When a loan forgiveness program handcuffs you to a job

WASHINGTON >> I made a promise to myself early in my career. If my job ever became so unbearable that I got stomach cramps at just the thought of walking into the office, it was time to quit.

But what if staying in your crummy job is the only way to have tens of thousands of dollars in student debt forgiven?

This is the issue vexing a reader, who asked me during a recent online discussion: Should I stay or should I go?

“I’m a federal employee with five years left to loan forgiveness,” the person wrote. “I work in a toxic office and have been trying for several years to find a job in a different agency. I was recently offered a two-year term position that would be in a new practice area with supervisory responsibility and a fairly significant pay raise. But I would lose the ‘golden handcuffs’ of virtually guaranteed employment and risk losing six-figure loan forgiveness if I don’t find a permanent position during the two years. Is it worth it?”

I’d like to first address the loan-forgiveness program this reader is talking about. Under the federal Public Service Loan Forgiveness (PSLF) program, the remaining balance of a borrower’s debt is forgiven after 120 qualifying monthly payments.

Only federal Direct Loans are eligible for PSLF. You have to be paying off the debt under a certain type of income-driven repayment plan while working full time for a qualifying employer.

Borrowers often believe the forgiveness is based on the type of job they do, but to qualify for the program, it’s all about the employer. For PSLF eligibility, you must work (or volunteer) in public service for one of the following:

• A government organization (federal, state, local or tribal).

• A not-for-profit that is a 501(c)(3) tax-exempt organization as determined by the IRS. (Other not-for-profit organizations that don’t have the 501(c) (3) exempt status may still count toward qualification forgiveness. This would include certain types of public-service jobs in law enforcement, military service and education.)

• AmeriCorps or the Peace Corps.

To get the full details of what employers and student loans qualify for PSLF, go to studentaid.ed.gov.

The program can provide a great amount of financial relief. Instead of 20 or 30 years of monthly loan payments, you can shed the debt in 10 years. And, the forgiven amount is not taxable.

There has been quite a bit of controversy about PSLF. Many borrowers found out after making what they thought were