FFEL Borrower Eligibility For Public Service Loan Forgiveness

The recently enacted College Cost Reduction and Access Act (CCRAA) creates a new loan forgiveness option for Direct Loan borrowers who hold public service jobs. FFEL borrowers may take advantage of public service loan forgiveness by consolidating or reconsolidating their FFEL loans into the Direct Loan program.

Currently, borrowers with only FFEL loans can only consolidate or reconsolidate into the Direct Loan program if they are unable to obtain a consolidation loan with a FFEL lender or if they are unable to obtain a consolidation loan with acceptable income-sensitive repayment terms.

Effective July 1, 2008, amendments made by CCRAA to the FFEL provisions of the Higher Education Act (HEA) will allow a FFEL-only borrower to consolidate or reconsolidate his or her loan(s) into the Direct Loan program in order to qualify for public service loan forgiveness.

To qualify for public service loan forgiveness, a borrower must:

Make 120 monthly payments on the eligible Federal Direct Loan on or after Oct. 1, 2007;
Be employed in a public service job as defined in the CCRAA during the time he or she makes the qualifying monthly payments;
Be employed in a public service job as defined in the CCRAA at the time the Secretary forgives the loan; and
Make qualifying payments under one of (or some combination of) the following:
- Income contingent repayment plan;
- Income-based repayment plan (not available until 2009);
- Standard repayment plan with a 10 year repayment period; or
- One of the other Direct Loan repayment plans under which the borrower paid a monthly amount that is not less than what the borrower would pay under a 10 year repayment plan.

It is important to remember that public service loan forgiveness is prospective, meaning that all 120 payments must be made on or after Oct. 1, 2007. Payments made before Oct. 1, 2007, do not count toward the 120 payments required to qualify for loan forgiveness. Borrowers with loans made before this provision are still eligible for loan forgiveness, but their past loan payments will not count toward the 120 payments required for forgiveness.

Payments made under the standard repayment plan and payments made under other Direct Loan repayment plans that are no less than what a borrower would pay under a standard 10 year repayment period count toward the 120 payments necessary for forgiveness. But eventually a borrower would need to enter into either the income contingent or the new income-based repayment plan to be eligible for forgiveness. Borrowers who remain in the standard repayment plan would have no need for forgiveness after 10 years of payments because the loan will have been paid in full. Payments made under extended repayment plans would be ineligible if they are less than the amount calculated under the standard 10-year repayment plan.

Thus the law seems to allow only public servants with salaries low enough to qualify for income contingent or income-based repayment plans to be eligible for loan forgiveness of remaining debt over and above the amount that can be paid off in 10 years.

Borrowers will need to consider whether they are willing to work in a public service job for the 10 or more years required for loans to be forgiven.

The CCRAA defines a public service job as follows: A full-time job in emergency management, government, military service, public safety, law enforcement, public health, public education (including early childhood education), social work in a public child or family service agency, public interest law services (including prosecution or public defense or legal advocacy in low-income communities at a nonprofit organization), public child care, public service for individuals with disabilities, public service for the elderly, public library sciences, school-based library sciences and other school-based services, or at an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code; or Teaching as a full-time faculty member at a Tribal College or University as defined in section 316(b) and other faculty teaching in high-needs areas, as determined by the Secretary.

NASFAA will provide members with additional guidance on public service loan forgiveness as it becomes available.

For additional help, please see NASFAA's Frequently Asked Questions Regarding Public Service Loan Forgiveness.

By Jennifer Martin, NASFAA Assistant Director for Professional Assessment, Training, and Regulatory Assistance, and Justin Draeger, NASFAA Assistant Director for Communications.

Joan Berkes, NASFAA Senior Associate Director for Regulatory Assistance, also contributed to this article.

Posted 10/15/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.