Public service work can wipe out student loans

If you're facing years of student loan payments but aren't making much money because you're working in public service, the federal government has some good news for you. A law that takes effect Tuesday could allow you to have some of your college debt forgiven.

The debt-forgiveness provision of the College Cost Reduction and Access Act, enacted last fall, is designed to encourage college graduates to enter -- and stay in -- public service careers that many people might spurn in favor of better-paying jobs.

Here's how it works:

What will the provision do?

The program will erase any student loan debt -- including principal and interest -- that a public service worker has after making monthly payments for 10 years.

What's the catch?

You must remain in a qualifying public service profession for the full 10 years that you're repaying the loans to be forgiven. If you work as, say, a legal aid lawyer for nine years and then quit to take a job with a private law firm, you're disqualified.

What qualifies as public service?

Generally, the program applies to anyone who works full-time for a state, federal or local government -- including police officers, firefighters, the military and public school teachers. It also applies to some people outside of government, including employees of tax-exempt, nonprofit organizations and those working in emergency services, public interest law or public child care, healthcare or social work.

Does this apply to all student loans?

No. Only Stafford, PLUS and federal consolidation loans are eligible -- and only if they are made through the U.S. Education Department's Direct Loan program.

What if I have Stafford or PLUS student loans that aren't part of the Direct Loan program?

As of Tuesday, anyone with a federally guaranteed student loan can convert it into a Direct Loan consolidation loan and thus qualify for the debt forgiveness option. For information on how to do that, go to loanconsolidation.ed.gov.

Should I consolidate all of my loans into the Direct Loan program?

If you think you'll be eligible for the debt forgiveness option, you might want to consolidate Stafford and PLUS loans through the Direct Loan program, but probably not Perkins loans, said Mark Kantrowitz, publisher of FinAid.org, a financial aid information website. That's because Perkins loans already have special features that can make them more attractive than consolidation loans, including heavily subsidized interest.