• The Segal AmeriCorps Education Award can be used to repay qualified student loans.
  • There are loan strategies for using the award effectively.
  • While serving, AmeriCorps VISTA members (who elect to receive the Education Award) and AmeriCorps members can place their qualified student loans in forbearance. This means they won't make payments while serving and the interest that gathers on their qualified student loans will be paid for upon successful completion their term(s) of service.
  • There are additional options for student borrowers. These include government programs that might lower your loan payments while you serve based on your living allowance (Income-Based Repayment). You might pay as little as $0 per month, while you serve. A second program might wipe away your loans completely if you work for 10 years full-time at a nonprofit or government agency (Public Service Loan Forgiveness).

Loan Strategies

With qualified student loans, you can use your Education Award as a lump sum to "skip" a number of payments (and this can last for years) OR you can reduce your loan principal to lower your payments and get rid of your loan sooner. View other sections to learn more about repayment options.

These considerations can also help you while you serve:

  • If you are considering the Public Service Loan Forgiveness (PSLF) program to wipe out your student loans in 10 years, you need to have Direct Loans as your lender. If you don't, you can consolidate your loans now. Details are at the site's Public Service Loan Forgiveness resource.
  • Which choice is better for you? National service forbearance or the Income-Based Repayment (IBR) program?

Forbearance

If you have qualified student loans, you might be eligible to get all or part of the interest that accumulates during your service term paid for you. Forbearance means that you neither make payments nor pay interest on your loan(s) over a specified period. In other words, you will not have to make payments on your loan(s) while you serve. Then after you successfully complete service, the National Service Trust will pay the interest that gathered while you were a member. Loans do not go into forbearance automatically. There is a forbearance process to follow, the earlier in your term, the better. Note: private loans do not qualify for forbearance.

If you put your loans into forbearance and want to count your service term toward the 10-year Public Service Loan Forgiveness program, there are specific steps to follow.

Is forbearance available for members serving in a term without an education award? Yes, members who have received the value of two full-time Education Awards are eligible for forbearance during their service terms and to have their accrued interest paid after successfully completing their service.

CNCS Legal Disclaimer: "The National Service Trust can certify your AmeriCorps or VISTA status, but only the loan holder can determine your eligibility for forbearance. Contact your loan holder if you haven't heard from them within four weeks of submitting your information to the Trust."

Note:

  • The interest that CNCS pays on your qualified student loan is taxable income. The amount in taxes is substantially less than the amount of the interest CNCS pays for you, but you are required to pay it.
  • If you are an AmeriCorps VISTA member electing to NOT receive the Education Award, you are not eligible for national service forbearance. You may have other options to make repayment easier during your term of service, such as Income Based Repayment (IBR). Other possibilities include Income Sensitive Repayment (ISR) and Income Contingent Repayment (ICR).
  • CNCS will NOT pay interest on qulified student loans if you fail to complete your term of service. Exceptions will be made only for compelling personal reasons. It's up to your individual program to determine those circumstances.

Loan in Default

Most qualified student loans that are in default are not eligible for forbearance. If you have qualified students loans that went into default before you began your service, you can attempt to negotiate an arrangement with the loan holder (or collection agency) to bring the loan out of default so forbearance can be granted and interest paid.

Private Loans

Private student loans are not eligible for the national service forbearance. Nor are they eligible for other federally backed deferment programs. While federal student loans are backed by the U.S. Government, private loans are not. Private loans are offered when students cannot borrow enough through federal programs to cover their school expenses. While the applications may make them look like federal student loans, they have more in common with a bank-issued credit card.

State Agency Loans

Students with loans from a State Agency cannot place them under national service forbearance because they are not federal loans (although you can use the Education Award to repay them). These loans may be eligible for other forbearance or deferments.

Income-Based Repayment

This program helps make educational loan payments more affordable for high-debt/low-income borrowers, including AmeriCorps members living on a stipend. Serving in an AmeriCorps program can make a borrower's monthly payments as low as $0-5 per month, based on income.

Things to consider during service:

  • Apply for income-based repayment through your lender. If you can't find links on your lender's website, give them a call.
  • Even if the payments are $0-5, each month counts toward the 120 months needed to take advantage of the Public Service Loan Forgiveness program.
  • Income-based repayment does not require that you are in public service, only that your income is low.
  • Your payments will be recalculated annually.
  • Income-based repayment works with virtually all federally-backed student loans.
  • You do not have to have Direct Loans to qualify, just any lender that offers IBR. (Search for "Income Based Repayment" on your lender's site to learn more).
  • In many cases, it is better for married people to file separate tax returns when enrolling in the IBR program. This also depends on the laws in your state. See a tax consultant to find what makes best sense for you.
  • Participation is not a good idea if you will earn a high income in the next few years and/or not have 10 years employed in the public service sector. The low payments you'll make early in the program will cause you to pay more in interest down the road.
  • The program started in July 2009.
  • If you are enrolled in the program (and continually qualify) for 25 years, your loan balance will be forgiven, no matter what the amount. (Any forgiven amount is subject to taxes in the year it is forgiven.)

Loan Forgiveness

If you work full-time at an eligible nonprofit or government agency while making steady qualified student loan payments for ten years (120 monthly payments), the federal government will forgive the remaining balance of your student loans. Careers include teaching, social work, military service, disability assistance, emergency management, and others.

What you need to know:

  • To receive credit toward the PSLF while in AmeriCorps, you need to serve in a full-time position. Part-time positions and Summer Associate positions do not count.
  • You need to make loan payments while serving to qualify. Based on your living allowance, your payments might be small if you are participating in the Income-Based Repayment program.
  • For members placing qualified student loans into national service forbearance (not IBR): When you complete service and earn your Education Award, you need to use your Education Award to make a lump sum payment on your loan equaling one payment for each month you served.
  • For members placing qualified student loans into IBR: When using your Education Award to make payments, make 12 payments per year rather than making a "lump sum" payment.
  • PSLF started in October 2007. Public service employment prior to that doesn't count.
  • The 120 months do not need to be consecutive.
  • PSLF only works on federal "Direct" student loans. These are loans with the federal government as a lender. To participate in this program, you will need to consolidate your loans from Sallie Mae or other loan companies into Direct Loans. It doesn't work on Perkins or parent PLUS loans.
  • Keep a file with your pay stubs for ten years (120 months) as proof of your full-time employment in an eligible agency.
  • The amount forgiven at the end of the 10 years is NOT considered taxable income.


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