Federal Student Loan Forgiveness

[TRad]

Just to make you all aware of a new law.  Check out the link below.

http://www.equaljusticeworks.org/resource/ccraa

For everyone who graduates and goes into public service law (any gov't job and any job for a 501c3) your federal loan payments will be capped at 15% of your income AND if you stay for 10 years, your remaining loan balance will be wiped out.

I learned about this last week.  It makes law school possible for me.  Maybe others could use the info too.

Good luck to everyone this cycle!

[siski]

It's one of the awesomest laws ever.

[Clayton]

I think this link http://www.finaid.org/loans/ibr.phtml

explains it a little better.

[Rhymnoceros]

I think this link http://www.finaid.org/loans/ibr.phtml

explains it a little better.

Thanks for the links guys. Wow, this plan is as good as the best LRAP's I've seen. I'm sure its going to make my, and lots of other people's, decisions way harder. But in a good way.

I wonder how it ineracts with individual university's Loan Repayment Assistance Plans? Obviously you can't get both benefits, so I can imagine this will make some school's plans obselete. Why would a university keep paying money when the federal gov't will just foot the bill.

[Hammerstein]

I think this link http://www.finaid.org/loans/ibr.phtml

explains it a little better.

Thanks for the links guys. Wow, this plan is as good as the best LRAP's I've seen. I'm sure its going to make my, and lots of other people's, decisions way harder. But in a good way.

I wonder how it ineracts with individual university's Loan Repayment Assistance Plans? Obviously you can't get both benefits, so I can imagine this will make some school's plans obselete. Why would a university keep paying money when the federal gov't will just foot the bill.

I bet some schools will keep a limited LRAP.  Not all public interest organizations qualify as 501(c)s (e.g. international organizations that don't have U.S. offices).  And, furthermore, if you're an individual without a family making, say, $40K a year, then you'll still owe $4440 in loan repayments (based on the current  federal poverty line, which will go up slightly over the years).  With taxes, you'll probably be down to around $31-32K of money left, which isn't exactly a whole lot.  A small boost by the schools will still help people out especially during the first few years of their job.

My only other worry is that you'll have a potentially huge tax bill when the loan is forgiven.  Say you pay off $60K of a $160K loan, then you'll have $100K added to your income in the 10th year, placing you in a rather high tax bracket and causing you to owe probably $30,000 on that income!  This part seems like an oversight to me --saving that much on a NGO salary could be somewhat difficult, especially if you try to begin a family, too.

[Shellby117]

My only other worry is that you'll have a potentially huge tax bill when the loan is forgiven.  Say you pay off $60K of a $160K loan, then you'll have $100K added to your income in the 10th year, placing you in a rather high tax bracket and causing you to owe probably $30,000 on that income!  This part seems like an oversight to me --saving that much on a NGO salary could be somewhat difficult, especially if you try to begin a family, too.

I realize this is old, but I was trying to find some information about CCRAA and I came across this discussion. I just wanted to give an update. The Department of Treasury gave an update and said a loan forgiven under CCRAA is not taxable. Hopefully this will make it even easier for people considering doing public interest work. HTH

http://www.equaljusticeworks.org/resource/ccraa

[kenpostudent]

Yes, loan forgiveness is not taxable... provided that you stay in public interest for TEN consecutive years! What if you get that perfect private sector offer at 9.5 years? It is a great law, but keep in mind that it could be challenging to stay in public interest work for a full ten consecutive years. I wouldn't use this law as a license to rack up debt!

[jsb221]

If I remember correctly, anyone qualifies for the cap, but only someone in PI for 10 years gets the forgiveness.

[Shellby117]

Yes, loan forgiveness is not taxable... provided that you stay in public interest for TEN consecutive years! What if you get that perfect private sector offer at 9.5 years? It is a great law, but keep in mind that it could be challenging to stay in public interest work for a full ten consecutive years. I wouldn't use this law as a license to rack up debt!

The ten years don't have to be consecutive. You could do 5 years in public interest, 5 years in private practice, then 5 years back in public interest and as soon as you have made that 120th payment while in public interest your loan would be forgiven. It that example it would be after 15 years. However, I highly doubt anyone would leave private practice and go back to public interest, that would be a big pay cut, but there are people who have no desire to work at a private firm.

I completely agree that this law shouldn't be used as a license to rack up debt. But, it would help someone like me who has been going to school at night while keeping a full time job (that I don't like) just so I don't take out loans for living expenses. I know I won't have a high paying job when I graduate because I want to work in the public sector so I figured I would just keep working so my monthly loan payments when I graduate wouldn't put me in the poor house. Now, I have every intention of quitting my job (next summer) and taking out loans for my living expenses. I hear what you're saying about just using this as an excuse to take out more money then you need because it will all be forgiven one day, but only Stafford and GradPlus loans are forgiven. At my school (I'm assuming this is how it is everywhere) you can only take out those loans up to the cost of attendance. So if your school decides the cost of attendance for your school is $50,000/year, that’s as high as you can go for federal loans. You can’t take out $75,000/year just because (well you could, but it’d have to be private loans and those aren’t forgiven).

Overall, I think this is good news for people like me who want to do public interest work but thought they were going to have to put it on the back burner in order to pay off the student loans. Yes, 10 years at a job seems like a long time to some people, but not me. I take after my parents. They’ve been at the same company since they were young. My dad started when he was 19 (he’s now 51) and my mom started when she was 20 (now 50, she even took 9 years off when she had kids and went back to the same exact job after we were all in school). Obviously they haven’t kept the exact same job the whole time, they’ve been promoted a lot, but you get what I’m saying. I had the same part-time mall job from the day after I turned 16 until I graduated college. People like to joke that I’m a ‘lifer’ like my parents, so I’m not worried about committing to a job for an extended period of time.