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Student Loan Repayment for Law Enforcement: Forgiveness, Refinancing & More

Michael Lux Blog 0 Comments

Most law enforcement officers are grossly underpaid considering the important and dangerous work that they do.

The financial crunch for many police officers has only gotten more difficult as more and more departments require a college degree.

The good news for those in law enforcement is that there are a number of programs and tools available to help manage student loan debt.  The opportunities apply not just to police officers, but to other law enforcement officials such as bailiffs, crime scene investigators, corrections officers and agents of various government departments.

Student Loan Forgiveness Opportunities

Outside of some well paid federal agents, most law enforcement employees are forced to live on a pretty tight budget.

Those with larger student debt balances can especially benefit from student loan forgiveness.

Public Service loan forgiveness is perhaps the best know forgiveness program, and possibly the best option for many in the law enforcement community.  However, there are many other forgiveness programs that may also provide some much needed student loan relief.

-> Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) is not a unique program for law enforcement, but most law enforcement officers will qualify.

There are three basic requirements for PSLF:

  1. Have eligible student loans – Public Service Loan Forgiveness applies only to federal government student loans.  Those with student loans from a private lender will not be able to get those loans forgiven through PSLF.
  2. Work full-time for an eligible employer – All government employees fit the description of an eligible employer.  Employees of a 501(c)(3) non-profit are also eligible for PSLF.  The one type of employer that could be an issue for the law enforcement community would be private security and other subcontractors.  When it comes to employer eligibility, the Department of Education doesn’t look at the work done.  Instead, they focus on the type of employer.  Anyone working for a for-profit company will not qualify.
  3. Make 120 Payments on an eligible repayment plan – There are many different federal student loan repayment plans, but not all of them are eligible for Public Service Loan Forgiveness.  The best PSLF eligible plans are the income-driven repayment plans.  These plans allow borrowers to make payments based upon what they can afford, rather than what they owe.  A couple noteworthy plans that are not eligible are the graduated and extended repayment plans.  Borrowers do not need to work for 10 consecutive years in Public Service, so officers that leave the force for a couple years and then return can pick up where they left off.

The best way to verify PSLF eligibility and track progress is to submit an employer certification form (ECF).  Not only will this form document employer eligibility, but it will also trigger a review of loan eligibility as well as repayment plan eligibility.  It is recommended that anyone even considering PSLF submit an ECF on a yearly basis.

For more details on PSLF, including specifics about eligible loans, be sure to check out our article on the Fine Print of Public Service Loan Forgiveness.

-> Perkins Loan Cancellation

Perkins Loans were a federal government program to provide low-interest student loans.  Sadly, the program has been discontinued as of 2017.

Law Enforcement and Corrections Officers with existing Perkins Loans are eligible to have the loans cancelled after 5 years.

After each year of eligible work, a certain percentage of the debt is forgiven:

  • 15 percent of the original principal loan amount for each of the first and second years;
  • 20 percent of the original principal loan amount for each of the third and fourth years; and
  • 30 percent of the original principal loan amount for the fifth year.

Full details of the Perkins Loan cancellation program is available on the Department of Education website.

Those curious about whether or not they have Perkins loan can pull up a list of all federal loans, including specific loan types, on the Federal Student Loan Database.

-> Income-Driven Repayment Forgiveness

The law enforcement professionals that are not eligible for Public Service Loan Forgiveness may be able to get their student loans forgiven under income-driven repayment forgiveness.

Federal student loan borrowers are eligible to have their loans forgiven after 20 or 25 years worth of payments on an income-driven repayment plan — regardless of employer or job type.  Repayment plans within the income-driven repayment category include: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR).  This may be the best forgiveness opportunity for the law enforcement officers who technically work for a private company.

The downside is that this form of forgiveness takes a long time.  Additionally, any amount forgiven under this particular forgiveness provision is considered to be taxable income by the IRS.

Details on the various income-driven repayment plans and forgiveness strategy is available here.

Given the taxation on the debt forgiven and the long time required to achieve forgiveness, this route is most likely the best fit for borrowers who have massive amounts of federal student debt and no other viable path to eliminating the loans.

Loan Repayment Assistance Programs

Looking beyond the traditional federal student loan forgiveness programs, there are a number of Loan Repayment Assistance Programs (LRAPs) designed specifically for police officers, firefighters, and other public servants.

The idea behind these programs is to recruit individuals to perform much needed jobs.

-> Employer Specific Student Loan Assistance

Many larger police departments have loan repayment assistance programs.  However, smaller departments are starting to offer them as well.

The LRAP can take many different forms.  Some offer a large payment at the end of a number of years of service specially for paying down student debt.  Others will pay a certain amount each month towards student loans.

These programs all typically have monthly, yearly and lifetime caps.

There is also growing support to make employer-based student loan assistance tax deductible.  If Congress takes action, we may see many more employee assistance programs in the future.

Surprisingly, many of these programs are not well advertised.  Spending a bit of time investigating whether or not such a program exists at your current employer could be time well spent.

-> State/Locality Based Repayment Help

Outside of employer assistance programs, many states and cities have specific programs set up to recruit law enforcement individuals to their area.

Again, these programs are at times passed by legislature but receive very little attention.

The best tool for tracking down whether or not any of these programs exist in your area is to reach out to local resources such as a union or Fraternal Order of Police.

Repayment Strategy

All the resources and suggestions up to this point have focused on student loan forgiveness and outside programs.

These resources may help eliminate a portion of the student debt, but most borrowers will have to come up with a strategy to eliminate the remaining loan balances.

The good news is that there are a number of tools and tactics that can be used to keep payments manageable and pay off the debt at the same time.

-> Knock out the Private Loans

Programs like PSLF might be a great way to pay off federal student loans, but private student loan forgiveness programs don’t really exist.

Borrowers with larger private loan balances often face high interest rates and unforgiving lenders.

Often, the best plan for private loans is to refinance with a new lender.  Most borrowers are able to get lower interest rates and more favorable repayment terms.  This is because a graduate with a job and credit history is much less of a credit risk than an unemployed student.  Less of a credit risk for lenders means lower interest rates.

At present many companies are offering interest rates below 3%.

Refinance Lenders to Consider:
Laurel RoadLaurel Road Review: The lender currently offering the lowest possible rates in a number of loan categories is Laurel Road. That is good news for borrowers looking for ultra-low interest rates or payments as low as possible.Apply
LendKeyLendKey Review: The big advantage with LendKey is that they work with local banks and credit unions. The wide reach helps more borrowers get approved.Apply
SoFiSoFi Review: The biggest name in student loan refinance is definitely SoFi. They have a reputation for offering excellent rates on a variety of loan lengths.Apply

Borrowers that are not able to refinance will want to target the highest interest rate loans first.  Pay the minimum on all loans except the high interest rate loan.  Once the loan with the big interest rate has been eliminated, the next highest loan can be paid off.  The idea behind this approach is to pay as little as possible on interest over the life of all the loans.

Where refinancing at a lower rate is an easy call for private loans, it is much more difficult for federal government loans…

-> Make a Decision on Chasing Forgiveness or Repayment in Full

Things start to get really tricky when weighing aggressive repayment/refinancing against chasing after student loan forgiveness.

The ideal student loan forgiveness strategy is to pay as little as possible on an income-driven repayment plan until the debt is eventually wiped away.  Aggressive repayment calls for paying as much as possible as soon as possible.

Raising the stakes even higher, borrowers who refinance their federal loans with a private lender eliminate public service student loan forgiveness and income driven repayment plans as options.

One tool that can help estimate the various routes is the Department of Education Student Loan Repayment Estimator.  This tool allows borrowers to use their actual loans to see what monthly payments would be on various repayment plans.  It also helps calculate forgiveness and total spending.  Where there are some flaws with the estimator (such as the fact it assumes a 5% raise every year… which isn’t always in the cards on many police department budgets), the Repayment Estimator still can help.

Some borrowers will find that chasing forgiveness actually costs more than aggressive repayment.  Others may find that aggressive repayment is an easy call.

Those that are caught in the middle should focus on eliminating private loans while working towards forgiveness on the federal government loans.  Once the ideal route becomes more obvious, tactics can be altered.

-> Don’t Forget About Retirement

A final consideration for repayment strategy should be retirement.

Some employers still offer law enforcement personnel an excellent pension based upon the number of years worked.  These fortunate borrowers won’t have to worry about student debt having too big an impact on their retirement.

Everyone else will need to set aside money in their retirement account.

The good news for the officers who have access to a 457 or 403(b) retirement plan is that the money contributed to this plan can actually lower their monthly payments on federal income-driven repayment plans.  This presents an excellent opportunity to save more for retirement and have more student debt forgiven.

By contributing extra to the 403(b) or 457 account:

  • The officer saves extra money for retirement,
  • The officer lowers their tax bill due to the reduced Adjusted Gross Income (AGI),
  • The lower AGI means a lower discretionary income and lower income-driven payments, and
  • The lower payments mean more debt is ultimately forgiven for PSLF.

The key to this strategy is putting money in a pre-tax retirement funds.  IRAs, 401(k)s and HSAs will all have the same advantage.

Repayment for Law Enforcement: Final Thoughts

The best strategy will depend upon how much debt any individual officer owes.

Those with larger student loan balances and smaller incomes will benefit the most from programs like student loan forgiveness.

Those with smaller student loan balances and larger incomes will be the most likely to benefit from aggressive repayment.

There isn’t a simple solution and planning takes a bit of time.  However, by investigating the various resources and tools available, law enforcement officers can put together a plan that best fits their individual needs.

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