The following is a guest post by Cary McCall. While reading a post at One In Jesus I saw Cary made a comment about debt forgiveness for ministers. I asked him to explain more and he sent me this post. I read it and even got permission from the website owner, Jay Guin to use this post that he also has on his website. If you have any questions either Cary or I could try and answer them in the comments.
One of the most burdensome financial obligations faced by many young ministers is an increasing student debt load. The rising cost of higher education is forcing many to rely heavily on financial aid, both for undergraduate and graduate educations. This is compounded for ministers who have sought education at private Christian universities, some of which have tuitions surpassing $700 (or more) per credit hour. The Master of Divinity, the most common ministry degree for preachers, is 84 hours. Although some schools help with scholarships and grants, most students end up with significant amounts of debt.
Most churches try to offer reasonable living wages to their ministers, but with heavy debt obligations, many ministers still struggle to keep things under control financially. Many ministers have no choice but to take on second jobs or rely on spouses to make up the difference in needed family income.
However, as of July 2009, many ministers now have a way to substantially reduce, and in some cases eliminate, the burden of their student loan debt. This is made possible by taking advantage of two programs now offered by the Federal Government: Income-Based Repayment and Public Service Debt Forgiveness.
About Public Service Student Loan Debt Forgiveness and Income-Based Repayment
Public Service Debt Forgiveness is part of the federal College Cost Reduction and Access Act of 2007. This program discharges the remaining principal and interest after 10 years of monthly payments on loans serviced through the Direct Loans program of the Department of Education and applies to those who work in any number of public service fields. By law, this includes employees of all non-profit 501(c)(3) organizations, which includes the vast majority of ministers. However, Public Service Debt Forgiveness is only of limited value by itself because standard repayment plans have debts completely paid off in ten years. The only option for reducing actual payment amounts before the end of ten years was the Income Contingent Repayment plan.
Income-Based Repayment is a new payment plan made available on July 1, 2009. This plan, combined with Public Service Debt Forgiveness, is what produces the most value for most ministers. Income-Based Repayment introduces an entirely new formula for calculating monthly payments based largely on Adjusted Gross Income (taxable income), marital status, and family size. Ministers gain a distinct advantage in these calculations in that significant portions of income are not included in most ministers’ Adjusted Gross Income. A married minister (filing separately) with two children, a $50,000 per year income with $17,000 in housing and other allowances, and a balance of $35,000 will most likely have his monthly payment reduced to zero under Income-Based Repayment. Assuming ten more years of work in ministry, his entire balance will have been covered by the federal government.
Qualifying for Student Loan Debt Forgiveness and Income-Based Repayment
Loans qualifying for both Public Service Debt Forgiveness and Income-Based Repayment must be serviced by the William D. Ford Direct Loans program through the Department of Education. However, loans serviced through other providers may be consolidated into the Direct Loans program for free at any time so long as they are Federal Family Education Loans (usually subsidized and unsubsidized Stafford, Perkins, SLS, or Grad PLUS loans).
Once loans are consolidated into and serviced by the Direct Loans program, the borrower may enter the application process for Income-Based Repayment. After 120 monthly payments under the Direct Loans program while employed in a qualifying public service position, the borrower may apply for Public Service Debt Forgiveness.
How Do I Have My Student Loan Debt Forgiven?
The consolidation and payment plan enrollment process is relatively simple, although it can take up to several months to complete.
Step 1: If you are a minister employed by a church that is officially registered as a 501(c)(3) non-profit organization? If yes, ask yourself if you truly believe that you will work in ministry for the next ten years. If yes, continue.
Step 2: Determine if your current loans are eligible for consolidation into the Direct Loans program. Any kind of Stafford, Perkins, SLS, or Grad PLUS loan counts.
Step 3: Determine if Income-Based Repayment plan will benefit you. Use this calculator at to determine if it will lower your current monthly payment.
Step 4: Consolidate loans into the Direct Loans Servicing Center by initiating the process at www.loanconsolidation.ed.gov . This can take several weeks, and up to two months in some cases.
Step 5: Enroll in the Income-Based Repayment Plan through the Direct Loans Servicing Center.
Step 6: Make 120 of your new monthly payments.
Step 7: Apply for Public Service Debt Forgiveness.
Additional Information Regarding Non-Profit Workers Student Loan Debt Forgiveness
- For married ministers, the IBR formula is most advantageous for those filing taxes separately from their spouses. However, as of July 1, 2010, the law allows couples filing jointly to include the loan balances of both individuals in the formula. Forgiveness will not extend to spouses, however, unless they work in qualifying employment and apply the same processes to their own balances.
- Before the Public Service Debt Forgiveness provision, all loans amounts that were forgiven were considered taxable income. Under the new law, the amounts forgiven under Public Service Debt Forgiveness will not be taxable.
Personal Experience
I work as a campus minister with a student debt load of approximately $32,000, the vast majority of that amount coming from two years of graduate seminary. Under the standard repayment plan I was enrolled in with Sallie Mae (a popular loan servicer), I was paying almost $400 per month. The IBR plan with my current Adjusted Gross Income – even as a single minister with no family – has produced a new monthly payment of zero. It looks likely that this payment amount will continue into the future, and will be all but guaranteed if I become married and start a family.
Resources For Further Research on Debt Forgiveness
- IBR Info – www.ibrinfo.org – Lots of clear, easy to understand information on the IBR plan and PSDF.
- Informative Brochure – www.ibrinfo.org/files/IBRinfo_brochure.pdf – Brochure outlining the basics of IBR and PSDF.
- IBR Calculator – studentaid.ed.gov/PORTALSWebApp/students/english/IBRCalc.jsp – The IBR calculator from the Department of Education’s website.
- Direct Loan Consolidation – www.loanconsolidation.ed.gov – The starting place for consolidating qualifying loans into the Direct Loans program.
- Direct Loans Servicing – www.dl.ed.gov – the Department of Education’s loan servicing division which handles all loans that qualify for Public Service Debt Forgiveness.
Editor’s Note: In some follow-up discussion with Jay and Cary it seems like your church should have 501(c)(3) status for you to be eligible. If you plan to follow this strategy it is recommended that you check the 501(c)(3) status of your church. If they do not have 501(c)(3) status then they can apply for it for the cost of $850 plus legal fees.
More Great Articles:
- Dave Ramsey Debt Snowball: Paying Off Debt Spreadsheet
- Student Loan Payments When Poor
- Car Loan Payment or Pay Cash For A Car?
- Should You Consolidate Student Loans Or Pay Them Off?
- Ministers and Pastors Social Security Tax | Should You Opt Out?
- How to Graduate from College without Student Loan Debt
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{ 22 comments… read them below or add one }
Wow, very interesting, Craig! Good find. I didn’t know about this at all. It’s a great benefit for ministers.
Does this apply only to full-time ministers, or could it apply to part-time ministers as well?
I know this wouldn’t work in our church though. We’re not a 501(c)(3) org and I doubt we ever will be. Mennonites tend to be pretty big on that whole separation of church and state thing.
This did get me to look at my repayment options on my own student loans. I went to the graduated plan a while back, but maybe I should try the IBR if it is an option. At 4% interest, I’m in no hurry to pay off my loans.
Some great tips there Craig. Student debt held me up for a number of years, to an extent where it made sense to leave the country… not ideal on the ethical front but it was a real burden.
Thanks for the tips though. James.
According to what I’ve learned about what the bible says, Christians must repay what they borrow. So even if the world says we no longer owe a debt, God says we do. I’m sure that people with tons of student loans don’t want to hear this. I know I would not want to hear it. Even if someone files for and gets a chapter 7 bankruptcy, God says we still owe the money.
To anyone that borrowed money for education– you knew that someday you would have to repay it right? Or were you hoping that in the back of your mind you could get out of repaying some or all of it? So is this post in some way trying to offer those with student debt a way out of paying what they agreed to repay? Just wondering.
If you don’t repay the loans, then I guess I do, Mr. Taxpayer…. since you mentioned Federal programs… that means my tax money. Someone has to repay the money that the borrower does not repay correct?
Here is a tidbit from the late Larry Burkett-
Many Americans accept some form of government subsidy (entitlement, transfer) on a regular basis. (student loans, home loans, welfare, business loans)… Think about it. A student loan or home loan or business loan by the government is no more than government welfare or redistribution of our tax dollars.
Just wondering, Financial Bondage…would you have criticized the Sabbatical Year and the Year of Jubilee as well? You could use the same points to argue against people using those options.
If someone is truly in a position where it’s difficult for them to repay (which is a requirement for the IBR payment plan the author of the post mentions), then it seems that Biblical principles would actually support a sort of welfare or redistribution to ease their burden.
Personally, I won’t be using this option. And when I said I’m in no hurry to repay I mean that my money is better off invested (even just in bonds). But I don’t think you should be so quick to condemn those who might consider such an option without knowing their situation.
I’m not condemning anyone or criticizing anyone. sorry you took it that way. And I’m not even saying that I am right. Just posting what I believe the bible says. Christians must repay what they owe. As far as being in difficult positions to repay, that could be most anyone In America these days… most people are in over their heads with debt.
I’m not excusing personal responsibility, Financial Bondage. I agree we ought to repay what we owe. But I think rejecting the federal program because others will be paying for it is a sticky trap to fall in to. Do you pay your fair share for every government-run or subsidized program that you take advantage of? I doubt it.
I didn’t feel like you were condemning or criticizing me because I won’t be using this program and I do try to repay whatever I owe. But I also think there are legitimate reasons someone may need to use this option, and I felt that your comment may have put undue guilt on those people.
I’m not against condemnation where it is clear and deserved, but I don’t think that’s the case here. And I think we must be very careful about our words if we want our conversation to be full of grace and seasoned with salt.
@Paul
As far as the part time question I’m really not sure. A good of fashion studying of legal documents would be in order for someone who was seriously considering it as a part-time person.
@Financial Bondage
As for repaying, I think that if one qualifies for debt forgiveness then there is nothing wrong with that. Christians should understand the concept of forgiveness. If someone wants to forgive a loan then it is not wrong to accept that. The Bible has a lot to say about not collecting the debt from people who cannot afford it. The concept is very biblical.
Unfortunately, like any government program or incentive it can be abused. However, for those who legitimately quality this could be an option.
I’m not trying to make anyone feel guilty. When you can’t pay your bills it’s a bad place to be. I was there before myself. I know how it feels. I hope Craig is right on his last comment… I was just stating it’s not what I was taught. From crown.org. Crown says Christians must repay what they owe (as soon as they are able). They did not put an “unless” into that teaching. Was not trying to turn this into a big debate or argument…. just tossing out some ideas and viewpoints… If I am wrong then fine. Would not be the first time.
I wasn’t trying to make it a big debate or argument either, Financial Bondage. I’m sorry if you took it that way. Words can come across with the wrong emotions/meanings so easily. I had no anger or malice in what I was saying to you. I just thought it was an interesting discussion worth talking about.
Also, I’d be careful about relying on what you’re taught and try to focus more on examining things for yourself. Much of Crown’s material is good, but Crown is not infallible. Do not take their word (or anyone else’s) as the pure truth. Study God’s Word for yourself to see what it says. (And don’t use their Bible studies to do so…find another source or just look at everything in the Bible about the topic you’re studying. Nave’s Topical Bible Index is a good help for this.)
@Paul Williams – We’ve always admired the Mennonites and the Amish who’ve shied away from 501(c)(3) status and who’ve shied away from participating in government subsidies and welfare schemes that tend to promote dependency upon government (the Nanny State) while often diminishing our sense of personal responsibility and gratitude toward our Creator. Increasingly, the Nanny State is becoming a surrogate god for the true God in the minds of many, in the religious world, who’ve become seduced with this ‘free lunch’ nonsense. The Mennonites and Amish who stay true to their traditional principles of being beholden to no one except to ‘love one another’ will not suffer the pain of the whiplash effect when such ‘free lunch’ programs come to an abrupt halt as all such silliness eventually does. The reason it comes to an end is rather obvious. When something is “free” everyone wants one and if everyone wants one there is, eventually, no one left to pay for it.
You raised the issue of debt forgiveness as it relates to the old covenant Sabbatical Year and the Year of Jubilee. How do you justify mentioning the Sabbatical Year and the Year of Jubilee as an argument for debt forgiveness, in our current age, while maintaining your well known position that old covenant tithing is a relic of a bygone era?
@2 Credit Card Researcher – You provided an honest assessment and clarity to the discussion when, in regards to enjoying the privilege of subsisting off the backs of others, you said, “not ideal on the ethical front but it was a real burden.” If more people understood this on the front end of the student loan process, there would be far fewer people who would consider enslaving themselves, or their neighbors, to such debt. Debt, traditionally, has been a lobster trap for those seduced by the bait, but this student loan forgiveness scheme has ripped a huge hole in the trap allowing the irresponsible to escape the consequences of their decisions while throwing an additional heavy burden on their neighbors who Christ said we are to love as ourselves.
We ask the following of the group because it is clear you already understand this concept: Do we love our neighbors, as ourselves, when we enter the lobster trap of debt and then seek to shirk its consequences by placing those burdens on others? And, if we resent others throwing their burdens on our backs, without our consent, how can we justify doing the same? Isn’t charity, just like forgiveness, something we choose to do voluntarily versus it being extracted from us by the barrel of a gun?
Before we debate the morality of such “free lunch” schemes we should probably call a spade a spade. The concept of a “free lunch” is really just theft and slavery repackaged to be more palatable bait to those entering the lobster trap. To call it anything other than theft is being less than honest.
Again, we thank you for your honesty in portraying such schemes as being, “not ideal on the ethical front…”
@Steven and Debra
I’ll put a face on this program.
I have a friend who went to college. During her four years in college she accumulated student loan debt. She is now a missionary who is supposed to earn $24,000 per year. Unfortunately, some churches are no longer sending their checks and she is trying to make it on $18,000 per year.
If a government program is available to help her – why would it be unethical for her to use a government mandated program to ease that burden?
One might not agree with government programs, but is it unethical to take benefits that we quality for?
As a Canadian I am eligible to receive health care (yes, I know Americans hate the US health care system). It is unethical for me to visit a doctor within the Canadian system?
When Credit Card Researcher said what he did was not ethical I understood him as saying he left the country to avoid paying a debt. I don’t think he participated in this program. That seems to be very different than taking advantage of a government program. Are you saying the two are the same?
I understand that there are reasons why people might not like the program, I’m just not sure that those who quality and take advantage of the program somehow lack the moral character of other citizens.
@Steven & Debra: I appreciate your comments (both on my site and elsewhere). I see what you are saying, and in some cases I would agree that it is better to not take advantage of certain government programs. However, Mennonites do not have a strict stance on this issue of government subsidies and programs and many Amish are taking advantage of such programs as well.
Also, I only raised the issues of the Sabbatical Year and the Year of Jubilee to show that debt forgiveness for the poor and needy is a theme – I did not use it to support strict adherence to a law, as many do with tithing. If someone wants to use tithing as an example to support the theme of giving in the Bible, that is clearly acceptable. What I do not support is using a few tithing verses to set up a guilt system to get people to do something they should be doing out of love.
Regarding your friend who accumulated student loan debt…the danger of debt, so clearly borne out in this example, is that we can’t predict the future. When we go into excessive debt, we show our arrogance about how we perceive the future. Many people today are learning the hard way that they betted (gambled) much too heavily on their ability to predict the future. They are now being brought low (humbled) by their ill formed beliefs, decisions, and actions. Are you suggesting that your friend should be spared such important life lessons? How can people ever grow up and become responsible adults when they are bailed out of such folly?
Legalized theft is still theft. So, the question really is: Is theft ethical? I’ll let you answer that one for yourself.
The same test can be applied to murder. Legalized murder is still murder. So, the question could be asked: Is murder ethical?
How did the oppressive and haughty Jewish high priests deal with their desire to retain their power base when they perceived Christ to be a threat to their personal ambitions for money, power, and special favors from Rome? These so-called spiritual leaders (Jewish high priests), who were really wolves dressed in sheep skins, let their true loyalties slip (John 19:15) when answering Pilates question, “Shall I crucify your King?” These religious scoundrels disavowed Christ as being their King and declared Caesar to hold that sacred honor. These antichrists (II John 7) desired to have Christ murdered, but they could not do it themselves without breaking their own laws (John 18:31). So, they did an end run around the higher law (God’s law) and co-opted with the Romans to kill Christ by proxy. Craig, was it ethical for these high priests to kill Christ, by proxy, since they were qualified to do so under Roman law? Is there a higher law than man’s law?
Galatians 5:13-14 describes this higher law. It was the higher law Christ exemplified in all his actions and that we should strive for. Will we always be successful in carrying out this higher law? No, we won’t, but the first step toward striving toward such a worthy goal is recognizing it exists. If we learn to excuse theft and murder because we somehow qualified to do so under the perversity of man’s law, we, by default, ignore the higher law and become slaves to the flesh.
A more recent example of the higher law concept was vividly demonstrated during the Nuremberg war crimes trials. The Nazis attempted to excuse themselves from the atrocities they were accused of, by stating, “We were just following orders.” These Nazis were convicted of these atrocities based on the recognition of there being a higher law than man’s law. Sadly, the higher law concept is vanishing quicker than a Popsicle on a hot summer’s day. We are not convinced our own U.S. military would fare any better than the Nazis did if their actions were likewise judged to the same “higher law” standard.
So, the question remains, is there a higher law than man’s law and what are we to do about it?
My girlfriend is pursuing a job at a non-profit, and I think this could really help her with her student loans. Thanks!
While student loan become an astonishing devise on striving for educational attainment, these on the other hand seems to create a modified problem that deals with the high repayment rates. With this new program of Student Loan Debt Forgiveness and Income-Based Repayment, the burden is eases with just appropriate terms and considerable agreement.
As a pastor’s wife whose husband has student loan debt I was very excited to read your article, but the more I looked into it, the more discouraged I became. You see the studentaid.ed site says that “A private organization that is not a for-profit business, a labor union, a partisan political organization, or an organization engaged in religious activities (unless the qualifying activities are unrelated to religious instruction, worship
services, or any form of proselytizing) and that provides the following public services…”
You only qualify if you work for a company that is NOT an organization engaged in religious activities.
Go to http://studentaid.ed.gov/students/attachments/siteresources/LoanForgivenessv4.pdf for the full article
@Jaqueline
You are misreading the qualifications. Normally private organizations would not be considered ‘public service’ organizations, but this clause allows for groups and organizations that are unincorporated to be considered on the same level as incorporated entities assuming that they serve public works and also don’t qualify for being a non-profit.
In your specific concern, if you worked for a group that should incorporate as a 501(c)(3) – as many churches do – but have not and the only services they offer revolve around drawing people to their own cause, they are not considered to be operating in the interest of public works – rather, they are working for private interests (like any for-profit company does).
If you work for a church that is a 501(c)(3) organization – and therefore accountable to the state for the social and charitable operations that it provides to the public – you would qualify for assistance from the state.
If you work for a church that does not wish to be held accountable to the state in terms of its interests, applications of funds, etc., then the state assumes the church is self-interested and not engaging the public, does not wish to utilize the state entitlements towards their philanthropic purposes, and are therefore do not qualify for state assistance.
The downside for 501(c)(3) is that as anti-discrimination laws expand into new politically correct territory, participating churches will have less and less say in who they choose to help, who they determine needs help, etc. In other words, the state dictates what the public needs, and only institutions that serve those needs are entitled to state funding.
In terms of whether loan forgiveness is ethical – consider the simple rationale behind why this legislation was developed and enacted in the first place – to increase the quality of available public defenders. With six figure debtloads, many lawyers found themselves being forced to give up their dreams of fighting for the little guys because they could not pay off their loans (or pay them month to month) while working on public defender salaries. So to curb the brain drain and prevent private firms from forcibly drawing in defenders who were desperate, this legislation provided a way for people with exorbitant yet necessary debts to work for causes they believed in within the public sector, honor their commitments to underserved areas and populations, etc.
Another way of looking at it. Having left seminary with $60k in student loan debt, I would not be able to work for the church if I wished to pay those loans back without ICR. Now that IBR is available, I am able to serve the church and not become a wasted vessel in the private sector just because I cannot afford to work for the church that I went to seminary for 4 years to serve!
Granted, school should not be as expensive as it is – many palms have been greased at schools and the proliferation of student loans have inflated education prices – schools have been quick to invest and incorporate these funds into building projects, dormitory expansion projects, etc. to increase student volume and loan revenue. Thus began the moral downward spiral of higher education into a profiteering venture.
For those who despise the thought of students being forgiven loan debt at all, I hope that you have no investment portfolios that include income generated from investments in the banking and loan sector of the economy. It would be rather hypocritical of anyone with personal savings (or investments) in banks earning interest to assume that your accounts and share dividends did not benefit from the excessive loan practices. Now that student loan pools are contracting, higher education is forced to recede and what we see is an overleveraged monster that saw students as dollar signs and gave no reasonable thought as to whether the costs of education should continue to rise while inflation adjusted salaries across the board plateaued or sank.
So now, as a church employee, working for a company that produces social capital that is necessary, yes difficult if not impossible to monetize, often operating solely on donations and offerings – well if it is bad for the public sector workers to get a break for the thankless chores that are part of their job description then there will be no public services. People who have achieved the education required to perform those services will not be able to afford to work in those positions.
Whether we need a University educated clergy or not is another issue.
@Jacob
Thanks for your comprehensive response. I actually emailed a very similar response, but I should have also posted it here. I’m glad you more than made up for my failure to respond on the blog.
@Jacob
My husband has a Stafford Federal Student Loan and he actually called to find out about the IBR plan. They flat out told him that Ministers DO NOT QUALIFY and they quoted the same statement that I had previously written in my earlier post: “A private organization that is not a for-profit business, a labor union, a partisan political organization, or an organization engaged in religious activities (unless the qualifying activities are unrelated to religious instruction, worship services, or any form of proselytizing) and that provides the following public services…”
They said that because he is being paid by a church that he could not qualify.
I would like to believe that student loan forgiveness for ministers/pastors is avaliable, but we are talking about the government here!
If anyone has success with forgiveness as a minister/pastor, please let me know.
@Jaqueline
I’m working on some other things with the US government right now and it seems like I get five answers for every question I ask. If you are really interested in the program it might be worth having a lawyer review your situation.
Is it possible to “donate” debt to a non-profit organization?
1) If the ministry has a debt absolution fund
2) If the debt is fully paid and account is closed so the individual has no further use of it.
There is no money going to the individual, but to their creditor only.
Hopefully, the individual at some later time contributes to the debt absolution fund.
Is this a way to get God’s people freed up from some serious demonic bondage to debt?
If one is paying 30-40 % to IRS to generate income to pay down debt for which they are paying 20 plus percent interest, wow, what a debt trap.
How else do you get out?
Can the pastor of the NPO use this mechanism for his own debt?
Robert,
I’ve never heard of donating debt to a non-profit.
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