In this week’s edition of On Your Money, a listener named Michael e-mailed the following question:
"Coming out of graduate school, I will have around $30,000 in federal loans. My field of interest is municipal management, so could you please talk about the benefits that public sector employees have? I've been told that after 10 years of public sector employment, [the] remainder [of] loans will be paid for. Is it worth it to pay the minimum payment for ten years with only $30,000 in loans?"
According to the Federal Student Aid Web site, the Public Service Loan Forgiveness (PSLF) program was created to encourage individuals to work full-time (and long-term) in the public sector. Under PSLF, after individuals make 120 qualifying payments through certain repayment plans, the remaining balance of their Direct Loans are forgiven.
Certified financial planner Kevin McKinley of McKinley Money, in Eau Claire, says there are a couple of details to keep in mind about the PSLF program.
“The balance after ten years of making the minimum payments won’t be very big,” McKinley says. “It’ll be bigger than the quarter on the floor, but it won’t be monstrous because you will have hopefully paid down a lot of the debt.”
McKinley also says there’s no guarantee that the PSLF program will be in place 10 years from now.
As for Michael’s question about what to do, McKinley advises he pay off his loans as slowly as possible and focus on creating a financial cushion in case he loses his public sector job. Then, contribute as much as he can to his retirement plan.
“If the program is still in place in 10 years, all the better,” McKinley says.
On Your Money can be heard each Tuesday from 8-9 a.m. on the Ideas Network. E-mail your personal finance questions to onyourmoney@wpr.org.
