Practice Management
A variety of factors slow some individuals’ retirement saving, if not impede it outright—and one of them is student loan debt. A recent NTSA webinar looked at a step some entities pursue that affects those with loans as well as retirement saving—student loan forgiveness. 
In a March 27 NTSA webinar, Jennifer Prosise CFP®, CSLP®, CRES, financial advisor at The Voyager Group/Lincoln Investment discussed student loan forgiveness. That forgiveness affects more than individuals. It can have an impact on retirement plans as well, since removing the need to expend funds on relieving debt frees more revenue for saving through retirement plans—which benefits not only individual participants, but also retirement plans and society in general.
Teacher Loan Forgiveness
Prosise started by discussing forgiveness of federal student loans taken out by teachers. She said that forgiveness of those loans is available after an individual has worked for five consecutive years as a Title I teacher; then, he or she can receive up to $17,500 in non-taxable forgiveness for direct student loans. The conditions for that forgiveness are:
- the school must be deemed to have Title I status;
- the teacher must be full-time—that is, work for at least 32 hours per week—and complete five consecutive years of service;
- if the school is Title I the first year but loses that status, and the teacher remains there or transfers to another Title I school, the teacher will still be eligible for relief;
- loan forgiveness can amount to up to $17,500 for special education teachers or STEM teachers;
- general education teachers can receive $5,000;
- loan forgiveness is available only for teachers who provide direct classroom support;\
- loans taken before Oct. 1, 1998 do not qualify for forgiveness; and
- teacher loan forgiveness years and public service loan forgiveness years cannot overlap.Prosise added that in meeting with teachers, “it’s really important to look at their loan status.”
Public Service Loan Forgiveness
Those who fulfill the requirements of public service loan forgiveness (PSLF) will have their full direct federal student loan balance forgiven tax-free if the following circumstances are met, said Prosise:
- The teacher must work at least 32 hours per week at a public service employer—that is, for:
- a local, state, or federal government body; or
- a 501(c)3 or and other qualified non-profit organization;
- Loans must be direct federal loans; older loans such as FFEL can be consolidated into direct federal loans.
- The teacher must make 120 payments.
- There must be a qualified income-driven repayment (IDR) plan.
- The teacher must certify employment and income every year.
Income-Driven Repayment Plans
“People need to understand the meaning behind the IDRs they sign up for,” remarked Prosise, adding that many don’t. IDRs include:
- income-contingent repayment;
- income-based repayment;
- pay as you earn; and
- SAVE.
Federal Loans
“All direct federal loans are forgivable—it you follow the rules,” said Prosise.
To qualify for this forgiveness, a teacher must (1) have direct federal loans; and (2) be on a qualified IDR plan.
Forgiveness is taxable in the year the loan is forgiven, Prosise noted. She added that loans are usually forgivable after 20-25 years, based on the IDR plan selected; for SAVE it is 20 years for undergraduate and 25 years for graduate loans.
Private Loans
Student loans from private sources are not forgivable, warned Prosise.
One can refinance private loans for lower interest rates, Prosise said. But she warned of circumstances that can arise when one takes a private loan:
- one should be aware of the rules for promissory notes into which one enters;
- if a co-signer dies, then the entire balance is due immediately;
- federal loans die when their owners do;
- private loans go to the estate; and
- if one gets a private source to cover a federal loan, it is no longer a federal loan.
“Once you go private you cannot go back!,” said Prosise, adding, “If you can avoid going private, I would.”
Keep in Mind
Prosise also suggested that one should think about which spouse makes the most money if they file separately. “Be cognizant of who makes more money and more importantly, who they work for,” she remarked, adding, that there is more forgiveness if they work for a non-profit or a government.
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