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Question of the week

Q.: The College Cost Reduction and Access Act (CCRAA) created a new loan forgiveness program for Federal Direct Loan Program borrowers who hold public service jobs. Is there an eligibility option for FFELP borrowers? What considerations should be made before applying for this loan forgiveness program?

A.: A FFELP borrower cannot obtain loan forgiveness under this program; however, a borrower can consolidate FFELP loans into the Federal Direct Loan Program for the purposes of participating in the public service loan forgiveness program. In addition, beginning July 1, 2008, a borrower can reconsolidate an existing FFELP Consolidation loan into a Federal Direct Consolidation loan for the purposes of this program.

In order to qualify for public service loan forgiveness, a borrower must, among other qualifications:

• Make 120 qualifying monthly payments on an eligible Federal Direct loan on or after October 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 ED forgives the loan; and
• Make the qualifying payments under one (or a combination of ) the following:
  • Income-contingent repayment plan;
  • Income-based repayment plan (not available until July 2009)
  • Standard repayment plan with a 10-year repayment period; or
  • One of the other Direct loan repayment plans under which the borrower pays a monthly amount that is not less than what the borrower would pay under a 10-year repayment plan.
    
    Note: Realistically, a borrower will not qualify for loan forgiveness unless he or she has qualified for either the income-contingent or income-based repayment plan at some point during the repayment schedule. Under the standard repayment plan, the borrower's loan will be paid in full at the end of the 120 monthly payments; so, there will be nothing left of the loan to forgive. Also note that payments made under the extended repayment plan — which allows a borrower with over $30,000 in debt to repay his or her loan over a 25-year repayment period — will be ineligible under this program if the payments are less than the amount calculated under the standard 10-year repayment plan.

Borrower considerations before applying for public service loan forgiveness include the following:

• The borrower must work in a public service job for 10 or more years.
• All 120 monthly payments must be made on or after October 1, 2007. Payments made before this date do not count toward the required 120 payments.
• Entering into alternate repayment plans that extend the borrower's repayment schedule may also increase the amount the borrower pays in interest over the life of the loan(s).
• Consolidating FFELP loans into the Federal Direct Loan Program will generally negate any previous borrower benefits (e.g., interest rate reductions or other rebates) for which the borrower qualified.
  
  Note: The answer provided was obtained in part from NASFAA's Frequently Asked Questions Regarding Public Service Loan Forgiveness which may be accessed at www.nasfaa.org/PDFs/2007/FAQPublic.pdf.

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