A Student Loan Crisis
All across North America we see pastors who have followed God's call on their lives and have pursued higher education. In doing so, many have needed to secure loans to finance their schooling, and some of those pastors struggle to make their monthly loan payments on a pastor's salary. Sadly, there are some who have left the ministry because of the financial pressure.
It doesn't have to be this way. Help is available!
Below are a variety of resources to assist pastors in the repayment of their student loans, and in some cases, help them achieve loan forgiveness.
ALERT: The U.S. federal student loan repayment pause has been extended through December 31, 2022. Payments will resume in January 2023.
All of the U.S. resources listed below are available together in one PDF called,
A Guide to Assisting Pastors with Student Loan Repayment: A toolkit for district leaders, churches, and pastors
Ministerial Excellence Fund
What is a Ministerial Excellence Fund?
The Ministerial Excellence Fund is a designated fund, within the local church, with the purpose of providing financial assistance to the church’s pastor(s) in reducing their personal debt and for increasing the pastor’s retirement savings, thus reducing the financial strain that can hinder a pastor’s ability to serve and lead the local church.
The COMPASS Initiative also maintains a Ministerial Excellence Fund with the same purpose. When a pastor completes the COMPASS Journey or COMPASS Quest programs, the COMPASS Initiative sends a grant from this fund to the local church’s Ministerial Excellence Fund. COMPASS matches the local church’s grant for its pastor (up to $5,000 for the Journey and up to $1,000 for the Quest). The local church is responsible to disburse their grant and the COMPASS match to its participating pastor, for debt reduction or retirement savings.
How does my church start a Ministerial Excellence Fund?
The local church must establish a designated fund called the Ministerial Excellence Fund (MEF). The church board (or governing body) must establish a written policy regarding contributions to the MEF and the disbursement of funds from the MEF. A sample policy is included in the Resources section above.
Who can contribute to the Ministerial Excellence Fund?
Anyone may contribute to the local church Ministerial Excellence Fund, including friends and relatives of the pastors, the district office, and anyone interested in improving the financial well-being of pastors. Pastors who receive grants from the church’s MEF are not required to contribute to the fund.
The COMPASS Initiative also accepts donations to its Ministerial Excellence Fund from anyone that desires to see other pastors benefit from this initiative now and into the future. https://compassinitiative.org/donate-now
Educational Assistance Program (U.S. Only)
What is an Educational Assistance Program?
An educational assistance program is a separate written plan that provides educational assistance to a church’s employees, as part of the employee’s fringe benefits. Up to $5,250 of educational assistance can be excluded from the employee’s taxable wages each year. See the IRS Publication 15-B for additional details.
Which educational expenses qualify for the Educational Assistance Program?
These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Education expenses don't include the cost of tools or supplies (other than textbooks) the employee is allowed to keep at the end of the course. Nor do they include the cost of lodging, meals, or transportation.
The employee must be able to provide substantiation that the educational assistance provided was used for qualifying education expenses.
Can I use the Educational Assistance Program to repay my student loans?
Normally, no. However, section 2206 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), temporarily expanded the definition of educational assistance to include the payment of student loans. This change applies to student loan payments paid after March 27, 2020 and before January 1, 2026. See the IRS Publication 15-B for additional details.
How does my church start an Educational Assistance Program?
The church board (or governing body) must create a written IRS-qualified Educational Assistance Program. The EAP is a fringe benefit offered to all employees of the church. A sample EAP is included in the Resources section above.
For more details consult a qualified tax advisor and read “Educational Assistance” under section 2 of the IRS Publication 15-B, "Employer's Tax Guide to Fringe Benefits."
How do I utilize my church's Educational Assistance Program?
Each employee must submit a written request for funds from the Educational Assistance Program each year, according to the policy established by the church when it created the Educational Assistance Program. A sample request for funds is included in the Resources section above.
Public Service Loan Forgiveness Program (U.S. Only)
What do I do to participate in the PSLF or TEPSLF programs?
Follow these five easy steps for public service loan forgiveness from student loan expert Heather Jarvis at askheatherjarvis.com.
1. Make the right kind of payment...
- Pay As You Earn (PAYE)
- Revised Pay As you Earn (REPAYE)
- Income-Based Repayment (IBR or
- Income-Contingent Repayment (ICR)
2. On the right kind of loan...
- Federal Direct Loans ONLY
3. While you are in the right kind of job...
- Full-time paid work for the government or a 501(c)3, plus certain other positions
4. Repeat 120 times...
- Once a month for ten years (but does not need to be consecutive)
5. Prove it...
- Keep good records! You will need to submit the "Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application" form to the Department of Education every year.
How do I know if I am making the right kind of payments on my student loans?
For most student loan borrowers seeking Public Service Loan Forgiveness, Income-Based Repayment (IBR) is the best repayment plan. The IBR calculates your monthly payment as a fixed percentage of your income. As your income goes up, your monthly payments will also go up.
Other eligible repayment plans are the Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and the Income-Contingent Repayment (ICR). To enroll in any of these repayment plans you must contact your loan servicer directly. Remember, before you enroll in one of these repayment plans, be sure that your loan(s) is a federal Direct Loan.
For more information about the different types of federal loan repayment plans, go to StudentAid.gov.
How do I know if I have the right kind of loan?
Only Direct Loan Program loans that are not in default are eligible for PSLF and TEPSLF. Loans you received under the Federal Family Education Loan (FFEL) Program, the Federal Perkins Loan (Perkins Loan) Program, or any other student loan program are not eligible for PSLF.
However, if you have FFEL Program or Perkins Loan Program loans, you may consolidate them into a Direct Consolidation Loan to take advantage of PSLF and TEPSLF. Consolidation must take place before Oct. 31, 2022 and the PSLF/TEPSLF form must be submitted by Oct. 31, 2022.
To find out which types of loans you have, log in to your “Aid Summary” using your username and password (FSA ID). StudentAid.gov.
Does my position as pastor of my church qualify as the right kind of job?
Every local Church of the Nazarene is incorporated as a 501(c)(3) not-for-profit organization, and 501(c)(3) organizations are qualified employers.
Prior to July 2021, most pastors did not qualify for the U.S. Public Service Loan Forgiveness program because pastors could not count the hours they spent in "religious instruction, worship services, or any form of proselytizing" toward their full-time work requirement. This restriction was removed as of July 1, 2021, making more pastors eligible for the PSLF program.
According to the Federal Student Aid website:
"For PSLF, you’re generally considered to work full-time if you meet your employer’s definition of full-time or work at least 30 hours per week, whichever is greater. If you are employed in more than one qualifying part-time job at the same time, you will be considered full-time if you work a combined average of at least 30 hours per week with your employers. If you are employed by a not-for-profit organization, time spent on religious instruction, worship services, or any form of proselytizing as a part of your job responsibilities may be counted toward meeting the full-time employment requirement." [emphasis added]
How many loan payments will I need to make to qualify for loan forgiveness under the PSLF program?
The PSLF requires 120 qualifying monthly payments that you make:
- After Oct. 1, 2007;
- Under a qualifying repayment plan;
- For the full amount due as shown on your bill;
- No later than 15 days after your due date; and
- While you are employed full-time by a qualifying employer.
Your 120 qualifying monthly payments don’t need to be consecutive. For example, if you have a period of employment with a nonqualifying employer, you will not lose credit for prior qualifying payments that you made.
What about the pause in student loan repayments due to COVID-19?
As part of the COVID-19 emergency relief, federal student loan payments were paused. The student loan payment pause is extended until the U.S. Department of Education is permitted to implement the debt relief program or the litigation is resolved. Payments will restart 60 days later. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023 — payments will resume 60 days after that.
Suspended payments count toward PSLF and Temporary Expanded PSLF as long as you meet all other qualifications. You will receive credit as though you made on-time monthly payments in the correct amount while on a qualifying repayment plan. Note: In-grace, in-school, and certain deferment, forbearance, and bankruptcy statuses are not eligible for credit toward PSLF. StudentAid.gov/pslf
Do I need to re-certify every year?
Yes, you will need to submit the PSLF/TEPSLF form every year, and provide your updated financial information (income, family size, etc.) to your loan servicer every year.
How do I know who my loan servicer is?
You can get information about all of the federal student loans you have received and find the loan servicer¬ for your loans by logging in to "My Federal Student Aid." Only your federal loans – not private loans - will appear here.
What is the limited PSLF waiver?
On Oct. 6, 2021, the U.S. Department of Education announced a change to the PSLF rules for a limited time as a result of the COVID-19 national emergency. Now, for a limited period of time, borrowers may receive credit for past payments made on loans that would otherwise not qualify for PSLF. It is known as Temporary Extended Public Service Loan Forgiveness (TEPSLF).
Under the new rules, any prior payment made will count as a qualifying payment, regardless of federal loan type, repayment plan, or whether the payment was made in full or on time. All you need is qualifying employment. This change will apply to student loan borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those who consolidate into the Direct Loan Program by Oct. 31, 2022.
As long as you consolidate into the Direct Loan Program by Oct. 31, 2022, you can get credit for any of these federal student loans:
- Federal Family Education Loan (FFEL) Program loans, including subsidized and unsubsidized loans, made to undergraduate and graduate students
- Federal Perkins Loans
- Direct Loan (DL) Program Loans, including subsidized and unsubsidized loans, made to undergraduate and graduate students
- Graduate PLUS Loans made to students
NOTE: Parent PLUS loans are not eligible under the limited PSLF waiver, even if you consolidate them into a new Direct Consolidation Loan by Oct. 31, 2022.
What if I have worked at more than one church since 2007?
The TEPSLF requires that a separate PSLF/TEPSLF form must be submitted for each qualifying employer for which you have worked while making payments on your federal student loans, in order for those loan payments to be considered as qualifying payments toward the 120 required payments.
How long will the TEPSLF program be available?
The TEPSLF program is only available for a limited period of time. Any necessary loan consolidation must be completed before Oct. 31, 2022 and the PSLF/TEPSLF form(s) must be submitted by Oct. 31, 2022.
What information do I need to provide when applying for the PSLF or TEPSLF?
You will need your most recent W-2 from your employer(s) or your employer’s Federal Employer Identification Number (EIN). Most people complete the form using the "PSLF Help Tool" in less than 30 minutes. NOTE: The process must be completed in a single session.
If you are filing a PSLF form regarding previous employment, you will need the EIN of each employer/church and the signature of an authorized official from that church verifying your start and end dates.