This episode of Fed Thread explains how federal employees can navigate their student loan payment options.
Federal student loan repayment rules changed July 1, bringing new repayment options and a narrower set of choices for some borrowers. For federal employees weighing Public Service Loan Forgiveness (PSLF), deciding what to pay each month has become more than a question of affordability. The wrong move could cost you money or sacrifice benefits you may not get back.
In this episode of Fed Thread, Betsy Mayotte, president and founder of The Institute of Student Loan Advisors (TISLA) explains how federal employees can navigate their options. Her advice starts with looking beyond the tempting lowest possible monthly payment, which isn’t always the smartest financial move.
Think you’ve got repayment all figured out? Or maybe this year’s changes have left you with more questions than answers. Whatever your situation, take this five-question checkup before making your next student loan decision.
1. If you qualify for forgiveness, should you pursue it?
Not necessarily. Mayotte says the goal is to pay the least amount out of your own pocket over time, not to chase forgiveness at any cost. If your balance is relatively low compared with your income, paying the loan off aggressively could cost less than pursuing PSLF. If you owe more than you earn, forgiveness may deserve a closer look.
The key is doing the math before choosing a strategy. Mayotte recommends using the student loan calculator on TISLA’s website, FreeStudentLoanAdvice.org, or on the student aid website, StudentAid.gov.
2. Should you refinance for a lower interest rate?
Proceed carefully. Mayotte warns that refinancing federal loans into private loans can mean giving up federal repayment protections, including eligibility for PSLF. A lower rate might look attractive today, but it could close a door you can’t reopen.
As she puts it, “There are no take-backsies on that.”
3. What about consolidating your loans? Is that still a good idea?
Probably not. Mayotte’s advice has changed with the new rules. Since July 1, consolidation may do more harm than good for many borrowers. A new consolidation loan can limit which repayment plans are available and, in some cases, affect progress toward income-driven repayment forgiveness.
There are exceptions, says Mayotte, including some borrowers with older Federal Family Education Loan (FFEL) loans who may need to consolidate into a Direct Loan to qualify for PSLF.
The main takeaway? Don’t consolidate just to simplify your payments without first checking what you could lose.
4. If you leave government early, do you lose PSLF?
No. Mayotte explains that qualifying months already earned toward loan forgiveness don’t disappear if you leave eligible public service employment. If you return to qualifying government or nonprofit work later, you can pick up where you left off.
She also recommends certifying qualifying employment annually, rather than waiting until the end to track down records, as those records may not exist anymore.
5. What happens if you can’t afford your monthly payment?
The first thing to do is to see if there’s another option that’s going to be more affordable before you miss a payment, says Mayotte. However, she encourages borrowers to look beyond the monthly bill and compare the total cost of their options over time. Income, family size, loan history and career plans can all affect which strategy makes the most sense.
Mayotte also points out that if you’re filing taxes jointly with your spouse, your monthly payment is going to be calculated based on your combined income—even if your income alone is supporting your loan repayment. The quickest fix is to file separately next year, says Mayotte, regardless of your marital status.
How did you do?
The real test, of course, isn’t a quiz score; it’s how you make your next move. Be sure to review your repayment plan and forgiveness progress regularly and use the free tools available at StudentAid.gov and TISLA’s website, FreeStudentLoanAdvice.org.
For the full episode’s insights on the latest options, trade-offs and mistakes to watch for, listen to the entire Fed Thread conversation, presented by Blue Cross and Blue Shield Federal Employee Program.
Catch more conversations on podcast platforms, YouTube or on the Fed Thread hub page.
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Alex Witt is host of the Federal News Network podcast Fed Thread, focused on federal employee work, wellness, benefits and finances.
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