Across the United States more than 44 million individuals have student loans comprising in excess of $1.6 trillion in student debt. What many are not aware of is their eligibility for student debt forgiveness in some circumstances. For instance, government employees, Peace Corp and AmeriCorps workers, and those employed in nonprofit 501(c)(3) organizations or certain public service organizations full time may have outstanding debt forgiven depending on certain factors. Those interested in finding out more about nonprofits and student-loan forgiveness may want to consider reaching out to Mission Counsel at (816) 368-1181.
Defining a Nonprofit Organization
According to the Internal Revenue Service, nonprofit organizations include 501(c)(3) organizations including:
- Charitable organizations operated specifically for literary, religious, educational, scientific, charitable, testing for public safety, and other defined purposes
- Private foundations typically funded by a single source (generally gifts from a single corporation or family)
- Churches and religious organizations
Other nonprofits include labor organizations, civic and business leagues, social clubs and welfare organizations, and other organizations that qualify for exemption and meet specified requirements but are not Section 501(c)(3). Nonprofits belonging to 501(c)(3) are exempt from federal income tax.
The Public Service Loan Forgiveness (PSLF) Program
Those with student loan debt who are employed by a nonprofit organization may be entitled to loan forgiveness under the Public Service Loan Forgiveness program, which was implemented in 2007. Individuals may be eligible for cancellation of federal student loans, or to have loans consolidated. The PSLF program applies only to federal student loans and not those that are private. There are several factors that affect whether someone employed by a nonprofit may qualify according to the United States Federal Student Aid website:
- Student loans must be federal direct loans, however certain types that are combined under the Direct consolidation loan program may be eligible
- Monthly payments must have been made for a minimum of 10 years, equivalent to 120 student loan payments made while working for a qualified employer full time
- Student loans must be repaid on a repayment plan that is income-driven and caps loan payments in accordance with the borrower's income
- Must work at a government organization or designated 501(c)(3) nonprofit full time, or other public service organization that qualifies
Covid-19 and PSLF
The United States Department of Education (ED) has provided a range of benefits to borrowers throughout the Covid-19 pandemic. A change to PSLF was announced in October of 2021 which allows some borrowers to be given credit for periods of repayment in the past that would not have qualified for Public Service Loan Forgiveness otherwise. While the new rules are temporary, they may apply to certain borrowers and are effective through October 31, 2022. While the qualifying employment requirement remains the same, key points of changes made include:
- Borrowers must make certain they work for a qualifying employer - those with Perkins, Federal Family Education Loans (FFEL), or other federal student loans must consolidate their loans into a Direct Consolidation Loan to qualify for Public Service Loan Forgiveness, even under the waiver
- Repayment for past periods that otherwise would not count now will on a qualifying repayment plan regardless of whether a payment was made, the payment was for the full amount due, or was made on time
- Periods of default, forbearance, or deferment will not qualify
Requirements that remain unchanged:
- 120 student loan payments or equivalent must be made
- Borrowers must be employed on a full-time basis
- Loans must be direct or consolidated into Direct Consolidation Loans
- Borrowers must be employed by a 501(c)(3) nonprofit, in government, or by another not-for-profit organization providing a qualifying service
Some of the changes can be confusing for borrowers. Those with questions regarding nonprofits and student-loan forgiveness may want to consider visiting with Mission Counsel.
Advantages of Nonprofit Student-Loan Forgiveness
Employees of nonprofit organizations with student loans are often overwhelmed. Many borrowers begin to feel as though they will never get their student loans paid off. While there are other options for student loan debt relief, PSLF is considered the most beneficial. Some of the advantages PSLF provides that other programs lack include:
- Qualifying for forgiveness means all debt will be erased, regardless of how much is owed
- Amount of forgiveness is not capped
- Income borrowers receive as financial debt assistance is not taxable - when getting rid of debt, applicants do not pay additional income tax
- 120 loan payments must be made, but they do not have to be consecutive
Many with student loan debt may work for a non-qualifying employer for a period. With Public Service Loan Forgiveness, a borrower's eligibility is not affected other than the time being prolonged while the borrower works for the non-qualifying employer.
Income-Driven Repayment Plans Eligible for PSLF
Certain repayment plans are income-driven and eligible for PSLF. These include:
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-based repayment (IBR)
- Income-contingent repayment (ICR)
While these plans differ slightly, all cap the borrower's monthly payments at 10%, 15%, or 20% of discretionary income (remaining income after allowances for essential and basic living expenses and taxes). Additionally, repayment terms can be extended to 20 or 25 years. ICR plans should generally be avoided for the PSLF program due to the fact it can result in less debt to forgive and increased monthly payments. Borrowers typically choose the plan offering the lowest monthly payment, but there are other factors to consider such as marriage, anticipated and substantial salary increases, and others.
Consider Scheduling a Consultation with Mission Counsel
Nonprofit organizations are essential for our communities, economic development, and much more. However, many of these organizations cannot afford to pay high wages to their employees, making it more difficult than ever for those with student loans to pay off their debt. Nonprofits have unique needs from formation and Internal Revenue Servicecompliance to employment contracts and legal issues. Those wanting to learn more about nonprofits and student-loan forgiveness or who need legal guidance may want to consider scheduling a consultation with Mission Counsel today at (816) 368-1181.