Now that you’re done with college, it’s time to find a J-O-B. But you don’t want just any job. You want to make a difference in the lives of others. You want more than just a paycheck – something that fills you with meaning and purpose.
If that sounds like you, you’re likely drawn to the nonprofit world. Nonprofits can provide a wide range of assistance to underserved communities.
The only problem is that while nonprofits seem like the perfect fit, your student loan balance is a heavy ball and chain – one that a public service salary can’t support. Luckily, a career in the nonprofit sector doesn’t have to mean being in debt forever.
Find out how you can pay back your federal student loans on a nonprofit salary and continue to thrive.
Nonprofit perk: Public Service Loan Forgiveness
Working in the nonprofit sector offers a unique benefit to student loan borrowers. Under the Public Service Loan Forgiveness program, student loan borrowers who work full-time at a nonprofit may be eligible to get their loans completely forgiven after serving for 10 years (yes, really) and making 120 consistent payments.
In order to qualify, student loan borrowers must work at a nonprofit with a 501(c)(3) designation, a government organization, or another qualifying public service organization. You’ll also need to have federal Direct Loans (though other types of loans may be eligible for PSLF if consolidated under the Direct Consolidation Loan program). Unfortunately, there is no such program for private student loans.
Opting for an income-driven repayment plan is the best way to qualify for forgiveness.The Standard Repayment Plan is designed to have your loans paid off in 10 years. By opting for income-driven repayment, your loan payments are capped according to your income (which likely isn’t very high at a nonprofit) making it more likely you’ll have a balance left over to be forgiven.
Mark Kantrowitz, publisher of Cappex.com, a free website that connects students with colleges and scholarships, advised student loan borrowers working in the nonprofit field to opt for the Pay As You Earn (PAYE) plan.
“If you are eligible for the Pay As You Earn repayment plan, choose it, as it will maximize the amount of forgiveness,” he said.
But what if you don’t qualify?
“Consider Income-Based Repayment (IBR) and the Revised Pay As You Earn (REPAYE) repayment plan. One of these will yield the lowest monthly payment. Generally, IBR will be better for borrowers who get married or who expect a big increase in income during the repayment term,” Kantrowitz recommended.
Typically, you are eligible for Pay As You Earn and Income-Based Repayment if your student loan balance is close to or exceeds your salary. Any Direct Loan borrower is eligible for the REPAYE plan.
However, Kantrowitz added a word of warning for choosing an income-driven plan specifically for the Public Service Loan Forgiveness program.
He recommended avoiding the Income-Contingent Repayment plan completely, as it can lead to higher monthly payments and less debt to forgive.
In addition, he said borrowers should “be cautious about selecting the Revised Pay As You Earn Repayment (REPAYE) plan, as it includes several features that are designed to reduce the cost to the federal government.”
One downside of the REPAYE plan is that it does not cap the monthly payment amount, so if your income grows significantly, you could end up paying more per month than on the Standard Repayment Plan. In addition, married borrowers may get the short end of the stick with this repayment plan, as it considers combined income for married couples, even if you file separate tax returns.
So before deciding which income-driven plan to sign-up for, think carefully about potential consequences.
How to apply for Public Service Loan Forgiveness
New grads working in the nonprofit sector can take the following steps to apply for Public Service Loan Forgiveness:
1. Contact your loan servicer and sign up for an income-driven plan.
2. Fill out the Employment Certification for Public Service Loan Forgiveness form each year and submit it to FedLoan Servicing.*
3. After working in the nonprofit sector for 10 years and making 120 payments, submit the PSLF application in order to receive loan forgiveness. The application is currently being developed and will be available before October 2017.
*Note: step number two above is crucial. FedLoan Servicing will let you know whether or not your employment qualifies for the program. If it doesn’t, better to find that out sooner rather than later, right? Not being eligible for student loan forgiveness is NOT the kind of surprise you want.
If your employment does qualify and you complete the 10-year term, you can get your remaining student loans forgiven. The best part? Under this program, your loans are not considered taxable income, so you won’t be hit with a hefty tax bill.
Pros and cons of pursuing a career in nonprofit
Working in the nonprofit field can be extremely rewarding. Some of the most meaningful moments in my life have come from working at nonprofits. It’s definitely a unique experience that varies a lot from any corporate environment.
The pay is low and the work isn’t necessarily glamorous, but the impact on communities can be huge. At the end of the day, you can feel good about what you are doing.
However, I will also say that nonprofit burnout is real. Nonprofit work is often taxing, requiring long hours with low pay. Depending on the type of community you serve, you might get a front row view of wild injustices and sad situations that can take a toll on your emotional health.
At some point, you may feel bound by the limits of your work — and at other points, wonder if you will still have a job when grant season is over.
Because of this, it may be difficult to commit to the nonprofit sector for 10 years in order to achieve student loan forgiveness.
According to the 2015 Nonprofit Employment Practices Survey Results, nonprofits reported that the biggest hurdle to employee retention is the inability to pay competitively (27 percent). Another big reason: high workloads and limited staff resources (19 percent).
If you can commit to 10 years of service at a nonprofit and get your loans forgiven, that is a great option. But if you find yourself unable or unwilling to deal with the low pay and high demands of nonprofit work, know there are other options:
- Become a consultant
- Work in the private sector and command a higher salary
- Work at a startup, with similar idealistic visions as nonprofits
- Start your own business
There are options out there and not all jobs outside of the nonprofit realm are corporate. You can still make a difference and can even obtain a higher salary to pay off your loans.
If you’re earning good money, you may be able to knock out your student loan debt in a matter of a few years instead of pursuing loan forgiveness.
New grads looking to pursue a career in the nonprofit world have options to get their federal student loans forgiven and should take advantage of the Public Service Loan Forgiveness program. It can help lessen the burden of student loan debt and make your current payments more manageable.
And if you can’t commit to 10 years of service to the nonprofit world, you still have options. It’s important to be sure you’re ready for a decade of public service before pursuing this type of loan forgiveness.
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