Last year, the CFPB launched an initiative to enlist the support of public service employers to help their employees tackle their student debt. We also published a report, which estimated that approximately one-fourth of the labor force is working in a public service profession and potentially eligible for existing benefits to help them manage their student loans.
Today, we joined the Department of Education, the Peace Corps, and the Corporation for National and Community Service to release new resources for employees, volunteers, and recent graduates with student loan debt. Whether you choose to serve in the military, volunteer in the Peace Corps, or pursue national service, we know that managing your money while serving your country can be hard. This is particularly true if you have student loans.
To help, we’ve developed new customized guides for members of the military, for Peace Corps volunteers, and for participants in national service programs with student debt. In addition, we have partnered with the Peace Corps and the AmeriCorps programs to help their members understand how to qualify for loan forgiveness and other student loan benefits—part of our financial education project focused on public service and student debt.
Student loan borrowers working in public service have access to a range of existing benefits designed to help them manage their debt. One program provides borrowers that spend a decade or more in service with the opportunity to have their loans forgiven after 10 years (120 months) of on-time payments. There are also a range of other existing benefits for servicemembers, teachers and other public servants.
If you’re working in public service, you should be careful when considering options that postpone your monthly payment, such as forbearance. Generally, these options are designed to help borrowers weather a short-term financial shock rather than to serve as the foundation of a long-term strategy to manage your debt. In many cases, they will lead to a much higher balance when you complete your service and resume making payments.
Here is some helpful advice to help you understand your options. This information and answers to other questions about student loans are also available through Ask CFPB.
- Most borrowers should say no to deferment and forbearance. When you put off making payments, interest may continue to accrue. This means that once you complete your service, you’ll discover that your student loan balance has grown. You may also miss out on the chance to count your service toward loan forgiveness. Some national service programs may offer to help you with your student loan interest once you complete your service, so make sure you ask about this benefit before you decide how to manage your loans.
- Service in the military, Peace Corps and national service programs is “public service.” This means that, if you have qualifying loans, every month you serve while enrolled in an income-driven payment plan is a month that counts toward Public Service Loan Forgiveness. Under this program, if you make 120 qualifying monthly payments while working for an eligible public service organization, you are eligible to have any remaining balance forgiven on your qualifying loans.
- Income-driven payment plans are the best bet for most borrowers in service. If you have federal Direct Loans, an income-driven payment plan, like Income Based Repayment (IBR) or Pay As You Earn (PAYE), is the best plan for most people working in public service. Your monthly “payment” may be as low as $0 per month, but you’ll make progress toward loan forgiveness each month you’re enrolled. And, if you have subsidized loans, for the first three years, you won’t be charged more in interest than the amount of your monthly payment.
- You may qualify for other benefits, too. For example, servicemembers may be entitled to lower their interest rate under the Servicemembers Civil Relief Act (SCRA). If you are a Peace Corps volunteer or servicemember, you can qualify for loan cancellation if you have a Perkins loan. Check to see if you’re eligible for these benefits before consolidating your loans – you could lose the benefits, otherwise. Contact your student loan servicer to learn more about benefits for borrowers engaged in service.
Your student loan complaints revealed that student loan servicers don’t always make it easy to enroll in benefits for servicemembers. After hearing from you, federal regulators fined a large student loan servicer for its mistreatment of military families and ordered tens of millions in refunds.
Tell your employer about the CFPB’s pledge to tackle student debt for public servants. We will provide your employer with guidance and training on how to help you and your colleagues navigate their benefits.
If you’re having a problem with a student loan, you can submit a complaint online or call us at (855) 411-2372. If you have questions about repaying student loans, check out our Repay Student Debt tool to find out how you can tackle your student loan debt.
Rohit Chopra is the CFPB’s Student Loan Ombudsman. To learn more about our work for students and young Americans, visit consumerfinance.gov/students.