Student Loan Forgiveness Programs and Their Impact on Federal Employees
Student loans can often feel like an anchor. Whether they’re taken out for you or a loved one, they can feel like they’re weighing down your financial plans. That dream vacation, new car, or even retirement, can feel like it’s out of reach. But the good news is that there are a number of opportunities for federal employees to be eligible for student loan repayment assistance, or even student loan forgiveness!
Smart utilization of these programs can make a massive financial impact for those eligible for them. That said, they can be a little tricky at times to navigate, so let’s take a quick look at some of the student loan programs available for federal employees:
Federal Student Loan Repayment Program
The Federal Student Loan Repayment Program is designed to attract top talent to serve in the public sector and encourage retention as an additional employee benefit. Employees eligible for the program can receive up to $10,000 a year, up to a max amount of $60,000. While this benefit is only applicable to federal student loans (private student loans don’t qualify), the benefit is applicable to student loans taken out on behalf of yourself or a child.
A couple of caveats:
Available funds differ depending on the agency you work for, and not all agencies have this program set up, so you need to do some research, talk to the agencies themselves (or ask your supervisor), and figure out if you’re eligible.
Federal employees are eligible for this program if they are considered “highly qualified,” which is decided on an individual basis by the agency you work for. Qualified candidates then have to sign a service agreement and commit to working for three years at the agency offering the financial assistance while maintaining that high level of performance.
Student loan repayment assistance is not tax-exempt, and is included as part of your gross income on your tax return, so it’s important to discuss this opportunity with your financial advisor.
Overall, this program for government employees can be a huge perk for those in the right set of circumstances. While it has some caveats, it can certainly help you on your way to better financial health, so it’s important to ensure that you have a financial plan that’s unique to you and your situation.
For those that might not be eligible for this program, you may be eligible for the Public Service Loan Forgiveness Program.
Public Service Loan Forgiveness Program
The Public Service Loan Forgiveness (PSLF) Program is a student-loan forgiveness program only available to employees of government institutions and certain non-profit groups, meaning full-time federal employees absolutely qualify!
Under this program, you must work in the public sector at an approved agency with a qualifying employer for 10 years. For example, you may work at a government organization, family service agency, in public health, public interest law services, law enforcement, or at nonprofit organizations.
After making 120 qualified payments and meeting your service commitment, you can get the remainder of your student loans forgiven. You can complete the Employer Certification Form each year to stay on track with your employment.
Good news: Unlike the federal student loan repayment program, you won’t pay taxes on the forgiven amount under PSLF.
The Education Department made some changes to the PSLF program back in October of 2021, hoping to increase the number of public service workers who can benefit from its loan forgiveness. The updated relief program now covers over 175,000 people, and these temporary changes are set to expire this October, so contact your financial advisor ASAP to look into taking advantage of its new rules if you haven’t already.
Student Loan Debt Relief Plan
The Biden administration has been in the news recently, with one of the major headlines being the rollout of their Student Loan Debt Relief Plan. Two primary items came out of this rollout:
Student loan repayments have been paused through the end of 2022, but will resume in January of 2023
The US Department of Education will provide up to $10,000 ($20,000 for Pell Grant recipients) in debt cancellation for federal loans. Borrowers are eligible for this relief if their individual income is less than $125,000 or their household income is less than $250,000.
This is a one-time student loan debt relief program, so it’s important to ensure you’re timely in your assessment of if you qualify for it. In order to receive the forgiveness, the Dept. of Education needs to have your income data. While the department does have the data for about 8 million borrowers, you may still need to complete an application that is rolling out next month. Once completed, the expected turnaround time for relief is 4-6 weeks.
Given that this relief is tax-exempt, this is a potentially massive opportunity to receive some relief on outstanding loans for yourself or a loved one.
While this is not a complete list of opportunities available, these three programs are certainly worth looking into as a part of any federal employee’s financial planning process. As we mentioned, they can be a little tricky, so you should consider scheduling an appointment with a PARCO expert to help you navigate the space and set you and your family up for financial success!