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Updated on December 31, 2022
Government contractors may qualify for several federal student loan forgiveness programs. This is especially true now that the Biden administration has loosened up the rules that had previously prevented many borrowers from getting relief. Despite those changes, many contractors who work with the military or federal government agencies will have trouble qualifying for the program that wipes out their debt after 10 years.
Keep reading to learn all about student loan forgiveness for government contractors.
Do government contractors qualify for Public Service Loan Forgiveness?
Government contractors can qualify for the Public Service Loan Forgiveness Program, but they must work for a qualifying employer.* This includes working full-time for a government agency or a nonprofit organization that’s tax-exempt under Section 501(c)(3) of the Internal Revenue Code. Unfortunately, if you work part-time, are self-employed, or are an independent contractor for a for-profit company, you’re not eligible for PSLF.
Use the PSLF Help Tool on the Federal Student Aid site, StudentAid.gov, to check if the Education Department believes your employer is eligible for the program.
If it turns out that your employer qualifies, make sure you meet the other eligibility requirements. To be eligible for the PSLF Program, you must:
Have Direct Loans or Federal Family Education Loans (FFEL) that have been consolidated into a Direct Consolidation.
Make 120 qualifying payments under a qualifying repayment plan, i.e., an income-driven repayment plan.
Submit a PSLF form signed by each qualifying employer you’ve worked for since the PSLF program started.
A qualifying payment is one that is made on time, for the full amount due, under one of the IDR plans — Income-Based Repayment, Income-Contingent Repayment, Pay As You Earn, or Revised Pay As You Earn.
Related: Types of Income-Driven Repayment Plans
If you want to participate in the PSLF program, double-check that you meet the eligibility criteria right away rather than waiting several years.
The big thing to review is the type of loans you have. Loans made through the Federal Direct Loan Program are eligible — including Parent PLUS Loans. Loans made through the FFEL or Perkins Loan student loan program are not — at least not automatically. If you consolidate those loans into a Direct Consolidation Loan before May 1, 2023, you can get PSLF credit for payments made before applying for consolidation. Read more about the PSLF Waiver.
Make sure you understand the requirements and are eligible by speaking with your student loan servicer, the Education Department, or a student loan lawyer like me.
Related: Does Forbearance Count Towards PSLF?
* An eligible employer for PSLF includes full-time employment with the local, state, federal, or tribal government agencies, not-for-profit organizations that provide public service, military service, and volunteer service with the AmeriCorps or PeaceCorps. It does not include work with labor unions and partisan political organizations.
Contractors qualify for IDR forgiveness
Although the Public Service Loan Forgiveness (PSLF) program may not be an option for many government contractors, it is still possible for them to have their student loans forgiven.
It may just take a longer period of time and more student loan payments.
The U.S. Department of Education will write off federal student loans after a borrower has made 20-25 years’ worth of payments under one of its IDR plans.
Waiting for two decades for relief may seem like a long time, especially if you have already been making payments for several years. However, you may not need to wait that long before your debt is forgiven. The department is reviewing borrowers’ payment histories to determine how many monthly payments they made under any student loan repayment plan and how much time they spent in certain forbearance and deferment periods. Read more about the IDR Waiver.
After completing its review, the Department of Education will give borrowers credit towards income-driven repayment plan forgiveness. It is estimated that approximately 40 thousand people will have their debt automatically forgiven through this opportunity. Millions more will move several years closer to having their remaining balance erased. This is a huge opportunity for government contractors seeking student loan forgiveness but don’t qualify for PSLF.
Related: Does the Student Loan Pause Count Towards Forgiveness?
They also qualify for Biden’s student loan cancellation
In August, President Biden unveiled plans to cancel up to $20 thousand in debt for federal student loan borrowers who meet certain income requirements. His administration estimated that over 40 million people could benefit.
To date, nearly 26 million Americans have applied to have some of their student loan debt erased. The department has approved 16 million applications, but no debt has been canceled yet.
Government contractors who earned less than $125 thousand annually during the pandemic qualify for the program. But there’s no timetable for when the relief will be applied to their account.
The program is on ice while the department battles rulings from lawsuits in Missouri and Texas. The Supreme Court agreed to hear the case to decide whether the president exceeded his authority when he agreed to wipe out billions of dollars in student debt with a stroke of a pen.
Legal scholars expect the justices to issue a decision by this summer. Student loan payments and interest are on hold for Ed-owned student loans until late 2023.
Government contractors qualify for different student loan forgiveness programs. While PSLF is out of reach unless you work for a nonprofit organization, you can still get your loan balance completely forgiven after making at least 20 years’ worth of payments under one of the department’s income-driven loan repayment programs.
If you’re unsure of the best plan for your loans and personal situation, book a call with me. We’ll build a strategy that puts you in a position to get rid of your debt as quickly as possible while paying as little as possible.
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