In the second set of questions and answers about student loans, the Consumer Financial Protection Bureau’s Student Loan Ombudsman Rohit Chopra made a few mentions of the various service-specific loan forgiveness programs out there. Here, he gets into more detail and responds to questions about the one topic no one ever hopes to face: default.

I am curious about loan forgiveness. I currently work at a [nonprofit organization], and I am under the impression that after a certain number of years (I believe it’s 10) working here I qualify for loan forgiveness.
– What are the stipulations for loan forgiveness via working for a nonprofit?
– Do I have to be paying for my loans each year in order to qualify for forgiveness within the 10-year time period? If I was not paying because my Income-Based Repayment schedule said I wasn’t making enough, do those two years I’ve worked with the nonprofit not count?
– If I were to go back to school to do my PhD for a number of years, and then return to a nonprofit job, would the years prior to my PhD still be included in the years I need to total for loan forgiveness? Or do I have to start again post-doc? In other words, is the 10-year time frame consecutive or cumulative?

Rohit: You’re talking about the federal Public Service Loan Forgiveness program. This program provides loan forgiveness for Direct Loan borrowers who make 120 qualifying monthly payments, while working for a non-profit or government entity. It doesn’t need to be consecutive, but the payments must be on-time.

In my personal opinion, this program is not well-understood and may cause heartache for the first cohort of borrowers who try to get forgiveness in a few years. First, this doesn’t impact private student loans, just federal. If you have a private student loan with a 25-year payment schedule, you won’t be done after 10 years. It’s not an eligible loan.

Another thing I worry about is that many borrowers believe that they’ll get forgiveness after 10 years if they are on the extended repayment plan. This plan spreads out payments over a longer period, but it doesn’t count as a qualifying payment under Public Service Loan Forgiveness.

The borrowers who will benefit the most are the ones who enroll in the income-based repayment plan early. If you are on the normal, 10-year plan, there won’t be any balance to forgive after 10 years! I also recommend that borrowers annually certify their public service, so they can track progress and avoid the need to hunt down former employers for signatures later.

I have one loan that I defaulted on last year without knowing it. All of the notices were sent to my estranged dad’s address, and it wasn’t until I checked the federal student loan database last fall and contacted the company servicing the loan that I found out.

The company did offer a plan for rehabilitating the loan, but I couldn’t afford the initial payment (at least $1000), nor could I afford the monthly payments of about $200/month that they wanted. After graduation, the only full-time employment I found was working two part-time jobs and then just getting one full-time job that paid about $10/hr. Since I knew that rehabbing the loan is a one-shot deal and screwing it up would put me in a worse predicament, I haven’t contacted them since, as I can’t commit to something I’m not sure I’ll be able to maintain.

Would it be helpful if I started paying a small amount, like $25-$50 a month, until I found better employment or came into a small fortune and am able to afford to rehab the loan? Even if I don’t find a job that pays more, would continuing to send monthly payments like that over the long term make it likelier that I can negotiate lower payments for a rehab agreement?

Rohit: You should be careful when making partial payments, particularly if you are in default. Unless your servicer or debt collector agrees to accept a partial payment, this may not fix your credit or help you get back on the path to paying off your loan. Check out the CFPB’s online tool to navigate your options when in default on a student loan.

For private student loans in default, your options may be limited, particularly borrowers who are unemployed or may be experiencing long-term financial distress. We’re currently looking for ideas about how to help borrowers with private loans find an affordable payment option.

A handful of for-profit colleges in the U.S. have been accused of misleading students into taking out financial aid they didn’t need or weren’t qualified for. Additionally, there have been several lawsuits against for-profit schools, alleging the colleges made promises of job-placement and education standards they failed to live up to.

Given the higher rate of default by former students at for-profit schools, is there a possibility that these people, especially the ones who never received degrees or took out more aid than they needed, will ever see any option for relief, even through bankruptcy?

Last year, CFPB Director Cordray and Education Secretary Arne Duncan recommended that Congress take another look at the treatment of private student loans in bankruptcy.

But even bankruptcy may not be the best path for the many borrowers with private loans that are struggling, but still wish to repay their debts. For these borrowers, an affordable monthly payment may be sufficient, and would have the added benefit of preserving their credit so that they can one day take out a mortgage or buy a car.

For these private student loan borrowers, existing options may not provide enough flexibility to navigate tough times. We’re currently looking for ideas on policy options to help borrowers with private loans find an affordable payment plan. We want to hear from you.

This is Part 3 of 3 in a series of questions and answers from CFPB’s Rohit Chopra. Part 1 is for prospective students trying to pick the right financial aid packages. Part 2 deals with repaying, refinancing, and consolidating student loans.

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