Many musicians work for a non-profit organization, such as an orchestra, opera company, chamber music group, or university. If you work full-time for a non-profit, you are eligible for the Public Service Loan Forgiveness (PSLF) Program. This program will forgive 100% of your eligible loans after you make 120 monthly payments.
Public service jobs include those with a federal, state, or local government agency or public school or library. Luckily for musicians, a full-time job with any 501(c)(3) non-profit organization is also considered a public service job, regardless of what the organization does. You must meet your employer’s definition of “full-time” or work at least 30 hours per week. If you work part-time positions, you can still use the program if you have multiple qualifying jobs that total at least 30 hours per week. If you are off summers, you still qualify, as long as you work 8 months per year and your employer still considers you employed over the summer.
Only loans received through the William D. Ford Federal Direct Loan Program eligible for the PSLF. However, if you have Perkins or FFEL loans, you may consolidate them into a Direct Consolidation Loan and then they will become eligible for the PSLF. Payments made prior to becoming a Direct Loan will not qualify. For other types of consolidation, be very careful – moving a Direct Loan into a bank loan could cause you to lose the opportunity to use the PSLF. Private loans are not eligible for the PSLF.
To qualify for the PSLF, you should use one of the federal income-drive repayment plans, including the Federal Income-Based Repayment (IBR) Plan, the Pay as You Earn Repayment Plan, or the Income-Contingent Repayment (ICR) Plan. The standard repayment plan also qualifies, but since that is a 10-year program, it would leave a zero balance after 120 payments. However, if you switch from the standard plan to one of the income-driven plans, you can still count your previous payments towards the PSLF.
I know a lot of musicians who make sacrifices to pay off their student loans in 10 years or less. If you work for a non-profit, I’d encourage you to use one of the income-driven plans instead, so you can become eligible for the PSLF. With the lower monthly payments, use the difference for other financial goals. Pay off your credit cards, build up your emergency fund, or contribute to an IRA. If the government is offering to forgive 100% of your remaining loan balance after 120 payments, you should send the smallest payment amount they will accept.
Payments made after October 1, 2007 may qualify for the PSLF. So if you’ve been making payments for 4 years, you may have only another 6 years to go! For further details on the program as well as instructions on how to verify and record your eligibility, please visit the Federal Student Aid Website. You will need to have each employer complete the Employment Certification Form to document proof of your eligibility. Although you are not required to submit the form until after 120 payments, it is recommended that you do so annually or whenever you change jobs, to make sure that your progress is being tracked.
Another great feature: the loan forgiveness you receive from the PSLF is non-taxable! Managing student loans has become one of the biggest hurdles today for people in their 20’s and 30’s. As a CFP(R) practitioner, I’m here to help you with all your financial goals and concerns, so if you thought I only do investments, I’d like to introduce you to the benefits of having your own financial plan.