How will payments made on loans eligible for public service loan forgiveness using my Segal AmeriCorps Education Award be treated?
According to the Department of Education's regulations, if you elect to use your Education Award to make a lump sum payment on an eligible loan for which you are seeking public service loan forgiveness, the Department of Education will consider you to have made either (1) the number of payments that would result from dividing the amount of the lump sum payment by the monthly payment amount you would have made under your selected repayment plan; or (2) twelve payments - whichever is less. (See 34 CFR § 685.219(c)(2)). For example, if you instruct the National Service Trust to send $1,000 of your education award towards payment on a Direct Loan, and under your repayment plan you are expected to pay $100 each month, your education award payment would count as 10 payments towards PSLF, and you would not owe another payment for 10 months from the date the lump sum payment was applied. ($1000 ÷ $100/month = 10 payments, which is less than 12 payments). You should consider how much your monthly payments will be before requesting that all or part of your education award be paid towards an eligible loan to qualify for PSLF. For example, if you instruct the National Service Trust to send $4,725 towards your eligible loan, but you are only expected to pay $100/month on that loan, your lump sum payment will only count as 12 payments. ($4,725 ÷ $100/month = 47.25 payments, which is greater than 12 payments). However, if each year for three years you instruct that $1,200 be paid towards your loan, and $1,125 the fourth year, your education award will eventually count towards 47.25 payments, instead of just 12.
Here's how to apply this formula to your own situation:
(a) Enter the amount you are expected to pay each month under your repayment plan
(b) Enter the amount of your AmeriCorps Education award that you are requesting to be sent as a lump sum payment from the National Service Trust
(c) Now, divide the number from line (b) by the number in line (a)
If the number in line (c) is greater than 12, you may want to request a smaller portion of your AmeriCorps Education Award be applied to that loan.
NOTE: You should check the terms of your repayment plan to determine how amounts paid in excess of the required monthly payment are credited toward your loan. For example, someone who used an AmeriCorps education award of $4,725 at once to pay on a loan under an income-based repayment plan with an expected monthly payment of $100 who intends to qualify for PSLF will have $1,200 of the $4,725 count as 12 payments, and the remaining $3,525 would be credited first to accrued interest, second to collection costs, third to late charges, and last to the loan principal. (See 34 CFR § 685.221(c)).
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