Buzz
Every Monday, we dive into one of your most urgent personal finance inquiries, gathering advice from a panel of money experts. If you have a financial question or want to discuss anything PeFi-related, feel free to drop a comment or email me at [email protected].
This week’s question comes from Jon via email:
As a federal employee, one of the potential perks I enjoy is the opportunity to take part in the Public Service Loan Forgiveness (PSLF) program. If you’re not familiar, the program offers to pay off the remaining balance of your student loan debt after 10 years of service in a public sector job, such as a public school teacher, state or federal worker, or nonprofit organization.
I’ve been enrolled in the program for over a year, but I’m uncertain whether it’s financially worth carrying the debt for the full decade. After several years in the private sector, where I paid a significant portion above the required monthly payment, I’ve now reduced my payment to the minimum monthly amount to fulfill the eligibility criteria.
I expect to see some savings from the program after 10 years, but I’m wondering if it would be smarter to pay a higher monthly amount to clear the debt sooner. Is there a method to figure out whether it’s better to stick with the minimum payments under the program or pay extra and pay off the loan faster?
Thanks for your question, Jon! I’ve consulted with a few experts to get their perspectives. A word of caution: this situation varies for everyone—if you're seeking tailored advice, you should consult a financial planner.
Prioritize What Matters Most
There are many factors to consider here. Both options are valid, but it ultimately depends on your personal financial goals: whether that’s becoming debt-free or strengthening your financial safety net.
Brianna McGurran, a student loans expert at NerdWallet, advises that Public Service Loan Forgiveness works best if you’re on an income-driven repayment plan, which doesn't seem to apply in your case. Otherwise, it’s likely that you could pay off your loan in 10 years without the program.
“With these plans, payments typically don't reduce the interest that accumulates, so your balance increases,” explains McGurran. “This makes the forgiveness after 10 years much more valuable.” You can read more about income-driven repayment plans here.
The reality is, pursuing student loan forgiveness can be costly. “The longer a loan lasts, the more interest will accumulate,” says Michael Lux of The Student Loan Sherpa. “Borrowers who can pay off their loan more quickly may find themselves in a better position.”
To estimate how much of your debt will be forgiven after 10 years, use the Department of Education’s Repayment Estimator tool and select “Show payment estimates under Public Service Loan Forgiveness.” Once you see the forgiven amount, you can decide whether it’s better to wait or pay it off sooner. “For some borrowers, becoming completely debt-free is a top financial priority,” says McGurran. “It ultimately comes down to personal choice.”
You should also think about the limitations of the forgiveness program and your future career path. The Trump administration has previously proposed eliminating the program for new borrowers, and policy experts have argued that changes are needed to prevent the costs from spiraling out of control. The Department of Education is currently facing a lawsuit from the American Bar Association (ABA) for excluding certain lawyers from the program. While it seems unlikely this will affect current participants, it’s something worth considering.
“They must also consider if they’ll work for a public service employer long enough to qualify for the forgiveness,” adds Lux. “In some cases, taking a higher-paying job in the private sector might be the smarter choice.”
If you decide to stay in the program, it’s crucial to fully understand the eligibility requirements, as they can be complex and have tripped up borrowers in the past. For instance, only direct federal loans qualify, according to U.S. News, and you need to make 120 timely payments. Additionally, you must be employed by a government organization or a non-profit, or serve in AmeriCorps or the Peace Corps. Since you mentioned working in the private sector, are you certain you meet the qualifications?
That being said, if you are eligible, you could take advantage of the PSLF program’s flexibility to strengthen your financial foundation. “Make sure you’re saving at least 10 percent of your income for retirement and have an emergency fund covering at least three months’ worth of essential expenses,” advises McGurran. “These are vital goals I’d suggest you achieve before making extra payments on your loans.”
