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The pros and cons of loan assistance repayment programs

I avoid thinking about my law school loans because I immediately get depressed. There is no way I could afford to live and pay off my loans on a monthly basis without the help of loan assistance repayment programs (LARP). One of the benefits of working for a nonprofit is being able to apply for a LARP to offset my salary. I’ve been fortunate enough to receive several different LARP awards but, as I learned the hard way, there are some disadvantages.

Maryland’s Janet L. Hoffman Loan Assistance Repayment Program is one I’ve received in the past. Applicants must be Maryland residents and provide public service in state or local government or a nonprofit that assists underserved or low-income residents. Along with some other qualifications, there is a salary limit. An applicant can receive up to $10,000 for three years toward paying off their student loans  ($30,000 is a lot of money, especially since I work for a nonprofit!).

The downside to this program is that the award is considered a taxable grant. I had to weigh the advantages of paying down the interest and principal on my student loan versus having $10,000 added to my income at the end of the year and getting dinged for it on my income taxes. The benefit of paying down my loan was totally worth having to pay the taxes, of course. However, I wasn’t expecting how one lump payment would affect my eligibility for the federal loan forgiveness program.

The loan forgiveness program requires borrowers to make 120 qualifying payments toward their federal loans. After the borrower makes all of the qualifying payments, then the remaining balance of the loan is forgiven. I found out the hard way what is considered a “qualifying payment” — that the borrower has to actually be billed and make a payment on time.

So when I sent the $10,000 check as my payment, it was considered one qualifying payment, meaning I can’t make another qualifying payment until I’m sent a bill, which won’t happen until the end of 2013. Basically, my 10 years toward being debt free has been suspended until I receive another monthly bill for my loans. I can always make additional payments, but that will push my next bill out even further.

Basically, my ultimate goal of paying off my loans faster and taking advantage of the loan forgiveness program didn’t work out the way that I thought it would. I don’t regret taking advantage of the Janet L. Hoffman LARP. It’s just going to take me a little longer than expected to become debt free.

3 comments

  1. Many lenders will allow you to adjust your due date. If your $10k payment shoved your next payment due date out until 2014, your lender may be able to move up your next due date, and put you back on schedule.

  2. This is the sort of thing one would expect an undergraduate who’s never left home not to know. Your law school education doesn’t seem to have made much of an impact, even to the point of getting you to read (and understand) legal documents you sign. It’s even more surprising that you would tell someone.

  3. The federal “loan foregiveness program” will almost never kick-in. They have has acknowleded that it would only be applicable in rare instances. It’s essentailly a title without substance. (If you do the math and follow the rules that are required, you will quickly see how almost no one will qualify.) You were wise to take the LARP money.

    BTW – Is Pushkin a little uptight? Ease up on the caffeine.