Student Aid

A new law that would forgive student loan debt for those who spend a decade in public service contains some important fine print.

The benefit, which is part of the 2007 College Cost Reduction Act and took effect this month, does not apply to a large pool of borrowers: those who have received government-backed private loans, as well as folks who have loans that are not guaranteed by the federal government. Oh, and provided they're eligible, borrowers actually won't be able to qualify for the benefit until October 2017.

Those eligible public servants must carry student debt borrowed either directly from the government to pay for school, or have participated in the Federal Family Education Loan Program and consolidated their loans via the government's Direct Loan program, a process that observers say is similar to refinancing a home mortgage. Only payments made to the new, consolidated loan count toward the minimum 120 monthly payments needed to qualify for the loan forgiveness program, although those payments do not have to be consecutive. The clock starts the day the law was passed -- Oct. 1, 2007 -- making the earliest date for eligibility Oct. 1, 2017.

So, what are the pros and cons of consolidating your student loans to qualify for the public service loan forgiveness benefit?

A consolidated loan can lock down a low interest rate and simplify debt if a borrower has several lenders. "Generally, the benefit outweighs the drawback," said Haley Chitty, spokesman for the National Association of Student Financial Aid Administrators, of loan consolidation. "Unfortunately, it can be kind of complicated."

Another benefit contained in the 2007 law is an income-based repayment plan, which could be used in conjunction with the public service loan forgiveness option. The approach would limit borrower payments to about 10 percent of a borrower's income, or lower if the borrower qualified. The public service forgiveness plan would then forgive the loan, if the borrower made those 120 monthly payments while working in a public service job.

But how can young students know where they're going to be in 10 years?

"That's a weakness in the program," said Chitty. "It offers this public loan forgiveness, but it could be difficult to be eligible. Who knows over 10 years, if your employment will change? Unfortunately, that's something you have to consider."

Mark Kantrowitz, publisher of FinAid.org, noted that some private lenders offer benefits not available in the Direct Loan program, and those benefits could be denied if a borrower consolidates her loans. According to Sallie Mae, the country's major private provider of student loans, some of the benefits it offers include interest rate reductions and credit toward the loan for timely payments.

A consolidated loan also can change a borrower's interest rate -- favorably or unfavorably, depending on whether the borrower has a fixed or variable rate and how the loan is structured. For those with variable rates, it could benefit the borrower to lock down a low interest rate through consolidation.

More information about the public service loan forgiveness program is at http://www.ibrinfo.org. The Education Department has not yet created an application process for the benefit.

To find out more about consolidating a FFEL loan, borrowers can contact Education's Student Loan Office, or its loan consolidation site, which has additional information about the pros and cons of consolidation.