What is Public Service Loan Forgiveness?

Not all of us wish to join multi- national corporations after completing education. Some of us wish to join the army, serve the social sector or public sector, become teacher and nurses et cetera. Talking about public sector services; public transportation, public healthcare, education, environment, telecommunications and many more services constitute the sector. A general perception and indeed, reality associated with most of the public sector jobs is the low pay that comes with them.

Such a service might require proper education but at the same time, not offer as good future perspectives as corporate sector in terms of incomes and perks. Higher education in the US is equal to heavy expenditures. Student loans act as a rescue from such huge expenditures. A student loan is specifically designed for students to pay for their education expenses and carry substantially lower interest rates and suitable repayment schedules to help students pay them back when they are capable of. 

Student loans can be of two types- Federal student loans and Private student loans. Federal student loans are funded by the federal government. Interest rates on a federal loan are fixed and in some cases, tax deductible. Other than government agencies; banks and finance companies also offer student loans. Interest rates on private student loans are generally variable and higher than federal student loans.

While federal student loan programs follow the guidelines laid down by the federal government; terms and conditions on a private student loan differ with different lenders. Some of the Private Student Loans servicing giants are Sallie Mae, New York HESC and WellsFargo. Student loans are different from scholarships and student grants and are liabilities waiting to be repaid. This sometimes, becomes a source of discouragement for people to avail student loans and continue with their studies. 

Student Loan Forgiveness Program

Repaying a student loan is generally not as easy a task as is taking one. It becomes even harder to pay off a student loan when an individual chooses to join public sector services or some other low paying job like teaching or nursing to follow one’s passion and field of interest. It is to help such borrowers that there exists a concept of Student loan forgiveness programs. A student loan forgiveness programme is designed to help students pay full or a part of their student loan.

This sounds great but off course requires something in return. Student loan forgiveness programmes typically require the student to pursue a particular occupation or volunteering service in exchange of paying off the loan completely or in part. In the US, student loan forgiveness programs are also aimed at directing individuals towards sectors of national importance where there is lack of qualified personnel. The US Department of Education offers forgiveness on federal student loans and once forgiven, the student is not liable to pay his remaining loan balance.

There are two types of student loan forgiveness programmes; upfront forgiveness that eliminates a part of student debt with each passing year of service and back-end forgiveness that cancels whole of the student loan after a certain number of years of service. Back-end forgiveness programs come with all-or-nothing condition and therefore, might be risky for individuals who are not sure whether they would be able to complete their committed tenure of service or not. Student loan forgiveness programs are also available on private student debt but the provision of the same highly depends on the private lender. 

Public Service Loan Forgiveness 

Under this forgiveness plan, student loans are eliminated for people dedicated to serve the public sector of the economy, for example a lawyer in Human Rights Organization who has incurred a lot of student debt to earn a law degree but would not be able to pay back that debt due to low paying nature of his job.

The program allows for forgiveness for one’s student loans after 120 qualifying payments towards debt for people serving the public sector in any of the eligible employments. Payment made after October 1, 2007 are considered qualifying.  There are three modes of repayment plans under the Public service loan forgiveness programme: 

  • Income Based Repayment Plan (IBRP): Borrowers with this plan need to pay 15 percent of their discretionary income per month. Remaining debt after 25 years is eliminated under this plan. This repayment period is being further reduced with the latest amendment in student loan forgiveness program. 
  • Income-Contingent Repayment Plan (ICRP) : Direct Unsubsidized and Subsidized loans, Direct PLUS loans for graduates and students of professional studies, Direct consolidation loans can be repaid under this repayment plan for a maximum of 25 years on the basis of family size, total amount of loan and gross income.  

Other than these plans, 10-year standard repayment plan can also be used for repayment of student loan under Public Service Loan Forgiveness Programs. All three repayment plans have their own benefits and costs and thus, need to be carefully analysed before making any decision.

Eligibility for Public Service Loan Forgiveness Program

Only loans availed under the William D. Ford Federal Direct Loan are eligible for Public service loan forgiveness programme. In case of Federal Family Education Loan (FFFL) and the Perkins Loan Program, the loan needs to be consolidated into a Direct Consolidation loan in order to be eligible for the Public service loan forgiveness programme.

Employment with a federal, state or local government agency, entity or organisation or a not-for-profit organisation that has been designated as tax exempt by the internal revenue service (IRS) under section 501(c)(3) of the Internal Revenue Code (IRC) qualify for the Public service loan forgiveness programme. While working at any of the aforementioned agencies, once the individual completes his/her 120th qualifying payment, he/she can proceed to submit loan forgiveness application. 

Benefits of Public Service Loan Forgiveness Program 

Public Service Loan Forgiveness Program is highly beneficial to people with high student debt and relatively smaller incomes due to their decision of joining the public sector. Such a program might save thousands of dollars for a typical lawyer who gained a law degree and hence chose to serve the nation.

The Consumer Financial Bureau also helps the employers in this sector to aware prospective workers that they will be benefited by this program. Such programs also help borrowers to save some part of their income during repayment due to capping on the monthly payments. It also helps in strengthening the economy as a whole by getting qualified professionals to serve the public sector and make the working environment competitive and efficient. 

Limitations of Public Service Loan Forgiveness Program

One serious limitation of Public service loan forgiveness program is that this is available only to people with a federal direct loan and not private student loan, even though borrowers with private student loan might be equally in need of such programs. However, consolidation of older private loans which were guaranteed by the federal government into a direct loan would help the borrower become eligible for the program.

Due to severe restrictions imposed on the eligibility requirements for this forgiveness program, many people are left out from its ambit. One caution that experts always warn borrowers about is that even in the presence of such forgiveness programs, one should think of minimizing his/ her loan requirements because such programs require a long term commitment and not everyone is clear enough of what’s life going to be like for the next ten years. People who are caught in an illusion of the benefits of these loan forgiveness programs might end up taking excessive loans and worsening their financial situation. 


Evidently, public service loan forgiveness programs offer a range of benefits for people who wish to pursue a career in public sector but with several restrictions imposed on the working of such programs, individuals must carefully analyse the repayment schedule and enter into a plan after prudent research. With every new amendment, the white house aims to reach out to more people by extending the forgiveness plan.

However, this brings some amount of criticism to the government for having increased college education subsidies to an all new level. Hopefully, some policies with regard to reducing the expenses of college education would benefit the students as well as help the government reduce its subsidies and work in the favour of the economy as a whole.