According to ancient Greek Mythology, the Ancient King Thespius set Hercules to Twelve Labors. If he accomplished them, Ancient King Thespius promised him immortality. The second of these was to slay the Hydra, a monster with nine serpent heads that could spit acid. If one head was cut off, two more would grow in its place. To defeat the beast, after cutting of a head, Hercules had a friend use a hot poker to seal the wound so that no more heads could grow. Hercules eventually slew the hydra, cut off its immortal head with a golden sword given to him by Athena, and buried it under a big rock.
Student loans remind me of the ancient hydra: for every dollar I throw at the loans, two more in interest spring up to take its place. Not only do loans have hydra-like ability to hinder my finances, but they are also shrouded in mystery. So today I wanted to write to you about one golden sword myself and others are trying to use to defeat our own student loan hydra: the Public Service Loan Forgiveness program. Please keep in mind, this only applies to loans taken out through the federal government, NOT loans with private companies. This is a big reason why I don’t take advantage of offers from private companies to refinance my student loans.
The loan forgiveness program allows you to make 120 payments, while working for a qualifying employer (basically a non-profit or the government at some level). You also have to be using an income based repayment plan. After these 120 payments, the federal government will (hopefully!) forgive us our transgressions, and the outstanding balance on our loans. But there are a couple of things to keep in mind:
1) You need to certify your loans every year under the income repayment plan. This isn’t hard, and doesn’t take long, and your loan company should make this clear to you that it needs to happen, but still, DO IT. If you don’t, then you cannot qualify to have your loans forgiven.
2) Submit an Employment Certification Form. This one is tricky because the loan companies hide the ball on us on this one. My loan company, MyFedLoans, suggests I submit one of these annually so I keep on track. This is only partly helpful. You really need to submit one of these every time you change jobs. And the important part they don’t tell you, is that you need to submit one from the employer you are leaving. I had submitted these forms twice, each time I started a job. This accomplished basically nothing, because any subsequent payments I made while at that new job weren’t listed as under that employer since the loan companies don’t assume I remained employed. So you need to submit one of these forms every time you leave an employer, so that the employer you are leaving certifies the dates you have already worked for them. Only then will the loan company retroactively add the number of payments you made while working for that employer under your loan forgiveness program.
3) Make a payment. Even if your required payment is zero. The income based repayment plans calculate your payments based on your taxes the previous year. So many of us, myself included, who had just finished school, had payments of $0 during our first year in the working world. You can argue that a $0 payment counts as a “payment” towards the forgiveness program, but I didn’t want to take that risk. Instead, I paid a nominal amount each month to ensure the loan provider recorded that I had made payment. I’ve since been credited for each of those months and am 12 months closer to my 120 payments (lots of heads on this hydra).
4) Set up direct deposit. This accomplishes two things. It makes sure you pay on time every month. It also decreases the amount of interest you are paying by .25%. I know, you are thinking: Dave, that doesn’t matter since I am not planning on paying the full balance anyway, all that extra money will just get forgiven. But if you lose your job, decide to go private, or (by the beard of Zeus let this not happen), if Congress gets rid of the loan forgiveness program, it will save you big bucks in the long haul. One last thing about direct deposit: if you ever change banks, you need to not only add that bank as a payment option on your online account, but RECERTIFY the direct deposit with that new bank information. If all you do is just add a new bank-payment option, but don’t recertify your Direct Deposit, your next Direct Deposit will be rejected and your payment won’t go through. And the hydra will grow another head.
The Public Service Loan Forgiveness program is a powerful tool in the fight again student loans. But it is a dangerous weapon for those who don’t know how to use it. Make sure you fully understand it to wield its true potential.
Let me know if you have any other Public Loan Forgiveness Program questions, or Student Loan questions, and I will try to address them below or in another blog post!