Complete Guide to Student Loan Forgiveness: Peace Corps and AmeriCorps Edition

Well-known volunteer programs like the Peace Corps and AmeriCorps Volunteers in Service to America (VISTA) provide needed services and support to vulnerable populations. Additionally, they provide volunteers with exposure to new cultures and experiences, as well as living stipends and education awards.

Volunteers receive a lump-sum benefit at the completion of their service. These funds can be used toward transitioning back home or for education expenses, like student loans. Additionally, Peace Corps and AmeriCorps volunteers have access to various student loan forgiveness programs that can help reduce their overall debt burden.

Here’s what to know about Peace Corps and AmeriCorps student loan forgiveness options.

AmeriCorps and Peace Corps loan forgiveness: Perkins Loan cancellation

There are a few types of AmeriCorps and Peace Corps loan forgiveness programs, but one forgiveness benefit is available for a specific loan type. If you have federal Perkins Loans, you can qualify to have up to 70% of your Perkins Loan balance wiped away as an AmeriCorps VISTA or Peace Corps volunteer.

This benefit doesn’t apply to borrowers with private loans or other types of federal loans, like Stafford loans or PLUS loans. Loan cancellation is based on a tiered rate that reflects the length of your eligible full-time volunteer service. AmeriCorps VISTA and Peace Corps volunteers receive:

• 15% forgiveness of Perkins Loans for each of the first two years of service.
• 20% cancellation of Perkins Loans for the third and fourth year of service.

If you have qualifying volunteer service with the Peace Corps or AmeriCorps, apply for Perkins Loan cancellation with your school or loan servicer.

Public Service Loan Forgiveness for Peace Corps and AmeriCorps volunteers

For Peace Corps and AmeriCorps volunteers without Perkins Loans, you still have access to one of the most generous federal loan forgiveness programs: Public Service Loan Forgiveness (PSLF).

The PSLF program allows for tax-free federal loan forgiveness after 120 months (10 years) of qualifying payments. Although each volunteer program typically has a service cap, you can plan to serve as a volunteer, and then find a job in the public sector with a government or nonprofit organization to finish out your 10 years of PSLF-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.

There are two routes you can take to receive PSLF credit for your volunteer service. But each route affects how the number of PSLF-qualifying payments are determined.

Route 1: Receive a deferment or forbearance and make a lump-sum payment

Peace Corps and AmeriCorps VISTA volunteers can apply for an economic hardship deferment or for forbearance for the duration of their service commitment.

You won’t have a payment during your service terms, but you’ll need to commit to using your transition payment (or the Segal AmeriCorps Education Award) to make a lump-sum payment on your Direct Loans after completing your service.

There are limitations surrounding this method, including:

• The lump-sum payment must be made within six months of receiving your transition payment or education award.
• The number of qualifying payments is determined by dividing your lump-sum payment by the amount of your monthly payment when you entered your service commitment (i.e. before your deferment or forbearance kicked in).
• You can only receive up to 12 PSLF-qualifying payments, even if you served longer.

Although deferment or forbearance is an option, it isn’t the most advantageous route for receiving PSLF credit for your service. Instead, Peace Corps and AmeriCorps volunteers should explore income-driven repayment (IDR) plans that will significantly reduce their monthly payment and directly count toward PSLF.

Route 2: Make payments under an IDR plan during your service

Because your income will be very limited as a volunteer, most Peace Corps and AmeriCorps VISTA volunteers will benefit more from enrolling in an IDR plan and making consistent, on-time payments during their service.

Depending on the IDR plan, you can expect to pay only 10% to 20% of your discretionary income each month. You may even qualify for a monthly payment as low as $0 depending on your income and family size.

IDR plans include:

• Pay As You Earn (PAYE)
• Revised Pay As You Earn (REPAYE)
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)

Unlike with the deferment or forbearance option that’s limited to 12 months, you can receive full PSLF-qualifying payment credit for the duration of your service commitment. There’s no limit on the number of months of credits you’ll receive with this route as long as you meet all other PSLF requirements.

Additionally, most volunteers will save money under the IDR route because payments are capped based on your limited volunteer income. Whereas, using your transition payment or education benefit with the deferment route requires a payment based on your pre-volunteer income and repayment plan, which could be significantly higher.

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Options for IDR forgiveness

IDR forgiveness is another reason it’s better to make income-driven payments during your volunteer service, rather than going the forbearance or deferment route.

If you don’t plan to work for a PSLF-qualifying employer after your Peace Corps or AmeriCorps service (or have no idea what your future path looks like), then you’ll have an additional safety net for repaying your loans. After all, each payment (even if it’s $0) helps shave off time from your overall IDR forgiveness timeline.

By continuing to make low monthly payments on an IDR plan, you’ll be eligible to have your remaining federal loan balance forgiven after 20 to 25 years, depending on your IDR plan. However, this type of loan forgiveness is taxable, so save money for a potential tax bomb.

Note that a provision in the American Rescue Plan temporarily waives income taxes on discharged student loans through December of 2025.

Make a plan for your student debt while volunteering

Whether you have private or federal student loans, you’re still responsible for repaying student debt while serving in the Peace Corps or as an AmeriCorps VISTA volunteer. Ensure you have a solid plan to pay for your loans during and after completion of your service commitment.

Our team of student debt experts can help you plan for your volunteer service and beyond. We’ll work with you on a customized student loan repayment plan that fits your personal and financial goals. Schedule a one-hour consult or reach out to us in the comments with any general questions.