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News | March 20, 2012

Public Service Loan Forgiveness: How to Maximize the Benefits and Minimize the Risks

By Ensign J. Striker Brown

Currently, the average judge advocate enters the service with roughly $111,000 in student loan debt, and that amount is expected to rise.  The Public Service Loan Forgiveness (PSLF) program is a student loan repayment program that may provide financial benefits to judge advocates who are graduating with considerable amounts of federal student loan debt.

The Basics

The College Cost Reduction and Access Act (CCRAA), which was signed into law in 2007, established public service loan forgiveness.  Public service loan forgiveness is a loan cancellation program designed to discharge remaining federal student loan debt after individuals working in qualifying public service positions make 120 monthly payments.  Military service is considered qualifying employment.  Only Federal Direct Loans, which include Grad PLUS Loans, Subsidized and Unsubsidized Stafford Loans, and Direct Consolidation Loans, are eligible for PSLF.  In addition, Federal Perkins Loans and Federal Family Education Loan (FFEL) loans are eligible for Direct Loan Consolidation, which means they may also qualify for PSLF forgiveness. There are several different types of loan repayment plans for the repayment of federal student loans, but the one that is likely to be the most beneficial to judge advocates is Income Based Repayment (IBR).  IBR is a repayment plan that caps individuals’ required monthly payments at an amount intended to be affordable.  The repayment plan is based on factors such as income and family size.  While it complements PSLF, IBR is an independent federal repayment option that allows for loan forgiveness after individuals make 25 years of qualifying payments, regardless of where they are employed.  Thus, even if an individual does not make 120 payments in a qualifying public service position, his or her loans may still be discharged under IBR after 25 years.  In addition, the Obama administration has proposed a new Pay-As-You-Earn plan that would offer lower monthly payments than the current IBR and discharge any remaining loan balance after 20 years of repayment.  This new program would not benefit most current judge advocates, however, because individuals who graduated in June 2012 or earlier are not eligible. PSLF does not automatically discharge an enrollee’s debt after 10 years of military service; individuals must actually make 120 qualifying payments in order to fully discharge their student loans.  Therefore, the sooner an individual consolidates loans and enters one of the repayment plans, the sooner payments count towards the PSLF program.  Making payments early in one’s career is also important for another reason; because monthly payments are based on income, which is lowest at the beginning of an individual’s military career, PSLF payments will also be lowest at that time.  Over the repayment period, payments will increase periodically as income rises.  Accordingly, all else being equal, the individual who begins repayment earlier in his or her career will typically pay less over the course of 10 years. Despite the benefits of PSLF, the program also involves inherent risk.  For instance, PSLF allows the borrower to make reduced payments that may not cover the interest accumulating on the student loan debt.  If individuals leave public service before their debt is discharged under PSLF, they will need to either pay back the principal and accumulated interest or use another type of federal loan discharge program.  In these cases, it may take up to 25 cumulative years of monthly payments before the loan is fully paid off or discharged.  Even judge advocates that do not plan to leave military service in favor of the private sector are not necessarily guaranteed to accrue 10 years of qualifying service. How can newly commissioned judge advocates minimize the risk inherent in relying on PSLF to forgive their student loan debt after 10 years?  While there is no way to eliminate all of the risk, there are certain steps that judge advocates can take to reduce the overall amount of interest that may accumulate on their student loan debt while they work towards the required 120 payments needed for loan forgiveness.  The Service Member’s Civil Relief Act (SCRA) can assist with this goal.

Combining PSLF with SCRA

The SCRA provides service members with a number of benefits and protections.  For instance, if a service member accrues debt prior to entering active duty service, the SCRA permits reducing interest on those debts to six percent.   This SCRA provision may allow judge advocates to reduce interest on student loans taken out while in law school to six percent shortly after graduation. Two of the most common types of loans that junior judge advocates have are Stafford and Grad PLUS loans.  As of January 2012, the current interest rate on Stafford loans taken out during law school is 6.8 percent, while the interest rate on Grad PLUS loans taken out during law school is slightly higher at 7.9 percent.  Given that the current interest rates for Stafford loans and Grad PLUS loans entered into during law school exceed six percent, the SCRA may temper the sting of compounding interest for qualifying individuals.  Considering the large amount of federal student loan debt that many judge advocates carry, a one to two percent reduction in interest rates may make a big difference in the overall amount of loan repayment.  However, before judge advocates consolidate federal student loans in order to start making qualifying payments under PLSF, they should keep one thing in mind: if they have some qualifying loans with a fixed interest rate of less than six percent and some qualifying loans with an interest rate of more than six percent, it is very important that they request an interest rate reduction under the SCRA before consolidating their loans.  Some individuals were fortunate, securing Perkins loans with very low interest rates; consolidation may not be in their best interest if it involves a merger with loans of much higher interest rates, or if they qualify to have portions of these loans cancelled due to law enforcement or military service exceptions. In sum, the PSLF program has the potential to provide financial benefits to judge advocates who have student loan debt.  However, because there are inherent risks associated with relying on the PSLF program, judge advocates should take full advantage of the benefits associated with the SCRA in order to reduce the amount of interest that will accumulate on their loans while they are making PSLF payments.

Judge advocates with questions about student loan debts should contact the Office of the Judge Advocate General, Military Personnel Division(Code 61).  
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