Loan Forgiveness for Teachers: Let Us Count the Ways

Back in 2007, Congress passed a law establishing the Public Service Loan Forgiveness Program (PSLF), allowing people who work in qualifying public service jobs to receive student loan forgiveness--tax-free--after the equivalent of 10 years of payments. And with a new version of income-based repayment (IBR) implemented by the Department of Education for borrowers with loans taken out after the fall of 2007, many of those public servants are able to pay far less for those 10 years than they would under other repayment plans.

Among the potential beneficiaries of the PSLF program: public school teachers. Of education majors who graduated with debt from an undergraduate program in 2012, a Department of Education survey found that the typical debt load was about $22,000--still below the national average for all undergraduates. That’s a significant increase from yesterday’s teachers: Just four years earlier, the median undergraduate debt was only $16,500, meaning 2012 graduates saw a one-third increase in the typical debt load in less than a decade. With IBR, those teachers’ payments are--by definition--always affordable, capped at 10 or 15 percent of their income, less a cost-of-living exemption. With PSLF, those borrowers are likely to have some of the loan forgiven, so they never fully repay it.

As my colleagues Jason Delisle and Alex Holt demonstrated in their recent paper Zero Marginal Cost: Measuring Subsidies for Graduate Education in the Public Service Loan Forgiveness Program, teachers with a master’s degree fare even better in PSLF. They have higher debt levels (combined private and federal, undergraduate and graduate debt for a master of education effectively doubled between 2008 and 2012 alone, from nearly $34,000 in 2008 to nearly $51,000). That means they’re likely to get more forgiveness.

In fact, they found that borrowing any amount of federal student loans over $17,000 will mean no additional out-of-pocket costs for teachers earning the typical income. For teachers earning at the 75th percentile for their fellow peers with a master’s degree, they’ll receive forgiveness for any debt over $23,000. Both figures are well below the typical debt level for that category of teacher.

But the substantial benefits available to teachers through PSLF aren’t the only ones Congress has created. Last year, more than $250 million in federal student loan debt held by more than 31,000 teachers was forgiven under a separate provision, the Federal Stafford Loan Forgiveness for Teachers Program.

Stafford loan forgiveness for teachers provides up to $17,500 in loan forgiveness to teachers in high-need subjects--namely, math and science in high schools and special education in elementary schools. Teachers are eligible for forgiveness after teaching full-time for five consecutive school years in certain low-income public schools. And teachers for other subjects who teach in high-poverty schools are eligible for $5,000 in loan forgiveness.

All this raises the never-ending problem of duplication, confusion, and hard-to-access benefits woven throughout the federal student aid system.

Of course, those loan forgiveness options may not entirely erase debt for the typical teacher who borrowed federal student loans for a master of education program. Only $17,500 is eligible for forgiveness -- and after only five years of payments, that may not cover the full costs of graduate school. And the benefits of Stafford loan forgiveness for teachers are much more targeted, allowing only for high-need teachers in high-need schools. But the program still goes a long way toward covering the costs of college for many teachers, and in a shorter time frame even than Public Service Loan Forgiveness.

All this raises the never-ending problem of duplication, confusion, and hard-to-access benefits woven throughout the federal student aid system. Some college graduates who want to be teachers can receive Stafford loan forgiveness after 5 years, or most teachers are eligible to receive public service loan forgiveness after 10 years. They can access TEACH Grants, which convert from grants to loans if they fail to meet their service requirements. They can earn increasing amounts of loan forgiveness for the Perkins loans issued by their institution of higher education in each of five years. And there are myriad other caveats, particulars, and overlapping benefits they’ll need to know if they want to successfully navigate the federal student aid system.