By working for a nonprofit, you could enjoy a meaningful career that makes a difference in the lives of others. But your public service salary could make it tough to afford your student loan payments. Fortunately, you might be eligible for loan forgiveness if you’re working for a nonprofit and have student loans.
The Public Service Loan Forgiveness (PSLF) program could forgive your student loan balance after 10 years of public service. Let’s take a look at how this works, specifically:
Working in the nonprofit sector offers a unique benefit to federal student loan borrowers. Under the Public Service Loan Forgiveness (PSLF) program, student loan borrowers who work full time at certain nonprofits may be eligible to get the remainder of their loans erased. Note that private student loans are unfortunately not eligible for PSLF.
Here are the conditions you must meet to qualify for the federal loan forgiveness program:
- You must have federal direct loans (though other types of loans may be eligible if they are consolidated under the Direct consolidation loan program).
- You must work full time at a nonprofit with a 501(c)(3) designation — or a government organization or another qualifying public service organization.
- You must repay your loans on an income-driven repayment plan, which caps your loan payments according to your income.
- You must make 120 qualifying student loan monthly payments while working full time for a qualifying employer, which would span at least 10 years.
Please note: Although the PSLF program sounds like a dream come true, actually getting loans erased can be difficult. Since borrowers first became eligible for forgiveness in 2017, the acceptance rate has been notoriously low.
Along with working in a nonprofit for 10 years, you must be paying back your loans on an eligible repayment plan to qualify for PSLF. Qualifying plans include the four income-driven repayment plans:
All of these plans cap your monthly payments at 10%, 15% or 20% of your discretionary income while extending your repayment terms to 20 or 25 years. Since each plan is slightly different, It’s important to think carefully about the pros and potential consequences of each one before choosing one.
Here are some factors to consider that might help you select a plan:
- IBR or PAYE may be better for those who get married or expect significant salary boosts during the repayment period, because it will base your student loan payment on your salary alone if you file taxes separately from your spouse.
- REPAYE considers the combined income for married couples, even if you file your taxes separately, which would likely result in higher monthly payments. It also doesn’t cap the monthly payment amount so salary bumps could lead to higher monthly payments than on the standard repayment plan.
- Income-contingent repayment (ICR) plans should typically be avoided when choosing an income-driven plan specifically for the PSLF program, as it can lead to higher monthly payments and result in less debt to forgive. However, ICR is the only plan available to parent PLUS borrowers, and only if you consolidate your parent PLUS loans via a Direct consolidation loan.
Read up on the details of all four income-driven repayment plans so you can figure out which one makes sense for your situation. Generally speaking, it often makes sense to opt for the plan that will give you the lowest monthly payment.
While student loan borrowers typically need to pay back their loans on an income-driven plan to qualify for PSLF, a recent piece of legislation has temporarily waived this requirement.
With the new Limited Waiver Opportunity, you could have any of your student loan payments count toward PSLF, even if you were on a typically non-qualifying plan. What’s more, the period of suspended payments during the emergency forbearance will also count toward PSLF.
To take advantage of this Limited Waiver Opportunity, you must submit an Employer Certification form before Oct. 31, 2022. If you owe any loans that are not from the Direct loan program, such as FFEL loans, then you also must consolidate them with a Direct consolidation loan before that date.
Unfortunately, parent loans are not eligible for this waiver. If you have any other type of loan, however, it’s worth taking advantage of this opportunity, as it could move you months or even years closer to receiving loan forgiveness through PSLF.
New grads working in the nonprofit sector can take the following steps to apply for the PSLF program:
- Contact your loan servicer and sign up for an income-driven repayment plan.
- Fill out the Employment Certification for Public Service Loan Forgiveness form each year (or when you change employers) and submit it to FedLoan Servicing.
- After working in the nonprofit sector for 10 years and making 120 payments, submit the PSLF application to FedLoan Servicing in order to receive loan forgiveness. Note that when FedLoan Servicing’s contract ends, a different loan servicer will handle PSLF paperwork.
- Remain working in the nonprofit world until your loan forgiveness is granted.
Submitting your Employment Certification form is especially crucial, as your loan servicer will let you know whether or not your employment qualifies for the program. If it doesn’t, it’s better to find that out sooner rather than later, so you can look for other options.
If your employment qualifies you for loan forgiveness and you fulfill all the conditions, you can get your remaining student loans forgiven. The best part? Under this program, your loans are not considered taxable income, so you won’t be hit with a hefty tax bill.
While PSLF is perhaps the most well-known path to loan forgiveness, it’s not your only option if you work in public service. There are also a few other, job-specific programs that could forgive your loans, including,
- Teacher Loan Forgiveness, which offers up to $17,500 in loan cancellation to teachers who work for five consecutive years in low-income settings and teach certain subjects.
- National Health Service Corps, which provides up to $50,000 in loan assistance for healthcare professionals who work for two years at an eligible site.
- NURSE Corps Loan Repayment program, which will pay off up to 60% of your student loans after you work for two years in an underserved community, as well as an additional 25% of your balance for a third year of service.
It’s worth exploring all your options for loan forgiveness, especially if you work in the public sector. Some of these programs offer loan cancellation a lot sooner than PSLF.
Private student loans are not eligible for federal loan forgiveness programs, but all hope is not lost. There are certain non-federal programs that might be able to help.
In fact, there are a variety of student loan repayment assistance programs that are offered by state governments, universities or private organizations. Similar to federal programs, most require that you commit to two or more years of public service.
Some common professions that qualify for loan repayment assistance include lawyers, doctors, veterinarians, teachers, dentists, nurses and pharmacists. Our comprehensive database of loan repayment assistance programs can help point you in the right direction.
It’s worth noting that some private companies also offer student loan benefits to employees. If you’re not committed to working in a nonprofit, pursuing a job with one of these companies could help you chip away at your student loan debt faster.
Working in the nonprofit field is a unique experience that varies a lot from any corporate environment. The work isn’t always glamorous, but the impact on communities can be huge. At the end of the day, you can feel good about what you are doing.
However, nonprofit work can often be taxing. Depending on the type of community you serve, you might get a front row view of injustices and sad situations.
|Pros of working for a non-profit||Cons of working for a non-profit|
|Rewarding, meaningful work||Low pay|
|Satisfaction from helping others||Exposure to a lot of sadness or injustice can take a toll on your mental and emotional health|
|Unique experience that differs from the for-profit business world||Continued employment could be tenuous/based on grant renewal|
Because of the challenges, it may be difficult to commit to the nonprofit sector for 10 years in order to achieve student loan forgiveness. Even if you feel like you can devote the next decade of your life to this work, you must understand that forgiveness under the PSLF program is far from guaranteed and may not even be the best financial strategy for you.
For instance, if your career plans change and you take a corporate job in the sixth year, the previous five years of working toward PSLF would have been in vain. In addition, switching from the standard repayment plan to an income-driven repayment plan would have extended the life of your loan, causing you to pay more in interest. And, if you don’t qualify for PSLF but ultimately have your loans forgiven under your income-driven repayment plan, that forgiven amount is typically considered taxable income the year your slate is wiped clean (though taxes on forgiven student loans have been waived until 2025).
If you’re not sure about committing to a decade-long nonprofit career, you can test-drive the experience by volunteering for an organization that could get part of your student loan balance erased. Two possible options are:
- AmeriCorps: For a year of full-time service, you could receive the equivalent of the maximum Pell Grant ($6,495 for the 2021-2022 award year) to apply to your loans.
- Peace Corps: You could be rewarded with a 15% to 70% cancellation of your federal Perkins loans, depending on length of service.
In addition, volunteering full time for AmeriCorps or Peace Corps is considered qualified employment under the PSLF program. However, since rules and benefit amounts are subject to change, it’s important to thoroughly research these volunteer opportunities before applying for them.
If you can commit to 10 years of service at a nonprofit and get your loans forgiven, it’s worth pursuing that PSLF strategy and line of work. But if you’re unable or unwilling to deal with the low pay and high demands of nonprofit work, there are other options:
- Become a consultant
- Work at a startup, with similar idealistic visions as nonprofits
- Start your own business
Not all jobs outside of the nonprofit realm are corporate. You can still make a difference while earning a solid income. Just think: If you’re making good money, you may be able to knock out your education debt in a few years instead of waiting for student loan forgiveness.
New grads working for a nonprofit with student loans should explore the Public Service Loan Forgiveness program. It can help lessen the burden of student loan debt and make your current payments more manageable. However, consider the downsides of loan forgiveness programs before proceeding.
And if you can’t commit to 10 years of service to the nonprofit world, you still have options. Ultimately, it’s important to be sure you’re ready for a decade of public service and that you understand all of the financial implications before pursuing this type of loan forgiveness.
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