I am currently a state criminal prosecutor. I consolidated my federal student loans through direct loans and have been paying on the IBR plan for about a year now. I also qualify for PSLF. I found out today that I have received a John R. Justice grant in the amount of $2500. This grant is need-based and intended to help state prosecutors and PDs pay their loans. However, am I correct that if the grant is applied towards my loans under my current plan, it will only relieve me of a single payment (my payments are currently $230/month, approximately $86K in underlying debt), and it could actually end up hurting me due to the fact that the grant is considered income and thus could raise the basis for my IBR calculation next year? Am I better off just declining this “help”?

Ooo, good questions!  I was just working on JRJ stuff this morning.  FYI, I’ll be posting some updates on future funding for JRJ soon.

A couple of things: what state are you in?  JRJ distribution policy is different depending on the state administering entity.  You might be able to convince them to make more than one payment.

Also, there is some new uncertainty about whether JRJ benefits will necessarily be taxed.  I need to write that up as well, but begin by reading this about a similarly structured program for civil legal aid lawyers: http://askheatherjarvis.com/blog/claarp-benefits-not-taxable-as-income and bear in mind that JRJ is administered by the Department of Justice as passed through to the states, so does not fit super cleanly into this new IRS analysis.

Look for new posts on this topic on my blog coming soon.

Thanks for the information! I am in Nevada and have sent an email explaining the situation to our program administrator. I asked if they would be willing to split the grant up into monthly payments instead of paying a lump sum. I’ll report back when she gets back to me.

The program administrator finally got back to me today and this was the response:

“I am sorry but, no, the payment will be in one lump sum.  First, all money must be paid out by 12/30/11.  Second, it would be a bureaucratic nightmare for me to send monthly payments, if everyone asked for that service.  As in the original email, it is up to you to work out with your lender how it is applied to your account.”

I contacted Direct Loans and they told me as expected that they would not split up the $2500 into separate monthly payments if it was given in one lump sum. Given this, I guess my best course of action is to just say “thanks but no thanks” to the John R. Justice money. This strikes me as an odd result, given that I think the majority of people in my position (working in public service with federal student loans) would be taking advantage of both IBR and PSLF. Thus, it seems that the people JRJ was directed at helping cannot take advantage of the program. Does that seem right?

Jake, I think I’m finally getting somewhere on this.  Working to encourage JRJ administrators to see the problem with this.

Great! I sent an email to the national program administrator a while ago, but I haven’t heard back. Please let me know if you hear anything. Thanks!

One more thing, Jake.  Which state are you in?

Nevada.

Heather, I have a question about consolidation and the PSLF program.  If someone has a combination of private and federal loans can they consolidate the loans into one package that will qualify all of their loans for the PSLF program?

Heather, here’s the issue I’m noticing with JRJ, (Kentucky)

  Like other states, or state administrator pays in one lump sum.  I’ve talked to them today, and they basically said that while it would be a nightmare to split it up month for month for us, they’re also afraid they’ll lose the money if they do that because they have to show it going out at a certain time.

  Now I’ve had different results from my Direct Loans people in that when I called them, it seemed like it was no problem for them to split my lump award up over the course of many months of payment.  We’ll see if that happens, but hopefully it does.

  What I did see, however, is that any payment made in a lump WILL NOT COUNT as anything more than one qualifying payment for PSLF.  So I guess this means that while I’m poor enough to get this award, it doesn’t help for my qualifying payments, and almost acts as a penalty really.  I’ll get relief from my monthly payments for a while, but about 9 months won’t end up counting for PSLF and I will have to work longer than the ten years to qualify, only because I was lucky enough to get this award.

Any insight?  I’m currently setting up a listserve of all KY public defenders who receive this award, and will try and get the prosecutors as well, although that’s tougher.

Here’s an update on how my situation turned out:

Despite the fact that I declined the grant (in writing), it was issued to me anyway. That’s government bureaucracy for you. I ultimately decided to roll with it and see what happens.

The JRJ grant of $3,000 was deposited into my direct loan servicing account on 1/1/12. This caused direct loans to adjust my payment schedule and stop taking payments out of my bank account. They essentially treated the grant like a pre-payment. My next payment when I looked at my account in January 2012 was due January 2013 ... in the amount of $900 dollars! (My previous payment was $280 /month ... the amount was slightly lower when I started this thread)

I called direct loans to get an explanation. I was told that the payment mix up was due to them no longer getting our AGI directly from the IRS. They now require us to send in tax returns on a yearly basis. The $900 /month payment was based on them not having received a current tax return from me. It was basically my full payment amount assuming my income was above the threshold for assistance.

When I asked about the way the $3,000 grant was being treated direct loans confirmed they treated it like a pre-payment. Thus, I was not receiving credit for any of the $3,000 JRJ grant for IBR purposes, although the grant had moved my payments forward a year. I asked how I could fix this and direct loans had me manually re-activate my IBR payments. This was not a quick fix. The next payment that will count for me for purposes of IBR is my May 2012 payment. Basically, I missed out on 3-4 months of “qualifying payments” because of the JRJ grant.

The bottom line for me is that the $3,000 I received from JRJ stopped my IBR “qualifying payments” cold, and I’m not even sure that the initial $3,000 counted as a single “qualifying payment.” It has taken me a number of months to get things back on track. There has to be a better way to do this. How is this helping anyone?

Have you made any headway on your end, Heather?

The reason that the large payment caused you to not have IBR payment due for a few months after that is because of how lump sum payments are handled.  If the amount of the excess payment is equal to or greater than what you’re normally due for the month, then your loan servicer assumes that you intend the excess to be intended to satisfy future month bills, and doesn’t bill you for a period of time (depending on the amount of the excess payment).  However, you have the right to tell your serivcer that you do not want a lump sum payment to “advance your due date”, and you should continue to be billed for subsequent months, like you would have otherwise been.

It might be too late now, since the payment was received so long in the past, but if you’re still “paid ahead”, your servicer might be able to get you out of that status.

I am a prosecutor in NY State. I just received a tax bill from the IRS from 2011 for $990 regarding the $3700 grant I received from the John R. Justice Loan Forgiveness. Do you have any information regarding the tax implications? I understand that PSLF is not going to be charged as taxable income when that loan is forgiven. But to be charged taxes on the $3700 when it was directly applied to my loans, and isn’t even a drop in the bucket compared to what I owe, I feel like I am being penalized for even taking the grant.

The IRS has indicated that JRJ benefits can be EXCLUDED from taxable income: https://www.bja.gov/Programs/IRS-JRJ-Letter.pdf

This interpretation was only issued by the IRS at the end of 2012, so the DOJ probably reported your award as income to the IRS.  I’m not a tax expert, but you should be able to fight this.

Great news, thank you. I will look into it, and let you know what happens. I appreciate your help and quick reply!