The following is a guest post by Cary McCall. While reading a post at One In Jesus I saw Cary made a comment about debt forgiveness for ministers. I asked him to explain more and he sent me this post. I read it and even got permission from the website owner, Jay Guin to use this post that he also has on his website. If you have any questions either Cary or I could try and answer them in the comments.
One of the most burdensome financial obligations faced by many young ministers is an increasing student debt load. The rising cost of higher education is forcing many to rely heavily on financial aid, both for undergraduate and graduate educations. This is compounded for ministers who have sought education at private Christian universities, some of which have tuitions surpassing $700 (or more) per credit hour. The Master of Divinity, the most common ministry degree for preachers, is 84 hours. Although some schools help with scholarships and grants, most students end up with significant amounts of debt.
Most churches try to offer reasonable living wages to their ministers, but with heavy debt obligations, many ministers still struggle to keep things under control financially. Many ministers have no choice but to take on second jobs or rely on spouses to make up the difference in needed family income.
However, as of July 2009, many ministers now have a way to substantially reduce, and in some cases eliminate, the burden of their student loan debt. This is made possible by taking advantage of two programs now offered by the Federal Government: Income-Based Repayment and Public Service Debt Forgiveness.
About Public Service Student Loan Debt Forgiveness and Income-Based Repayment
Public Service Debt Forgiveness is part of the federal College Cost Reduction and Access Act of 2007. This program discharges the remaining principal and interest after 10 years of monthly payments on loans serviced through the Direct Loans program of the Department of Education and applies to those who work in any number of public service fields. By law, this includes employees of all non-profit 501(c)(3) organizations, which includes the vast majority of ministers. However, Public Service Debt Forgiveness is only of limited value by itself because standard repayment plans have debts completely paid off in ten years. The only option for reducing actual payment amounts before the end of ten years was the Income Contingent Repayment plan.
Income-Based Repayment is a new payment plan made available on July 1, 2009. This plan, combined with Public Service Debt Forgiveness, is what produces the most value for most ministers. Income-Based Repayment introduces an entirely new formula for calculating monthly payments based largely on Adjusted Gross Income (taxable income), marital status, and family size. Ministers gain a distinct advantage in these calculations in that significant portions of income are not included in most ministers’ Adjusted Gross Income. A married minister (filing separately) with two children, a $50,000 per year income with $17,000 in housing and other allowances, and a balance of $35,000 will most likely have his monthly payment reduced to zero under Income-Based Repayment. Assuming ten more years of work in ministry, his entire balance will have been covered by the federal government.
Qualifying for Student Loan Debt Forgiveness and Income-Based Repayment
Loans qualifying for both Public Service Debt Forgiveness and Income-Based Repayment must be serviced by the William D. Ford Direct Loans program through the Department of Education. However, loans serviced through other providers may be consolidated into the Direct Loans program for free at any time so long as they are Federal Family Education Loans (usually subsidized and unsubsidized Stafford, Perkins, SLS, or Grad PLUS loans).
Once loans are consolidated into and serviced by the Direct Loans program, the borrower may enter the application process for Income-Based Repayment. After 120 monthly payments under the Direct Loans program while employed in a qualifying public service position, the borrower may apply for Public Service Debt Forgiveness.
How Do I Have My Student Loan Debt Forgiven?
The consolidation and payment plan enrollment process is relatively simple, although it can take up to several months to complete.
Step 1: If you are a minister employed by a church that is officially registered as a 501(c)(3) non-profit organization? If yes, ask yourself if you truly believe that you will work in ministry for the next ten years. If yes, continue.
Step 2: Determine if your current loans are eligible for consolidation into the Direct Loans program. Any kind of Stafford, Perkins, SLS, or Grad PLUS loan counts.
Step 3: Determine if Income-Based Repayment plan will benefit you. Use this calculator at to determine if it will lower your current monthly payment.
Step 4: Consolidate loans into the Direct Loans Servicing Center by initiating the process at www.loanconsolidation.ed.gov . This can take several weeks, and up to two months in some cases.
Step 5: Enroll in the Income-Based Repayment Plan through the Direct Loans Servicing Center.
Step 6: Make 120 of your new monthly payments.
Step 7: Apply for Public Service Debt Forgiveness.
Additional Information Regarding Non-Profit Workers Student Loan Debt Forgiveness
- For married ministers, the IBR formula is most advantageous for those filing taxes separately from their spouses. However, as of July 1, 2010, the law allows couples filing jointly to include the loan balances of both individuals in the formula. Forgiveness will not extend to spouses, however, unless they work in qualifying employment and apply the same processes to their own balances.
- Before the Public Service Debt Forgiveness provision, all loans amounts that were forgiven were considered taxable income. Under the new law, the amounts forgiven under Public Service Debt Forgiveness will not be taxable.
I work as a campus minister with a student debt load of approximately $32,000, the vast majority of that amount coming from two years of graduate seminary. Under the standard repayment plan I was enrolled in with Sallie Mae (a popular loan servicer), I was paying almost $400 per month. The IBR plan with my current Adjusted Gross Income – even as a single minister with no family – has produced a new monthly payment of zero. It looks likely that this payment amount will continue into the future, and will be all but guaranteed if I become married and start a family.
Resources For Further Research on Debt Forgiveness
- IBR Info – www.ibrinfo.org – Lots of clear, easy to understand information on the IBR plan and PSDF.
- Informative Brochure – www.ibrinfo.org/files/IBRinfo_brochure.pdf – Brochure outlining the basics of IBR and PSDF.
- IBR Calculator – studentaid.ed.gov/PORTALSWebApp/students/english/IBRCalc.jsp – The IBR calculator from the Department of Education’s website.
- Direct Loan Consolidation – www.loanconsolidation.ed.gov – The starting place for consolidating qualifying loans into the Direct Loans program.
- Direct Loans Servicing – www.dl.ed.gov – the Department of Education’s loan servicing division which handles all loans that qualify for Public Service Debt Forgiveness.
Editor’s Note: In some follow-up discussion with Jay and Cary it seems like your church should have 501(c)(3) status for you to be eligible. If you plan to follow this strategy it is recommended that you check the 501(c)(3) status of your church. If they do not have 501(c)(3) status then they can apply for it for the cost of $850 plus legal fees.