The Public Service Loan Forgiveness (PSLF) program has been helping federal student loan borrowers get their loans forgiven since 2007. The program required 120 qualifying payments which is 10 years of service. After completing 120 qualifying payments, the idea was that all remaining loans would be forgiven without any taxes. In the last few years, we started to notice that the program was much harder to use than it seemed.

In 2017, ten years after the program was started, the press started to notice the elephant in the room. The program was not forgiving loans for 99% of applicants due to excessive nuances and lack of clarity. This blog will explain how the program was structured initially and then explain how the new overhaul is making up for the lack of clarity.

The Public Service Loan Forgiveness (PSLF) program has been helping federal student loan borrowers get their loans forgiven since 2007. The program required 120 qualifying payments which is 10 years of service. After completing 120 qualifying payments, the idea was that all remaining loans would be forgiven without any taxes. In the last few years, we started to notice that the program was much harder to use than it seemed.

In 2017, ten years after the program was started, the press started to notice the elephant in the room. The program was not forgiving loans for 99% of applicants due to excessive nuances and lack of clarity. This blog will explain how the program was structured initially and then explain how the new overhaul is making up for the lack of clarity.

There are 4 key questions regarding the Public Service Loan Forgiveness program:

  • What constitutes qualifying employment?
  • What type of loans qualify?
  • Which repayment options should I use?
  • How do you get your loans forgiven?

What constitutes qualifying employment for loan forgiveness?

  • You must work for a 501(c)(3) not for profit organization, any government employer (schools, fire department, etc.) or other not for profit organizations that provide specific qualifying services but isn’t a 501(c)(3) for tax purposes.
  • You must be considered a full-time employee which is the greater of the employer’s definition of full time or 30+ hours per week.

NOTE: You could have two part time jobs at two separate qualifying employers that add up to 30+ hours

What types of loans qualify for the Public Service Loan Forgiveness Program?

  • Private Loans – NO, you need to be extra careful if you have private loans. If you consolidate them with federal loans, it disqualifies all loans from eligibility in the program. Tread lightly!
  • Perkins Loans – NO. They do have their own forgiveness program.
  • Federal Family Education Loans (FFEL) – NO.
  • Direct or Direct Consolidation Loans – YES.
  • Parent Plus Loans – YES. However, the owner of the loan or the parent must be working for the qualifying employer.

What repayment option should you use for your student loans?

There are only two types of payments that are considered a qualifying payment:

  • Income Driven Repayment Plan(s) – Any of the options listed below will be considered a qualifying payment. Simply pick the lowest payment option which will be different for everyone: https://studentaid.gov/loan-simulator/
    • Income-Based Repayment (IBR)
    • Income-Contingent Repayment (ICR)
    • Pay as You Earn (PAYE)
    • Revised Pay as You Earn (REPAYE)
  • Standard 10-year payment plan – Keep in mind this is a 10-year program. If you use the Standard payment plan there won’t be anything left to be forgiven.

Note: All other payment plans would not be considered a qualifying payment.

How do you get your student loans forgiven? 

This is probably the easiest part of the whole process. If you work for a qualifying employer, have direct federal loans, and are making income-driven payments you are ready to begin the process to apply for loan forgiveness. We have put together a 5-step checklist for individuals who are new to public service.

Download the 5-step checklist

In order to get credit for your service you need to complete the PSLF Certification form. You and your employer are responsible for certain portions of the form. You will need to fill in your personal information, then send it to the HR team at your employer so they can complete their portion. HR will need to sign off on the PSLF Certification to verify you in fact completed a full year of qualifying service. This needs to be completed for each year of service and at every employer you’ve worked for.

You can complete the PSLF Certification retroactively, this can be more prone to error and its best to complete one every year as you are earning the service credits. Once you have received 120 qualifying payments. You simply apply for forgiveness through the Department of Education and get your loans forgiven. However, a lot of people have found that they are doing one or more of these key aspects incorrectly and receive a denial letter. This is where the new PSLF overhaul comes into play.

What is the Department of Education Overhaul for student loan forgiveness?

As you can see this program was built in a way that makes it inherently prone to error. The Department of Education saw this, and they have done a complete overhaul to provide a fix for a limited time. The overhaul expires on 10/31/2022.

The key changes made by the Department of Education include:

  • Regardless of the payment plan you were on those payments will count (at least temporarily).
  • If you made late payments or had a payment slightly off the scheduled payment those will now count.
  • FFEL & Perkins loans now qualify. You will need to consolidate these loans into Direct Federal loans to get them forgiven.

Download the Department of Education overhaul checklist

The goal of the overhaul is to eliminate the nuances that many Americans in public service not to get their loans forgiven. This overhaul will benefit everyone to varying degrees. If you already have 10 years of service, you could get your loans forgiven if you consolidated your loans and, if you made payments, you could get those payments back.  However, for those of you just starting your career you won’t drive a huge value from the overhaul.

It is extremely important to note that this overhaul will expire on 10/31/2022. 
Take advantage of it while you can and do not wait until the last minute!

Do you have questions about the Public Service Loan Forgiveness Program or the Department of Education’s overhaul? 

You can reach out to the author, Jason Rizk, CFP® and schedule time to discuss your situation.

 DISCLAIMER:

Information provided is for educational purposes only and from sources we believe to be reliable, but its accuracy cannot be guaranteed.