Public Service Employees May Have Student Loans Forgiven Starting Later This Year

In Financial by Coolidge Wall

Beginning in October, individuals with student loans that meet certain requirements will be able to apply for forgiveness of the remaining balance of the loans under the Public Service Student Loan Forgiveness Program. While private loans are not eligible, four types of loans being repaid under certain income-based repayment plans are eligible for the program. Loan forgiveness under this program is not considered taxable income.

Generally, a borrower will be eligible for forgiveness if the borrower has been employed full-time by a public service organization while making 120 payments. The borrower must also be employed by a public service organization when requesting forgiveness and at the time of actual forgiveness. Full-time employment means an annual average of 30 hours per week, but a borrower may meet the employment requirement if the borrower is working more than one qualifying part-time job and averages at least 30 hours per week with all employers. The type of job does not matter as long as the employer does not count any hours spent on religious activities. Additionally, the borrower does not have to be employed by the same employer for 10 years but will need to be able to prove employment at the time of each of the payments. Along with other certain organizations, organizations that are tax-exempt under section 501(c)(3) are qualifying employers.

For a payment to count as one of the 120 payments, the borrower must not be in default on the loan, must have made the payment after October 1, 2007 for the full amount due that month, and the payment must have been received no later than 15 days after the due date. The 120 payments do not have to be consecutive, but the borrower must be employed by a qualifying employer for any payment to be eligible. Prepaying a loan will not accelerate the process.

A borrower is encouraged (but not required) to submit an employment certification form annually to the U.S. Department of Education. The form must be signed by a staff member who has access to the borrower’s employment or service records and is authorized to certify employment status. The borrower should also keep records that identify the employer, show dates of employment, confirm full-time status, and demonstrate that the employer is a qualifying employer. Examples of such documents are Form W-2 and pay stubs.

If you have questions about the program, helping eligible employees apply for the program, or other tax-exempt organization issues, please contact Edie Crump (937-449-5530).