What to know about Public Service Loan Forgiveness (PSLF)

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While some borrowers spend decades paying off their student loans, there are plenty of forgiveness plans that can cut years off of that timeline. Public Service Loan Forgiveness, also called PSLF, is one of those options, although participants do need to meet a very specific set of requirements to qualify.

Unfortunately, Public Service Loan Forgiveness has hit a few bumps in the road since its introduction in 2007, and many people who apply for this forgiveness are ultimately denied. If you want to ensure that your loan forgiveness is achieved with the least amount of time and effort required, keep reading to learn more about PSLF and how it works.

What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness (PSLF) is a federally sponsored loan forgiveness plan. Through this plan, borrowers with student loans in the Direct Loans program can have their remaining loan balances forgiven after they make 120 qualifying monthly payments under an income-driven repayment plan. During this time, participants in PSLF must work full time for a federal, state, local or tribal government within the U.S., or for a not-for-profit organization.

Any federal student loan under the Direct Loan program can qualify for forgiveness under PSLF. FFEL and Perkins Loans aren’t eligible unless consolidated into a Direct Consolidation Loan first.

How does it work?

To begin working toward PSLF, borrowers must meet all the requirements for the program from the start. This means having a full-time job with a qualifying employer, having the right type of student loans (Direct Loans) and being on an income-driven repayment plan before you begin making qualifying payments.

To ensure that you’re set up for success with PSLF, the U.S. Department of Education recommends filling out a PSLF and Temporary Expanded PSLF (TEPSLF) Certification and Application (PSLF Form) every year or each time you change employers. The Department of Education uses the information on this form to let you know if the payments you’re making are eligible to count toward PSLF. If not, you’ll have to take steps to get on track toward PSLF before you can begin making any progress.

Once you’re on track for PSLF, you’ll need to make 120 qualifying payments, after which any remaining loan balances you have will be forgiven. Under PSLF, you will not have to pay income taxes on forgiven loan amounts.

Why should I care?

If you have a considerable amount of student loan debt, Public Service Loan Forgiveness (PSLF) could save you tens of thousands of dollars and knock years (or decades) off of your repayment timeline. You’ll need to jump through a few hoops to qualify for this forgiveness, but the payoff can be well worth it if you are flexible with where you work and you just want to get out of debt as quickly as possible.

Keep in mind that you can repay your student loans on an income-driven repayment plan without pursuing PSLF. However, you’ll make payments on your loans for 20 to 25 years before your loans are forgiven if you choose this option. Not only that, but remaining loan balances you have forgiven will be treated as taxable income at that time, meaning you could be on the hook for an exorbitant tax bill later on.

How to qualify for Public Service Loan Forgiveness

Before your loans are forgiven, you first need to know if you qualify for PSLF. You’ll need to work full time for a qualifying employer, have Direct Loans under an income-driven repayment plan and have made 120 qualifying payments.

Employment

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

This isn’t limited to the job you do, but rather who you work for. Groups that do not count include:

  • For-profit organizations, even if those organizations are government contractors.
  • Partisan political groups and organizations.
  • Labor unions.

You’ll need to work as a full-time employee 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.

Qualifying loans

All Direct Loans qualify for this forgiveness, but Federal Family Education Loans (FFEL) and Federal Perkins Loans do not. However, if you consolidate either FFEL or Perkins Loans (or both) into a Direct Consolidation Loan, they might become eligible.

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

Qualifying payments

To be eligible for PSLF, you need to make at least 120 qualifying payments toward your student loans. If you consolidate your loans into a Direct Consolidation Loan, only payments made to that loan will count. In other words, payments made before you consolidate aren’t eligible. However, they do not need to be consecutive payments.

Qualifying monthly payments must:

  • Be under a qualifying income-driven repayment plan.
  • Start after Oct. 1, 2007.
  • Total at least the full amount due on your monthly bill.
  • Be made on time (or not more than 15 days after your due date).
  • Be made while working full time at a qualified employer.

You can’t make qualified payments while you’re in school, during the grace period or during deferment or forbearance. Additionally, making higher monthly payments won’t make you qualify for PSLF sooner.

Application

Once you’re ready, you can complete the PSLF application. You can submit this application only after you’ve made 120 qualifying payments. You can either start the form online or download a copy to fill out by hand. In both cases, your employer must provide verification.

If your application is approved, you’ll be notified that the remaining principal and interest balance on your student loans is forgiven. It’s best to continue making payments while your application is being processed. If you make payments after your 120th qualifying payment, you’ll be refunded the overpayments.

If your application is denied, you’ll get a notification on why it was denied. For instance, if you didn’t work for a qualifying employer or didn’t make qualifying payments, you could face PSLF rejection. In this case, you may want to apply for forgiveness through the Temporary Expanded Public Service Loan Forgiveness opportunity.

What to watch out for

PSLF is an excellent loan forgiveness program for those who can make it work. However, a disproportionate amount of people who apply for PSLF do not qualify.

The numbers are startling when you take a closer look. According to September 2020 data from the U.S. Department of Education, 210,813 applications for PSLF had completed processing, yet only 5,069 of those applications were deemed eligible by the loan servicer. The other 205,744 PSLF applications were deemed ineligible for various reasons, including:

  • Qualifying payments (56 percent).
  • Missing information (25 percent).
  • No eligible loans (14 percent).

With this data in mind, the main issue to watch out for is submitting an incomplete application or not meeting the specific criteria to qualify. To avoid a snafu, the best thing you can do is fill out the PSLF and Temporary Expanded PSLF Certification & Application (PSLF Form) every year and each time you change employers. This form lets you verify that your payments are being counted toward PSLF, which can save you a lot of time and trouble later on.

The bottom line

Public Service Loan Forgiveness is a great option for public service workers who are looking to get some of their student loans forgiven. Not everyone qualifies, but you can complete a PSLF form every year to make sure you’re on track. If you’re not eligible, there are still forgiveness programs available, including income-driven repayment plans.

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