What you need to know about the forgiveness of public service loans (PSLF)

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Many borrowers spend decades paying off their student loans, but some forgiveness plans can take years away from that time. The Public Service Loan Forgiveness (PSLF) is a student loan repayment program that clears remaining federal student loan balances after an eligible borrower makes 10 years of eligible payments.



a woman standing in front of a computer: two nurses working on paperwork


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Two nurses work on the paperwork

While the option to have your student loans canceled is certainly appealing, PSLF program participants must meet a specific set of requirements to qualify, and eligibility is strict. Here’s what you need to know about the program and how to simplify the loan cancellation process.

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What is Public Service Loan Forgiveness?

The forgiveness of public service loans (PSLF) is a student loan forgiveness plan. The PSLF program cancels out remaining student loan balances for borrowers in the Direct Loan program after 120 qualifying monthly payments under an income-based repayment plan.

During the reimbursement period, PSLF participants must work full time for an eligible employer. Eligible employers include U.S. government organizations (federal, state, local, or tribal) and nonprofit organizations with a valid 501 (c) (3) status from the Internal Revenue Service.

Any federal student loan under the Direct loan program can be pardoned under the PSLF. Federal Family Education Loans (FFELs) and Perkins loans are not eligible unless they are first consolidated into a direct consolidation loan.

How it works?

To start working towards the PSLF, borrowers must meet all program requirements from the start. Eligibility criteria include:

  • Full-time employment with an eligible employer.
  • The right kind of student loans (direct loans).
  • Register for a income based repayment plan before you start making qualifying payments.

To ensure that you are prepared to succeed with PSLF, the United States Department of Education recommends completing a Temporary Extended PSLF and PSLF Certification and Certification Application (TEPSLF) (PSLF form) annually or every time. that you change employer. The Department of Education uses the information on this form to let you know if the payments you make qualify for the PSLF. Otherwise, you will need to take steps to get you on the right path to PSLF before you can start progressing.

Once you are on your way to the PSLF, you will need to make 120 qualifying payments. Thereafter, any remaining loan balance will be canceled. Best of all, you don’t have to pay tax on the canceled loan amounts.

Why should I care?

If you have significant student loan debt, the Public Service Loan Forgiveness (PSLF) could save you tens of thousands of dollars. The PSLF can also remove years (or decades) from your repayment schedule.

Of course, there are a few hurdles you will need to overcome to qualify for this loan cancellation, but the payoff can be worth it if you can be flexible with where you work so you can get out of debt as quickly as possible.

Keep in mind that you can pay off your student loans on an income-based repayment plan without pursuing the PSLF, which is a better option for people who don’t want a job in the public service. However, if you choose this option, you will be making payments on your loans for 20 to 25 years before your loans are canceled.

How to qualify for the public service loan forgiveness

Before your loans are canceled, you must first find out if you qualify for the PSLF. You will need to work full-time for a qualifying employer, have direct loans under an income-tested repayment plan, and make 120 qualifying payments.

Employment

Qualifying employment means that you work for a US government agency at the federal, state, local, or tribal level. You can also work for 501 (c) (3) nonprofits or volunteer for AmeriCorps or the Peace Corps.

Groups that are not considered eligible employers include:

  • For-profit organizations, even though these organizations are government entrepreneurs.
  • Partisan political groups and organizations.
  • Trade unions.

Then you will need to work as an employee full time or at least 30 hours per week (whichever is greater). You may qualify if you work multiple qualifying part-time jobs as long as you average at least 30 hours per week with your employers.

Eligible loans

All direct loans are eligible for public service loan forgiveness, but FFEL and Federal Perkins loans are not. However, there is a workaround. If you consolidate FFEL or Perkins loans (or both) into a direct consolidation loan, they could become eligible.

Private student loans, which often come with lower interest rates for those with excellent credit, are not eligible for PSLF.

Loans eligible for the PSLF Loans not eligible for PSLF
Direct loans Private student loans
Direct consolidation loans Federal Family Education Loans (FFEL)
Federal Perkins Loans

Eligible payments

To be eligible for the PSLF, you must make at least 120 eligible payments on your student loans. As you make these payments, you should be enrolled in an income-driven repayment plan that bases the amount of your payments on your monthly income. The four most common income-based repayment plans are:

  • Reimbursement plan revised as you earn (REIMBURSEMENT plan).
  • Pay As You Earn reimbursement plan (PAYE Plan).
  • Income Based Repayment Plan (IBR Plan).
  • Income-based repayment plan (ICR plan).

If you consolidate non-qualifying loans into a direct consolidation loan, only the payments you make for that loan will count for PSLF purposes. Payments made before consolidation are not eligible.

It is also important to note that your payments do not have to be consecutive to be considered for the PSLF qualification. If you work for an eligible employer and subsequently go into non-qualifying employment, you will still get a credit for eligible payments you have already made. Later, if you start working for a new eligible employer, you can pick up where you left off.

Eligible monthly payments must:

  • Be on a qualifying income-based reimbursement plan.
  • Start after October 1, 2007.
  • Total at least the total amount due on your monthly bill.
  • Be done on time (or no more than 15 days after your due date).
  • Be done while working full time with a qualified employer.

You cannot make qualifying payments while you are in school, during the grace period, or during deferral or withholding. Also, by making higher monthly payments, you will not qualify for PSLF sooner.

Application

Once you are ready you can complete the PSLF application. You can submit this request after making 120 qualifying payments, but the Department of Education also recommends submitting the form when working towards the PSLF in order to complete your employer certification process. You should also submit the form every year or when you change employers to make sure you are still on the right track for forgiveness.

You can either start the PSLF form online or download a copy to fill out by hand. In either case, your employer must provide verification.

If your application is approved, you will be notified that the principal and interest balance on your student loans has been canceled. It’s best to keep making payments while your request is being processed. If you make payments after your 120th qualifying payment, you will be refunded for overpayments.

If your request is denied, you will receive a notification with an explanation. For example, if you haven’t worked for an eligible employer or haven’t made any eligible payments, you could face rejection of the PSLF. In this case, you may want to ask for forgiveness through the Temporary extended public service loan forgiveness opportunity.

What to watch out for

PSLF is a great loan forgiveness program for those who can make it work. However, a disproportionate number of people applying for a PSLF are not eligible.

The numbers are surprising when you take a closer look. According to the most recent US Department of Education data, 227,382 borrowers submitted PSLF applications. Yet only 6,493 of these requests were deemed eligible by the loan manager. The remaining PSLF nominations were deemed ineligible for various reasons, including:

  • Eligible payments (59 percent).
  • Information missing (26 percent).
  • No eligible loan (11%).

With this data in mind, submitting an incomplete application or failing to meet specific criteria to qualify are the two main mistakes to avoid when applying for a public service student loan forgiveness. To avoid a snafu, the best thing you can do is complete the PSLF and Certification and Temporary Extended PSLF Application (Form PSLF) every year and every time you change employers. This form allows you to verify that your payments are posted to PSLF, which can save you a lot of time and hassle in the future.

How is the coronavirus crisis affecting the PSLF?

In March 2020, the Department of Education placed most federal student loans in the status of administrative abstention. As a result, payments and interest were suspended for the majority of federal student loan borrowers.

The government has also done a big favor to borrowers who are eligible to work for the PSLF (i.e. those with eligible loans who work for eligible employers). Each month during the administrative abstention period, these borrowers can receive a credit for their 120 eligible payments, even if no actual payment is required.

You should always submit a PSLF form during this period of federal student loan relief to verify that you are working for an eligible employer – if your hours have been reduced, you may not be eligible during this period.

The bottom line

Public service loan forgiveness can be a great option for public service workers looking to have some of their student loans canceled. Not everyone qualifies, but you can fill out a PSLF form each year to see if you’re on the right track. If you don’t qualify, there are other forgiveness programs that may be better for you, including income-based repayment plans.

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