Strategy 94 of 107 · new for the five-year plan
Public service loan forgiveness, then roll the payment
What it is
If you work for government or a qualifying nonprofit, Direct Loans can be forgiven after 120 qualifying payments.
Steps
- If you work for government or a qualifying nonprofit, Direct Loans can be forgiven after 120 qualifying payments.
- Certify employment every year.
- When forgiven, send the old student loan payment to principal.
Repeat: Once, at forgiveness.
Measure: Monthly payment freed.
Try it in the calculator Enter its amount in "Monthly non-income amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- Rules are strict; track each qualifying payment.
- Program rules can change.
Who it fits
Single, Married couples, Newlyweds, Average household
Needs
Has student loans; Works for government or a qualifying nonprofit
How predictable
Depends on people or program rules (tenants, family, IRS records, lenders)
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (single). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: if you work for government or a qualifying nonprofit, Direct Loans can be forgiven after 120 qualifying payments.
Suppose it brings $600 a month on principal from this strategy, not from the paycheck. The loan would be paid off in 16 years 3 months instead of 30 years, saving about $196,219 in interest. To finish in five years, they would still need about $3,374 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sequences that use it
- Student loans gone, then the house: Every student loan payment that ends becomes a principal payment the next month.
Sources and more information
- Federal Student Aid: Public Service Loan Forgiveness studentaid.gov
Where to get help
- CFPB: Find a HUD-approved housing counselor (free or low cost) consumerfinance.gov
Related strategies
- 93. Let your employer pay student loans tax-free, then roll that payment
- 95. Teacher forgiveness or disability discharge for student loans
- 92. Owners of an S or C corporation: get reimbursed tax-free for home office and mileage
- 91. Ministers: a designated housing allowance
- 90. Run a licensed adult family home
- 89. Board horses on pasture or in a barn you already have