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Student Loan Forgiveness

THE COLLEGE COST REDUCTION AND ACCESS ACT

This federal law, signed September 27, 2007, established two types of student loan relief:  Public Service Loan Forgiveness and Income-Based Repayment.  The loan forgiveness program discharges debt remaining on federal loans after 10 years of full-time public service employment.  The Income-Based Repayment (IBR) schedule, which begins on July 1, 2009, considers a borrower’s income/debt ratio to determine the loan payment amount.

Public Service Loan Forgiveness Program

Eligible Loans: 

  • Federal Subsidized and Unsubsidized Stafford Loans
  • Federal Direct PLUS Loans
  • Federal Direct Consolidation Loans
  • Perkins Loans (if consolidated)
  • Undergraduate student loans (if consolidated)

Program Terms:

  • Forgiveness occurs after 120 monthly payments made on or after October 1, 2007.  Payments made before October 1, 2007 do not count.
  • The borrower must be employed full-time in public service during the entire time of the 120 monthly payments.  Public service employment includes prosecutors, public defenders, and various positions in government, military and law enforcement.
  • Breaks in service are permitted, but you must make 120 payments during public service employment.

Once 120 payments are made during public service, the remaining loan interest and principal are forgiven. 

Income-Based Repayment (IBR)

This program, which begins July 1, 2009, is a new loan repayment option that reduces monthly federal loan payments for all high debt/low income borrowers.  IBR provides for an annual ceiling on student loan payments by considering the borrower’s income.  Generally, loan payment limits would be approximately 15% of discretionary income (adjusted gross income minus 150% of the poverty level for the borrower’s family size).

IBR reduces monthly payments, and the government pays any unpaid interest on subsidized portions of the loans for up to three years after IBR begins.  After 25 years of the borrower’s repayments, the government shall write-off the unpaid principal and interest.

Helpful Links

Suffolk University Law School Financial Aid Information

http://www.law.suffolk.edu/offices/finaid/CollegeCostReduction.cfm

Income-Based Repayment Calculator

http://www.finaid.org/calculators/ibr.phtml

Full Text of College Cost Reduction and Access Act

http://kennedy.senate.gov/imo/media/doc/HR2669_conf_report.pdf