Teacher Loan Forgiveness – Knowledge to Help You Plan
By Joe Messinger, CFP®
May 20, 2016
Teachers…we depend on them. We trust them with our children, and their place in society is vitally important. We all know the starting salary of a teacher does not reflect their importance. People drawn to teaching must use every advantage they can get when it comes to paying for an education. They need to understand that their salary upon graduation will likely be less than many of their peers. The federal government has created a variety of programs including the Teacher Loan Forgiveness Program to assist teachers in making their college education more affordable. The goal has been to recruit the best and brightest young people into the teaching profession and keep them there.
TEACH Grant Program
In last week’s blog, I talked about the TEACH Grant Program and how a student can receive grant money to help pay for college. TEACH grants are designed to recruit high-achieving college students on the front-end by providing $4k to 16k in grant money to any college student with a GPA of 3.25 or higher who agrees to teach in a low-income school for a minimum of four years after graduation. The TEACH grant is unique in that it is the only federal loan assistance program for teachers that provides “teachers-in-training” with a financial benefit on the front end. The graduate repays the grant with service in high need areas at low-income schools for a minimum of four years.
Teacher Loan Forgiveness Program (TLFP)
This week I’m going to talk about another program that can assist teaching professionals with their financial obligations—the Teacher Loan Forgiveness Program (TLFP). Created by Congress, this program helps you pay off certain federal student loans.
In general terms, the program requires:
- Type of loan – Federal Stafford or Federal Direct loan (sometimes a Federal Consolidation or Direct Consolidation loan)
- Teach for five consecutive, complete years at an eligible/low-income school.
- Your loan must have originated after October 1, 1998. (Congress’ intent is to encourage younger people to enter teaching and avoid a teaching shortage.)
- At least one of your years of service must have occurred after the 1997/1998 school year.
- Your loan must have started before the end of your fifth year of teaching service.
What qualifies as a low income school?
Eligible schools are those where 30 percent of the students qualify for services provided under Title I. Here is a current list. Be aware this list changes every year. If your school’s status changes, you can still be approved for TLFP. Let’s say you began your teaching at a school in 2009 and continue teaching there today. The school did not get added to the eligible list until 2011. Your years of service would begin at that time in 2011, and you will have completed the required five years now in 2016. Your years of service will not be retroactive to 2009, the year before the school became eligible.
Some other things to note:
- Teachers cannot obtain loan forgiveness on loans in default. You must first arrange repayment.
- You cannot obtain benefits under TLFP and AmeriCorps or Public Service Loan Forgiveness Program. The years of service for TLFP cannot be used for these other programs.
- Special education teachers are included for forgiveness program. Teacher aides are not.
- You cannot be repaid for loan payments you have already made. Only outstanding balances and accrued interest are eligible for repayment.
So how much of your loan can be forgiven?
Up to $5,000 payment towards outstanding principal and accrued interest. If your period of service began after October 30, 2004, you must be rated as “highly qualified” by the No Child Left Behind Act of 2001 (NCLB) at an eligible public* elementary or secondary school. If your employment began before October 30, 2004, you must meet one of these requirements:
- You need to meet the “highly qualified” standard set by NCLB.
- If at an eligible elementary school, you demonstrated knowledge and teaching skills in reading, writing, mathematics, and other areas of the school’s curriculum.
- If at an eligible secondary school, you taught a course relevant to your college major.
*Private school teachers may also be eligible but must first pass certain competency exams. The private school must also meet the eligibility requirements.
In certain situations, you can qualify for a higher forgiveness amount.
You may qualify for an additional $12,500 ($17,500 total) if you meet the “highly qualified” standard AND been either a math or science teacher OR a special education teacher. Special education teachers must be providing special education to children whose disabilities correspond to your special education training.
The standard repayment schedule on most Federal Student loan programs is 10 years. If you anticipate loan forgiveness, you will want to capture as much as possible. You may want to consider asking your loan holder for a forbearance or temporary suspension or reduction of payments while you are working the five years of your service. If the loan holder believes you will qualify for the TLF program and you will be able to pay for the entire loan balance at the time the five years is complete, they may waive payments for the time being. Be aware interest may accrue during this time period, but if your loan balance is going to be forgiven anyway this is not of any concern. Carefully consider your loan repayment options and ensure the option you choose will meet the requirements for the Student Loan Forgiveness.
The application process can be pretty painless.
But there are countless horror stories of applying three and four times before being approved. This frustration can lead to applicants throwing up their hands and just saying forget about it. Just take your time and make sure you check all the boxes. There is an application to complete and fill out. One section of the application will be completed by the “chief administrative officer” (usually your human resources, principal, assistant principal, or district superintendent) of your school. This person has access to your employment records and can authorized to verify your employment. Be sure to review this part of the application to double check for accuracy and to ensure you get credit for every year you have worked in a qualifying position.
Stringent Process & Lengthy Commitment
The Teacher Loan Forgiveness and TEACH Grant Programs are just a couple of the programs that may be able to help make education more affordable. Unfortunately, the stringent application process and lengthy time commitments are out of touch, particularly for recent Millennial graduates. If you haven’t heard, teaching isn’t easy. Nearly half of all teachers who enter the profession leave by their fifth year never to return. In high need schools, like those that qualify for teacher loan forgiveness and TEACH Grants, the number is less than one in four according to the National Commission on Teaching and America’s Future.
Lack of Communication
Another stumbling block causing a lack of participation in these programs is that many of these programs are not proactively communicated to educators. Many educators will tell you they don’t even find out about the programs until years into their career. This lack of communication is extremely unsettling to someone that has already taught in a qualifying position for 3 or 4 years. As we noted earlier, there is no way to get credit for years of service you have already completed. The clock starts from the time your application is approved NOT the day you started working in a qualifying position.
Long Term Planning
Delayed gratification of these programs is a problem. We live in a Twitter world of instant gratification. The thought of filling out an application for something you may or may not get for staying in qualifying position for five years may not be much of a priority for someone trying to figure out how to be an adult.
All of these factors contribute to the dramatic under utilization of these programs. In fact, a 2015 study from The Government Accountability Office (GAO) estimates 0.8 percent of the potentially eligible population participates in the Stafford Teacher Loan Forgiveness and 19 percent of those eligible participate in the Teacher Education Assistance for College and Higher Education (TEACH).
Much of what has been discussed and what is available focuses on undergraduate education. The reality for most educators today is that they have to pursue masters’ level coursework to achieve a higher pay scale and career advancement leading to additional investment in their own education, and for many more loans that they are saddled with.
The last thing my soapbox should do is sway someone from pursuing their dreams of being an educator. Teachers are amazing people who obtain personal reward that can far outweigh any financial rewards through the fulfillment of their profession. The government is trying to reward their service in a financial way to encourage talented youth to continue to pursue this noble profession. The hope is that more can be done to align the incentives and ensure that every person in education is made aware of the programs.
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