If you’re interested in public service, becoming a federal employee can be a terrific career choice. On average, federal employees earn more than private sector workers with similar education levels.
Even better, federal employees enjoy valuable health benefits and even access to federal employee student loan forgiveness programs.
If you have student loans, working for a government agency can help relieve the burden. In fact, you might be able to get as much as $60,000 in help paying off your loans, thanks to the Federal Student Loan Repayment program. Here’s how it works, and what to do if you think you’re eligible.
What is the Federal student loan repayment program?
The government launched the Federal Student Loan Repayment program to serve 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 annual payments to your student loan holder. 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 an agreement stating that 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 have to reimburse the agency for any money they’ve already paid for your student loans.
Only federal student loans are eligible for this repayment program. If you’re a federal employee and have Parent PLUS loans for your child, you still qualify for the program.
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 their 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.
If you take unpaid leave, the time away from work does not qualify as part of your service term. In addition, the money you receive from your employer is taxable by the IRS, even though it’s for your student loans. Be sure to plan ahead for your tax bill in this case, since it might be higher than you expect.
How to apply
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 currently employed by a federal agency or are interviewing with one for a job.
Your employer will consider your request. Whether they issue the funds to you is decided on a case-by-case basis.
If the agency does decide to move forward — and they are not one of the 30+ agencies that already have a forgiveness procedure in place — they 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 employee student loan forgiveness program: Public Service Loan Forgiveness (PSLF).
In this program, your loans are 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.
In some cases, the Federal Student Loan Repayment program can be a better choice than PSLF. 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.
For example, say you had $37,172 of student loans at 3.9% interest. If you were single, had no dependents, and made $40,000 a year, you would qualify for an IDR plan such as Revised Pay As You Earn (REPAYE).
On the REPAYE plan, your payment would start at just $80 and you’d pay $13,276 over the course of 10 years before the loans were forgiven under PSLF.
If you signed up for REPAYE and pursued the Federal Employee Repayment program instead, your payment would still be $80 a month. However, you could get $10,000 a year for four years, which would cover the cost of your loans.
While it would take 10 years to eliminate your loans with PSLF, you’d be debt-free six years earlier with the Federal Employee Repayment program and you’d spend less of your own money. Instead of paying $13,276, you’d only spend $3,840 with the Federal Employee Repayment assistance program.
Those savings mean you have more than $9,000 that you could use for other goals, such as saving for retirement or building an emergency fund.
Even better, you don’t have to make a choice. You could pursue PSLF while inquiring about the federal employee student loan forgiveness program. Your time working for a government agency could still qualify for PSLF, even if you receive the money to pay back your loans. Pursuing both can help protect you in case your employer denies you for the program.
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 absolutely real, so ask your boss today if you’re eligible to receive the funds for your loans. Speaking up could save you thousands.
Want more ideas for student loan forgiveness? Check out this complete list to find even more forgiveness options.
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