4506 A’ which is entitled,’Request for Copy of Tax Return’.
Step #3: Form 4506 A is a fillable form and you simply type your request. There’s a fee of $50 for each return you request. Simply read and follow the form.
Step #4: You can, also, call 1-800-908-9946. Again this information is on Form 4506 A.
Step #5: This is optional but you can request from the business a copy of an IRS letter which states that they are a qualified ‘501(C )(3) entity.
You should know that working full time in the Peace Corps or AmeriCorps can qualify you for Public Student Loan Forgiveness. Now, what types of businesses do not qualify for Public Student Loan Forgiveness? Answer is:
- Partisan political organizations (Democratic or Republican Party)
- For-Profit organizations
- Non-profit entities which are not tax exempt and do not provide a qualifying service.
- For profit organizations
- Any business which is not tax-exempt under the Internal Revenue Code, section 501(c )(3) and does not provide a qualifying service.
To Aqualify for a public student loan forgiveness, you must be employed full-time
Generally speaking, you are a full time employee under one of two conditions: 1) You are employed according to the definition by the employer of full time employment or at least 30 hours per week. Note you could work for 2 non-profit employers part-time and if your hours are a total of 30 hours per week, you could qualify for PSLF.
If you are employed by a not-for-profit organization like a religious organization, time spent on religious instruction, or worship services or proselytizing will not count toward full-time employment. But if you taught language, math, history, etc. at a Religious School and you are employment full-time, then this could qualify for PSLF.
Your student loan must qualify for Public Student Loan Forgiveness (PLSF)
What does not qualify for PSLF? Private student loans do not qualify for PSLF. Only Federal Student Loans qualify for Forgiveness. Now, what is a Federal loan? It’s a loan from the Department of Education. And you can check by going to the website: www.nslds.gov and this is a website maintained by the Department of Education and it has all of your Federal loans in your name listed on this site. And if the loan isn’t listed on this website, then in most probability it’s not a Federal Loan.
What Federal Loans qualify for Forgiveness?
A loan from the William D. Ford Federal Direct Loan qualifies for forgiveness. These are Direct Loans. And Direct Loans qualify.
If you have a FFEL which is a (Federal Family Education Loan) or a Perkins Loan (Federal Perkins Loan) and these loans do not qualify for Forgiveness.
However, there’s hope even if you have a FFEL or Perkins Loan. If you consolidate these Loans into a Direct Consolidation Loan, then they would become eligible for forgiveness! However, we have to be careful here. Payments which you previously made on FFEL or Perkins Loans before your consolidation, DO NOT COUNT FOR THE 120 PAYMENTS needed to qualify for Forgiveness.
And another word of caution: You should weigh and consider leaving your existing Direct Loans out of your consolidation and only considering your other Federal Student Loans for consolidation!
You can go to www.MyFederalStudentAid.gov.ed If the loan has “Direct” in the name, then it is a Direct Loan. If it doesn’t have the word ‘Direct’, then it’s another federal student loan.
When is a monthly payment a qualified payment on your student loan?
RULE #1: The Payment has to be made after October 1, 2007.
Unless the payment is made after 10/02/2007, then that payment does not qualify for the 120 payment rule. You have to make 120 monthly payments in order to qualify for Public Student Loan Forgiveness.
RULE #2; You must make the payments under a ‘qualified repayment plan’.
RULE #3: You must make the full payment as shown on your bill.
RULE #4: Your payments must be timely made which means that the payments are no later than 15 days after your due date.
RULE #5: Your payments must be made while you are a full-time employee by a qualifying employer.
It’s important to note that you make your payments only during the period when you are required to make a payment. You can’t make a qualifying monthly payment if (1) you are in school, (2) you are in a grace period, (3) you are in a deferment, (4) you are in a forbearance, or (5) you are in default on your loan.
Your 120 qualifying payments do not have to be consecutive. You could work 5 years for a qualifying employer and then you could Work 3 years for a non-qualifying employer and then you get a different Job but with a qualifying employer for 5 years and the jobs which qualified for Public Student Loan Forgiveness can be added together for 10 years, and then you would qualify because you would have 10 years or 120 monthly payments.
Now here’s a caution, you can’t make increased payments and qualify for PSLF faster by making large payments. If you make extra payments, then call your loan servicer and make certain that your extra payments are reducing your present balance.
There’s really no incentive in making extra large payments in qualifying for PSLF. Saying this, you should know that for AmeriCorps or Peace Corps there are special rules which allow these individuals to use a lump-sum to count for up to 12 qualifying PSLF payments by using either their Segal Education Award or Peace Corps transition payments.
It’s a good idea to sign-up for automatic payments with your Loan Servicer in order to ensure you are making qualifying payments.
A word of caution: you should save a record of all payments! Save your bank statement showing a withdrawal. obtain from loan servicer acknowledgement or receipt of payment. Next, save every pay-stub for 10 years. save your tax returns
for 10 years. so if you are paid every 2 weeks, at the end of 10 years you’ll need 260 pay stubs, 120 monthly bank statements, and 120 receipts or acknowledgements of payments and 10 years of tax returns.
I would recommend that you save these documents to your computer and you should subscribe to an automatic back-up
disks and would, also, place all hardcopy documents and disks in a safe deposit box. when you reach the 120 month mark, you will be required to produce these documents!! Start savings now. ‘an ounce of prevention is worth a pound of cure’. this is too important to leave to slip-shod chance.
What is a qualifying repayment plan?
A qualifying repayment plan includes all of income-driven repayment plans. Now, what is an income-driven repayment plan? Answer: An income-driven repayment plan is a repayment plan that sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. The U.S. Department of Education offers four income-driven repayment plans as follows:
- Revised Pay As You Earn Repayment Plan: REPAYE PLAN
- PAY AS You Earn Repayment Plan : PAYE PLAN
- INCOME-BASED REPAYMENT PLAN: IBR PLAN
- INCOME-CONTINGENT REPAYMENT PLAN: ICR PLAN
Most federal student loans are eligible for at least one income-driven repayment plan!
Now I’m going to ask a simple question which most people don’t ask and it goes like this: “If I’m making payments under an income-driven repayment plan, should I wait until I have made all my payments to apply for Public Student Loan Forgivenness?”
In other words, should I make 10 years of payments and then test whether or not I have been doing everything correctly by applying for PSLF? Obviously, you shouldn’t wait 10 years to discover if you have been in compliance for a Federal Student Loan Forgiveness. So what should you do to test the waters?
Answer: Obtain the form called, “Employment Certification for Public Service Loan Forgiveness form (Employment Certification Form) and submit this form periodically while you are making payments toward your PSLF eligibility requirements.
You will be informed by the Department of Education if you are making qualifying PSLF Payments! Now, I’ll ask another ridiculous question: Should you save those notices or toss them in the waster-basket? Now how often should you make this inquiry?
I recommend after the first 6 months of payments, then submit the Employment Certification every year. I would urge you to use your cell phone or some system, to remind you every 12 months to submit the Employment Certification Form.
Also, if you switch jobs, you should submit the Employment Certification Form because when you apply for PSLF at the end of 10 years, you have to submit the Employment Certification Form for each employer for whom you worked.
You must send your employer’s certificate and the form entitled Employment Certification to PHEAA which is the U.S. Department of Education’s federal loan servicer. What will happen when you submit your form and your employer’s certificate to PHEAA?
PHEAA will do the following:
- Determine if your employment qualifies for PSLF and PHEAA will inform whether or not you qualify.
- You will have a single federal loan servicer for all your federal loans.
- Notify you if additional information is needed regarding your employment.
- Notify you if your information is incomplete.
NOTE: NOT ALL TEACHING POSITIONS QUALIFY FOR PUBLIC STUDENT LOAN FORGIVENESS.
After making 120 qualified monthly payments will you automatically receive public student loan forgiveness?
NO, you DO NOT AUTOMATICALLY receive PSLF! You have to apply for it. You have to submit the proper form to the proper place. You are dealing with the Federal Government. This form is not presently available and it is anticipated that it will be available prior to October, 2017. One important feature about the “forgiveness of student loan debt” is that it won’t be considered income; therefore, you will not have to pay income tax on the cancelled debt. In order to get you mind around this concept, you have to know that the cancellation of debt can be ‘imputed income’ or ‘phantom income’ from the IRS Code.
If someone lends you $5.00 and then says, you don’t have to repay the $5.00, then that $5.00 is considered income to you. If a credit card company cancels debt against you, you will receive a 1099 form which says that you had income of the cancelled debt. But not for the cancellation of student loan debt.
You have to be careful because you could “do your time” and then quit your job. But there’s a little hook, namely you must be working for a qualified public service organization at the time you submit your application for student loan forgiveness.
And one more hook, at the time your loan is actually forgiven, you must be employed by a public service organization. Therefore, you must be cautious because as the old saying goes, “There’s many a slip between the cup and the lip”. If you have a contract of employment which goes for a year, and you have made all your payments but you haven’t received your ‘discharge’ or ‘forgiveness of debt’, you might have to sign a contract for another year of service. Student loan debt is a gravy train for executives, lobbyists, former Congressman who become lobbyists for the Student Loan Industry and they have millions of indentured student serfs that they want to continue making their payments so they can receive their 6 figure pensions.!
One former executive with PHEAA retried with a $350,000 per year pension! Student Loan Executives have received million dollar bonuses. They don’t want anything disturbing their “gravy train”.
A point of clarification: What is the difference between a ‘Deferment’ and a “Forbearance?” Interest doesn’t accrue or isn’t charged during a “subsidized deferment” but interest continues to accrue and is charged during a “forbearance”.
Student Loan Forgiveness
HR 3634- Student Loan Debt Protection Act Ac of 2015 Sponsor—Wilson, D-FL (co-sponsors- 3 D’s)
A bill to establish student loan borrowers’ rights to basic consumer protections, reasonable and flexible repayment options, access to earned credentials, and effective loan cancellation in exchange for public service, and for other purposes.
Introduced Sept 28, 2015. 11/04/2015 Referred to the Subcommitee on Regulatory Reform, commercial and Antitrust Law.
I want to point out that the Federal Government spent at least 700 Billion dollars to bail out the banks. As a matter of fact, Hank Paulson, partner at Goldman Sachs and then Secretary of the Treasury, went down on one knee and pleaded to Nancy Pelosi that she provide 700 billion in bailout money for the banks which his firm Goldman Sachs benefited. I recommend that we start a protest movement, and in honor of Hank Paulson who’s at least worth 700 million dollars, that we start a protest movement where everyone goes down on one knee and pleads for $700 Billion Dollars to help people with student loan debt.
If it worked for Hank Paulson, it should work for ordinary citizens. As a matter of fact, we could go down on both knees which might give us double the pleading power. I’m certain that Lloyd Blankfein, CEO for Goldman Sachs, would go down on both knees for 700 Billion Dollars.
There’s considerable legislation in the pipeline which could bring tremendous and fair debt relief for people who are facing the rest of their lives being a ‘debt slave’ to the Student Loan Industry. I want to ask you to become aware of the legislation which is pending in Congress because once you are informed, you can start to exercise your rights as a citizen. I need help in developing a movement to pressure Congress to enact remedial legislation to our Student Loan Crisis. It’s a crisis because people are falling into ‘debt peonage’ or ‘debt slavery’. The 13th Amendment to the Constitution abolished ‘slavery’.
Now there are various forms of slavery. First, the 13th Amendment abolished ‘political slavery’. Political slavery is where you can’t vote and you have no rights under the law. At the end of the Civil War, many people don’t stop and think that slavery was not totally abolished. Black woman couldn’t vote. White woman couldn’t vote. Native Americans couldn’t vote. And it wasn’t until 1913 that US Senators would be elected directly by the people. America has constantly expanded the participatory democracy and expanded the definition of ‘freedom’ by enacting legislation to expand the rights of citizens.
I believe that there’s ‘debt peonage’ being introduced into the United States which is a form of slavery. People with student loans are ‘allowed’ to enter into repayment agreement which means as a practical matter that they have a ‘mortgage on themselves’ for the rest of their lives. In ancient times, if someone ‘fell into debt’ and couldn’t pay their debts, they were sold in slavery and they lost all rights and became ‘political slaves’. The primary reason bankruptcy was introduced into the United States in 1897was due to a collapse in the economy and the economic suffering that it brought. Sound familiar? For the first time in history, an honest debtor could get a ‘fresh start’. Bankruptcy is the safeguard against ‘debt peonage’ or ‘debt slavery’. And year by year, inch by inch and foot by foot, the creditor class has pushed the pendulum back to where it’s impossible to get a ‘fresh start’ because it’s been made more difficult to get discharge of debt.
Student loans were at one time dischargeable in bankruptcy. Today, as a practical matter, you can’t receive a discharge of student loan debt in bankruptcy. Note I said as a ‘practical matter’ you can’t get a discharge of your student loan debt. The Bankruptcy Code simply states that student loans can be discharged if they represent a ‘hardship’. However, there’s the ‘Brunner Test’ which interprets what is a hardship for bankruptcy purposes for student loan discharge. The ‘Brunner Test’ has been interpreted that there can be no possibility of hope in repaying the student loan debt.
You have more of a chance arguing in Court that a UFO will visit planet Earth for a coffee break than arguing that any situation is hopeless. Actually, it’s easier getting an administrative discharge of student loan debt than arguing in Court that because the person is on life support and has pancreatic cancer, he has a hardship worthy of a discharge of his student loan debt in bankruptcy. Why?
Because the situation isn’t totally devoid of hope. And, yes, consumer attorneys are challenging the Brunner Test and they are presenting well constructed observations and arguments, but like the 3 of the 5 Marines who raised the American flag on Iwo Jima and were subsequently killed in line of duty, the consumer bankruptcy attorneys are going into the fray on this issue.
Still have questions?
If you live in New London County and want help with your student loan debt, call our office now at 860-449-1510 – we’d love to help you!