Federal Employee Student Loan Forgiveness and Other Perks to Help with Debt

 December 23, 2021
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Working as a federal employee can lead to a comfortable salary, as the average federal employee earns $90,510, according to the Office of Personnel Management (OPM). What’s more, federal employees may be eligible for student loan forgiveness.

In fact, working for a government agency could lead to as much as $60,000 in student loan assistance. To see how student loan forgiveness for federal employees works, and what to do if you think you’re eligible, let’s look at the following:

The federal student loan repayment program: How it works

The government launched the federal student loan repayment program as an employee incentive. Agencies can use it to recruit and retain top talent.

Under the program, the government agency you work for will make payments — possibly as a lump sum — to your student loan servicer. You could receive up to $10,000 a year (for a lifetime maximum of $60,000) to help pay off your student loans.

In return, the agency will ask you to sign a service agreement stating you’ll continue to work there for at least three years. If you leave your job early or if you’re fired for misconduct or poor performance, you’ll likely have to reimburse the agency for any money it has already paid. If you take unpaid leave, the time away from work does not qualify as part of your service term.

A 2019 OPM report to Congress noted that 34 agencies provided 10,206 employees with more than $74.9 million in student loan benefits in 2017. The U.S. Department of Defense paid out the most at more than $18 million.

Here’s a look at the top payments by agency in 2017:

  • Department of Defense: $18 million
  • Department of Justice: $15 million
  • Department of State: $10 million
  • Securities and Exchange Commission: $6.8 million

What are the eligibility requirements for federal employee student loan forgiveness?

Unlike some forgiveness programs, the rules do not require you to have completed your degree to qualify. However, some agencies do ask for a degree to be eligible for the program, so ask your employer if you qualify based on its unique requirements.

Any federal employee is eligible unless your role is confidential or involves policy-making duties. You must be in good standing with your employer and show acceptable performance at all times.

Schedule C employees, such as lobbyists, do not qualify. Members of Congress are also not eligible, but their staff members could qualify.

Also, the money you receive from your employer is included in your gross income and is subject to employment taxes. For example, you could receive a $10,000 benefit, but if you owe $3,000 in taxes, the agency will only make a $7,000 payment to your servicer.

Types of student loans eligible for benefits
Any loans that were made, insured or guaranteed under the Higher Education Act of 1965 are eligible for this benefit. These include:
Direct Subsidized Loans
Direct Unsubsidized Loans
Parent PLUS loans
Grad PLUS loans
Perkins Loans
Federal Family Education Loan (FFEL) Program
Direct Consolidation Loans
FFEL Consolidation Loans
Note that private student loans are not eligible for this federal benefit.

How to apply for the federal student loan repayment program

There isn’t a formal application for this federal employee repayment program. Instead, ask your employer or potential manager for more information if you are employed by a federal agency or are interviewing with one for a job.

Your employer will consider your request. Whether it issues the funds to you is decided on a case-by-case basis.

If the agency does decide to move forward, it must prepare a plan that describes how the agency will implement the program and disburse the money.

Federal student loan repayment program vs. Public Service Loan Forgiveness

Depending on your career, you might also qualify for another federal student loan forgiveness program: Public Service Loan Forgiveness (PSLF).

In this program, your loans could be forgiven if you work for a nonprofit or government agency and make 10 years of qualifying payments. Payments made on an income-driven repayment (IDR) plan count toward PSLF.

While you must make 120 payments on your student loans before you’ll receive forgiveness through PSLF, you could receive money from a federal employee loan forgiveness program much sooner.

Because you can receive up to $10,000 a year for six years, you could use that money to pay off your loans ahead of schedule. Depending on your loan amount, you could be debt-free in just a few years, whereas you’d have to make payments for a decade with PSLF.

Note that you don’t necessarily need to choose one or the other. You could pursue PSLF while inquiring about the federal employee student loan forgiveness program. Your time working for a government agency could potentially qualify for PSLF, even if you receive the money to pay back your loans.

Pursuing both can also help protect you in case your employer denies you for the repayment program.

Final thoughts on managing your student loans

If you’re struggling to repay your student loans and work for a government agency, student loan forgiveness for federal employees might sound too good to be true. However, this repayment program is real, so ask your employer today if you’re eligible to receive the funds for your loans. Speaking up could save you money.

Want more ideas for student loan forgiveness? Check out this complete list to find even more options.

Rebecca Safier and Anne Bouleanu contributed to this report.