Douglas Olsen
Volunteers with student debt can benefit from various loan forgiveness options and benefits during their Peace Corps service. These benefits include deferment, partial cancellation, income-driven repayment, or forgiveness. While serving, volunteers are generally responsible for repaying their student loans, but certain federal loans, such as Federal Direct, Federal Consolidation, and Stafford loans, qualify for deferment during service. Additionally, volunteers can receive a monthly living allowance, which can be used to make payments on bills. To take advantage of these benefits, it is important for individuals to understand the specific types of loans they have and carefully review the policies of their lenders.
| Characteristics | Values |
|---|---|
| Loan forgiveness | Volunteers with student debt can benefit from the AmeriCorps and Peace Corps loan forgiveness options. |
| Peace Corps Volunteer program | The two-year program offers a monthly living allowance that varies by country and is intended for volunteers to live at a level similar to the community they serve. |
| PSLF-qualifying payments | Volunteers without Perkins Loans can access the Public Service Loan Forgiveness (PSLF) program, which offers tax-free federal loan forgiveness after 120 months (10 years) of qualifying payments. |
| Deferment | 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 after service ends. |
| Interest payments | Volunteers might have to pay interest on unsubsidized loans during service, including Stafford Loans and Federal Consolidation Loans. |
| Private loans | Volunteers with private loans should contact their lender to discuss loan relief options during Peace Corps service. |
| IDR plan | Volunteers with federal loans can make low monthly payments on an IDR plan, with the remaining balance forgiven after 20 to 25 years, although this forgiveness is taxable. |
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What You'll Learn
Loan deferment options
Volunteers with student debt can benefit from loan deferment options, loan forgiveness, and income-driven repayment plans. While serving in the Peace Corps, volunteers are still responsible for any student loans they have, but there may be benefits available to them.
Federal Direct, Federal Consolidation, and Stafford loans qualify for a deferment of up to three years during service. Federal Perkins loans qualify for deferment during service and for six months after service ends. Volunteers with qualifying federal student loans and a qualifying payment plan may have their loan payments calculated based on their income. Since Peace Corps volunteers only make a few hundred dollars a month, their monthly payment could be $0 during their service.
To apply for a deferment, contact your lender to find out when they will accept your application. If your lender requires you to wait until the grace period expires, submit your application for deferment at the right time. You can bring the paperwork with you when you begin your service or leave it with your power of attorney to submit on your behalf. To renew your loans for deferment, submit a new application shortly before the deferment expires, along with a certification letter from the Peace Corps.
Loan Forgiveness
Peace Corps volunteers without Perkins Loans can access the Public Service Loan Forgiveness (PSLF) program, which offers tax-free federal loan forgiveness after 120 months (10 years) of qualifying payments. Volunteers can serve and then find a job in the public sector with a government or nonprofit organization to complete their 10 years of PSLF-qualifying payments.
Income-Driven Repayment Plans
Under an income-driven repayment plan, volunteers can make low monthly payments on their federal loans during their service. By continuing to make these payments, they can be eligible to have their remaining federal loan balance forgiven after 20 to 25 years. However, this type of loan forgiveness is taxable, so volunteers should be prepared for potential tax implications.
It is important to note that loan relief options may vary depending on the type of loans (federal or private) and the lender. Volunteers should contact their lenders and visit relevant websites, such as the Department of Education federal student aid website, to understand their specific options. Additionally, they should do their research and choose a plan that best suits their needs before departing for their service.
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Forgiveness programs
Volunteers in the Peace Corps are still responsible for any student loans they have during their service. However, there are several forgiveness programs and other benefits that may be available to help manage loan repayments. These benefits depend on the type of loan, the specific loan, and the volunteer's plans after their service.
Deferment
Volunteers can apply for a deferment on their student loans. To do so, they must contact their lender to find out when they will accept their application for deferment. Some lenders may require that the grace period expires before accepting the application. The Peace Corps can provide a certification letter to support the application for deferment. However, it is important to note that interest may accrue on unsubsidized loans during the deferment period.
Partial Cancellation
Volunteers with federal student loans, such as Stafford, Perkins, Direct, and Consolidated loans, may be eligible for partial cancellation of their loan principal. Perkins loans, in particular, may offer a 15–70 percent cancellation benefit. Volunteers with private loans should contact their loan servicer to inquire about any student loan relief for Peace Corps Volunteer service.
Income-Driven Repayment
Volunteers with federal student loans may be eligible for income-driven repayment plans, which can result in $0 monthly payments during their service due to their low taxable income. This strategy can help volunteers make progress towards loan forgiveness after 120 qualifying payments under the Public Service Loan Forgiveness (PSLF) Program.
Public Service Loan Forgiveness (PSLF) Program
Peace Corps Volunteer service qualifies as employment under the Department of Education's PSLF Program. This means that after 120 monthly payments are made under a qualifying repayment plan, the remainder of certain federal loans may be forgiven.
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Tax implications
Volunteers in the Peace Corps are responsible for any student loans they have during their service. However, there may be benefits available to help manage these loans, including deferment, partial cancellation, income-driven repayment, or forgiveness. These benefits depend on the type of loan, the specific loan, and the volunteer's plans after their service.
Regarding tax implications, a portion of the monthly in-country living allowance that Peace Corps Volunteers receive is considered taxable income. This means that they will need to file taxes and may have to pay taxes on this income. Two months before their departure for service, volunteers have the option to designate a financial point of contact to whom the Peace Corps can release a copy of their W-2 tax form. This financial point of contact can be a trusted individual who can receive and discuss the volunteer's financial information while they are serving. Additionally, volunteers can consult a tax advisor for more specific information and guidance on managing their tax obligations during their service.
It is important to note that the Peace Corps itself does not grant or deny student loan deferment, cancellation, or forgiveness. Volunteers should contact their lenders as soon as they accept a Peace Corps invitation to discuss their options and understand the potential tax implications of any loan benefits they may receive.
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Lender communication
Understanding Your Loan Types:
Before contacting your lender, it's essential to understand the types of loans you have. Federal loans, such as Federal Direct, Federal Consolidation, Stafford, and Perkins loans, have different benefits and requirements compared to private loans. Identify whether your loans are subsidized or unsubsized, as this will impact your repayment options.
Contact Your Lender:
As soon as you accept your Peace Corps invitation, get in touch with your lender. Discuss the options available for managing your student loans during your service. This step is crucial, as different lenders may have varying policies and relief options. Ask about deferment, forbearance, partial cancellation, income-driven repayment, or forgiveness possibilities. If your lender offers loan relief, make sure to get the details in writing for your records.
Designate a Point of Contact:
Chances are you'll have limited internet and phone access during your service. Therefore, it's essential to assign a local point of contact in the U.S. who can communicate with your lenders and the Peace Corps on your behalf. Set up a Power of Attorney (POA) with a trusted individual and ensure they have the necessary documentation, including the POA document and copies of your loan documents. This person will be responsible for following up with your lender and ensuring that all required paperwork is submitted, including annual renewals for deferment or partial Perkins loan cancellation.
Peace Corps Certification Letters:
Two months before your departure, you can download and print Peace Corps service certification letters. These letters can be used to support your requests for loan relief or deferment. You can also request certification during your service from in-country staff or by emailing the Peace Corps. These letters may be required by your lender to process any loan relief applications.
Allotments for Bill Payments:
You have the option to request allotments of up to 75% of your monthly readjustment allowance to make payments on bills during your service. These payments are made directly to the company holding your debt. Keep in mind that these allotments only take effect after you have completed training and sworn in as a Volunteer. Proper planning is necessary to ensure timely payments.
Tax Implications:
Be aware that your readjustment allowance and a portion of your monthly in-country living allowance are considered taxable income. You will receive W-2 forms while serving. You can designate a financial point of contact to receive a copy of your W-2 before your departure. Consult a tax adviser to understand the tax implications of any loan forgiveness or income-driven repayment plans.
Remember, lender communication is key to successfully managing your student loans while serving in the Peace Corps. Stay organized, keep records of all communications and documentation, and don't hesitate to seek clarification from your lender or the Peace Corps if needed.
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Living allowance
Volunteers with the Peace Corps are still responsible for any student loans they have. However, there are several benefits available to help manage loan payments, including deferment, partial cancellation, income-driven repayment, or forgiveness.
Peace Corps Volunteers receive a monthly living allowance. The specific amount varies by country and is determined by a number of factors, such as the cost of living in the community. The allowance is intended to allow volunteers to live at a level similar to the people in their community.
The Peace Corps will arrange local banking services for volunteers upon their arrival in the country. Two months before departure, volunteers will have the opportunity to download and print Peace Corps service certification letters. They can also request certification during their service from in-country staff or by emailing [email protected].
Volunteers may request an allotment or multiple allotments of up to 75% of their monthly readjustment allowance to make payments on bills during their service. These allotments must be paid directly to the company that holds the debt and will only take effect once the volunteer has completed training and sworn in.
The readjustment allowance and a portion of the monthly in-country living allowance are considered taxable income, and volunteers will receive W-2 forms in-country. Two months before departure for service, volunteers can designate a financial point of contact to whom the Peace Corps would release a copy of their W-2 form.
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Frequently asked questions
Volunteers with student debt can get out of debt faster through AmeriCorps and Peace Corps loan forgiveness options.
Volunteers without Perkins Loans can access the Public Service Loan Forgiveness (PSLF) program. This allows for tax-free federal loan forgiveness after 120 months (10 years) of qualifying payments.
To be eligible for PSLF, you must serve full-time in the Peace Corps as an AmeriCorps VISTA volunteer and have Direct Loans under a qualifying repayment plan.
Contact your lender to discuss loan relief options and submit a deferment application if necessary. Two months before your departure, you can download and print Peace Corps service certification letters.
