Federal Loan Repayment Assistance Information

College Cost Reduction and Access Act (CCRAA)

The College Cost Reduction and Access Act of 2007 creates new loan forgiveness options. Summaries are provided below. Regulations for these programs were finalized in 2008. More detailed information can be found at www.equaljusticeworks.org and www.finaid.org.

Income Based Repayment Program (IBR)

A new program created by the CCRAA is called Income Based Repayment or IBR. Any educational loan borrower (public service not required) with a “partial financial hardship” (high debt burden to income) may be eligible for this program, which caps payments for federal loans. The payments are capped at 15 percent of the borrower’s “discretionary” income and if payments are made for 25 years, the remaining principal and interest is forgiven by the federal government.

It should be noted that the Income Contingent Repayment Program (ICR), which currently exists, is similar to IBR. One important difference, however, is that under ICR, the required payments on federal loans are capped at 20 percent of the borrower’s “discretionary” income and the formula for discretionary income results in a higher amount of income determined available for debt payments. Another important difference is that ICR caps the capitalization of the unpaid interest at 110 percent of the original principal balance, whereas IBR pays the interest on the subsidized loans for three years and capitalizes all other interest. ICR forgiveness is provided after 25 years, the same as IBR.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness provision in the CCRAA may be more attractive to public interest attorneys because the forgiveness provisions are effective after ten years of public service. A wide variety of occupations may be eligible employment because the definition of public service includes a lengthy list of employment areas, including “public interest law services (including prosecution or public defense or legal advocacy in low-income communities at a nonprofit organization).” Individuals who work in a non-profit or governmental legal organization, but are not attorneys, may be eligible because eligible employment includes “government” and “an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code.”

To be eligible, individuals will be required to make 120 payments after October 1, 2007, while working in eligible employment. In addition, individuals must have loans that are in the Federal Direct program. If their loans are not in the Federal Direct program currently, they may be able to consolidated into the program in July 2008.

Federal Perkins Loan

Perkins loans are unique among federal loans, because they offer a cancellation provision for persons engaged in selected forms of public service. A Federal Perkins Loan can be cancelled if it has not been consolidated yet and the borrower is employed full-time in certain employment, including as an employee of a public or non-profit child or family service agency providing services to high risk children and their families from low-income communities (which some civil legal aid attorneys have received cancellation under); employment as a law enforcement or corrections officer (which prosecutors receive cancellation under); and, most recently, public defenders. Attorneys who seek cancellation of their Perkins loans may submit a written request for forgiveness to the Perkins Loan Officer at their law school or university.

Federal Agency Employees

The Office of Personnel Management issued rules (5 CFR Part 537) permitting federal agencies demonstrating difficulty in recruiting skilled employees to offer loan repayment assistance. Under the rules, an employee must sign an agreement to remain in the service of the agency for not less than three years to receive the benefit. Agencies may pay up to $6,000 a year per employee, not to exceed a total of $40,000. Although Congress did not appropriate any funds to the agencies to support loan repayment assistance, some agencies, including the Commerce Department, Social Security Administration, Department of Justice and General Services Administration, offer this benefit to employees. For additional information, contact individual federal agencies to determine which agencies offer the benefit to employees or visit the OPM's loan repayment program site at www.opm.gov/oca/pay/studentloan/index.asp.

Senate Employees

In November 2001, President Bush signed legislation establishing a loan repayment program for Senate employees (Public Law 107-68).

U.S. Military

Many branches of the military offer some sort of loan forgiveness. For example:
The U.S. Army Loan Repayment Program provides that individuals enlisted in the Loan Repayment Program ("LRP") earn 33 1/3% or $1,500 (whichever is greater) toward the remaining original unpaid principal on all qualifying loans for each completed year of enlisted active duty up to $65,000. "Qualified loans" include Stafford and Perkins loans; private loans are not covered. The LRP payments will only be authorized toward the remaining original unpaid principal balances when the solider enters active duty. Loans incurred after entering active duty will not be re-paid. Payments are made directly to the lender; therefore payments made under the LRP are subject to federal and state taxes.

Judge Advocate Continuation Pay ("JACP") is designed as an incentive for judge advocates who are already on active duty to remain in service. While continuation is not a loan repayment program per se, it is anticipated that many graduates will use the pay to pay student loans. The JACP authorizes continuation pay of up to $60,000 for active duty judge advocates who have completed their initial active duty service obligation. The Air Force, among other branches of the Service, has established a Continuation Pay Program.

The Taxpayer Relief Act of 1997 established a deduction for student loan interest. The student loan interest deduction can reduce the amount of your income subject to tax. The Economic Growth and Tax Relief Reconciliation Act of 2001 amended the Taxpayer Relief Bill of 1997. Individuals, under certain income caps, who paid interest on a student loan may be able to deduct up to $2,500 of the interest paid. For more information, see IRS Publication 970.

The ABA has worked to stimulate more loan forgiveness and LRAPS and scholarships/fellowships provided by law schools, the federal government, state governments, and other private sources.

Learn more generally about the student loan issue as an ABA Legislative Priority.