Here are the facts about public service loan forgiveness

  • In a recent CNBC story about one of the first people to qualify for public service loan forgiveness, we asked readers who also had made it to the end of the journey to write in.
  • We received a flood of comments and questions from borrowers that made it clear there's a lot of misinformation about the government program.
  • With the help of student loan expert Mark Kantrowitz, we've addressed some of the most common misunderstandings.
Students on campus at the University of Notre Dame
Alfredo Sosa | The Christian Science Monitor | Getty Images
Students on campus at the University of Notre Dame

In a recent CNBC story about one of the first people to qualify for public service loan forgiveness, we asked readers who also had made it to the end of the journey to write in.

We received just one success story. The rest of the comments and questions from borrowers made it clear there's a lot of misinformation about how the government program works.

One person's servicer said their loan forgiveness would be taxed (that's not true). Another wanted to know if their job counted as public service (It's complicated).

With the help of student loan expert Mark Kantrowitz, we've addressed some of the most common misunderstandings.

"Most myths start off rooted in truth, but twisted," Kantrowitz said.

In case you've never heard of public service loan forgiveness, the program was signed into law by President George W. Bush in 2007, and allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years of on-time payments.

There are three basic requirements:

1) Your loans must be federal direct loans.

2) Your employer must be a government organization at any level, a 501(c)(3) not-for-profit organization or some other type of not-for-profit organization that provides public service.

3) By the end, you need to have made 120 qualifying, on-time payments in an income-driven repayment plan or the standard repayment plan.

Believe it or not, that's just the basics.

Among the other points you should know: under public service loan forgiveness, your debt is forgiven tax-free.

Your private loans can't be forgiven; only federal loans qualify for public service loan forgiveness.

Kantrowitz said some people assume they'll qualify for forgiveness after 10 years of payments. However, it's not about how long you've been paying but how many payments you've made. Maybe you took a leave from public service work, for example, stopping the clock on your payments for a few months or years. It's after 120 qualifying payments that your loans will be eligible for forgiveness.

On that note, if you miss a payment, or if you switch jobs, your clock is not reset to zero. Your qualifying payments don't need to be consecutive.

Others asked if their employer counts if it's a contractor for the government. Not always, Kantrowitz said. "Government contractors must themselves be qualifying organizations for their employees to qualify for public service loan forgiveness," he said.

The best way to find out if your job qualifies as public service is to fill out the so-called employer certification form.

Many people think they need to fill out this form; in reality, it's optional. In theory, you could wait until you've made the 120 payments, then apply, Kantrowitz said. "But, it may be easier if you've been filing the employer certification forms all along, especially if one of your previous employers no longer exists," he said.

More from Personal Finance:

Here's what you need to qualify for public service loan forgivenessThe government may forgive your student loans if you meet these demands
Education Department is failing to provide public service loan forgiveness, senators allege

There's some 14 ways to repay your student loans, but to qualify for public service loan forgiveness you need to be enrolled in one of these four income-based repayment plans: Income-contingent repayment, income-based repayment, pay-as-you-earn repayment and revised pay-as-you-earn repayment.

The standard repayment plan also qualifies, but under it you'd have paid off your loans in 10 years anyway.

Others believe that consolidating their loans will not affect forgiveness. This is wrong, Kantrowitz said.

"Consolidating loans resets the clock on public service loan forgiveness," he said.

More and more companies are charging people to apply for loan forgiveness. You should not pay for this service, Kantrowitz said. "If you have to pay money to get money, it's probably a scam," he said. "You can go to StudentLoans.gov to switch repayment plans and do the work yourself for free. It should take less than half an hour."

He went on, "Take everything the lender says with a grain of salt." Seek confirmation with the Education Department, school counselors, a college financial aid administrator and on reputable web sites, he said.