10 things you need to know about student loans and Peace Corps
1. Not all loans are created equal.
Public vs. private, subsidized vs. unsubsidized, Stafford vs. Perkins, federal vs. private. It’s complicated but you need to know exactly what types of loans you have and have a plan for each. Talk to your lender and visit the Department of Education federal student aid website and the Consumer Financial Protection Bureau website on student debt repayment to learn about types of loans and types of repayment plans. Then visit the Peace Corps page on student loans to see how your service will affect each loan. If you have a private loan, you need to talk to your lender to see if any loan relief options are available. If they do offer loan relief, get the options in writing.
2. As a Peace Corps Volunteer, some federal loans could be deferred.
Federal Direct, Federal Consolidation and Stafford loans qualify for a deferment for up to three years during service. Federal Perkins loans qualify for deferment during service and for six months immediately after your service ends. For more details, visit the Peace Corps page on student loans. If you have a private loan, contact your lender to see if they provide loan relief during Peace Corps service.
3. Some federal loans may have lower repayment amounts while you are serving as a Volunteer.
Volunteers who have qualifying federal student loans and sign up for a qualifying payment plan may have their loan payments calculated based on their income. Since you’ll only be making a few hundred dollars a month, your monthly payment could be $0 per month during your service.
4. Serving in Peace Corps could get you two years closer to forgiveness of loans made under the Public Service Loan Forgiveness (PSLF) Program.
Under Public Service Loan Forgiveness (PSLF), the remaining amount of certain qualifying federal loans could be forgiven after 120 monthly, on-time, full, scheduled payments are made under a qualifying repayment plan while you work full-time for a qualifying employer. If you are under a qualifying repayment plan (such as an income-driven repayment plan) while you are volunteering, your payments could be $0 per month and could count toward those 120 qualifying payments. Signing up for a qualifying repayment plan at the beginning of your service is more advantageous since it allows you to make the greatest number of qualifying payments towards loan forgiveness. Signing up for PSLF under a qualifying repayment plan after your service ends can also result in qualifying repayments that are higher in cost. Call FedLoan Servicing at (855)265-4038 to see if you qualify. You need to be sure that your loans qualify for PSLF and that you get on the right repayment plan for PSLF. For PSLF information and PC service, visit the PSLF FAQs and the PSLF page on the Department of Education website.
5. Your Perkins Loans may be eligible for partial cancellation. If you extend to four years of service, you could get 70% cancelled.
If you follow your lender’s guidelines (e.g. serve at least 365 days; partial years do not qualify), you may be eligible for partial Perkins loan cancellation. You get 15% off your first year of service, another 15% for your second year, another 20% for your third year, and another 20% for your fourth year. If you consolidate your Perkins loan, it’s no longer eligible for partial cancellation or for Public Service Loan Forgiveness.
6. Your loan is your responsibility.
Chances are you will be at a site with limited internet and phone access, so assign someone in the U.S. to be your local point of contact for lenders and the Peace Corps. Many lenders will communicate only with the borrower, so you must set up a Power of Attorney (POA) with a family member or a trusted friend. Make sure this person has a copy of the POA document and copies of all your loan documents. They will need to follow up with your lender to make sure they have received everything once you leave for service and to ensure that you have sent in documentation to renew your deferment each year, if that is needed.
7. Moving abroad doesn’t mean you can forget about your loans.
Make sure you contact your lender as soon as you receive your invitation. Do your research before you leave for service and make sure you choose a plan that will work for you. Make copies of everything and put them in a safe place. Some lenders require deferment or partial Perkins loan cancellation documentation each year. Don’t forget to do this!
8. Uncle Sam might pay your interest on subsidized loans.
The Department of Education pays the interest during the period of deferment for subsidized Stafford Loans and subsidized Federal Consolidation Loans. The Department of Education does not charge interest during the period of deferment for Perkins Loans and subsidized Federal Direct Loans. Visit the Peace Corps page on different student loan types for general information. Always check with your lender for details on their policies.
9. You will need to pay the interest on unsubsidized loans.
Volunteers can use up to 75% of their readjustment allowance per month to cover interest due on student loans. At this point, that amount is $262.50 per month. If you are applying to Peace Corps Response, ask your recruiter directly about your options since you may not be able to use this money toward loan repayment due to the short-term nature of Response assignments.
10. Take care of your loans on time.
Travel stories are great, but they won’t be enough for your lender. You can get proof of your service to send to your lender on your first day. If you don’t take care of it on your first day, Peace Corps headquarters can also certify student loan deferment documentation while you are serving – not before or after you volunteer. You (or your Power of Attorney) need to take care of your loans on time. Allow at least two weeks to obtain a Certification of Service after you request it from Peace Corps. Being a Volunteer can be a really amazing experience, but it doesn’t make you immune to defaulting on your loans.
Edited by Nicolette Fertakis: Nicolette is the Volunteer Certification Specialist at Peace Corps HQ. She graduated from the University of Florida with a degree in Sociology and has Masters degree in Human Resources Management from Georgetown University. She served as an AmeriCorps VISTA Volunteer in Washington, DC, from 1999-2000.