Should You Give up on Student Loan Forgiveness?
Public service loan forgiveness has been in the news a lot over the last year—and not for good reasons. There was the news that very few people have actually had their federal student loans forgiven.
Then there was the Public Service Loan Forgiveness (PSLF) news that the whole program might be cut . And now a lawsuit has been filed on behalf of a number of teachers who had their PSLF forgiveness denied, alleging mismanagement of the program.
What does this news mean for you? Should you still try to get your federal student loans forgiven, and how can you plan ahead for any more public service loan forgiveness updates?
What is Public Service Loan Forgiveness?
The public service loan forgiveness program is supposed to work in a fairly straight-forward way: After ten years of public service (and making payments on your loans), you can have the remainder of your student loans forgiven.
There are, of course, some requirements—and this is where it gets more complicated. To qualify for public service loan forgiveness you have to:
• Work full-time in a qualifying public service job.
• Make 120 monthly loan payments on a qualifying repayment plan, which is typically an income-driven repayment plan.
• Have a federal Direct Student Loan.
For the majority of people who have their PSLF applications denied, it’s because they allegedly didn’t meet these requirements.
Most importantly, only federal Direct Student Loans qualify. Federal Family Education Loans (FFEL) or Perkins loans do not qualify—even though many of the federal loans when the loan forgiveness program was created in 2007 were FFEL loans.
You may still be able to qualify if you have one of those loans, but you would need to consolidate your federal loans into a Direct Consolidation Loan and none of the payments made before the consolidation would count.
You also need to be on a qualifying payment plan, which is either the standard ten-year repayment plan or an income-driven repayment plan. These determine how much you’re required to pay each month as a percentage of your income.
And you need to work for a qualifying employer. To verify that your public service job qualifies, fill out the public service loan forgiveness employer certification form .
Once you meet all these requirements, you still have to apply for loan forgiveness after your ten years of qualifying payments. It doesn’t happen automatically. This is where much of the public service loan forgiveness news comes in.
What Is the Latest Public Service Loan Forgiveness News?
Since the Public Service Loan Forgiveness program was launched in 2007, the first federal student loans became eligible for forgiveness in late 2017.
However, instead of a rash of loans being wiped clean, more and more news has come out about the number of applications being denied.
The latest data from the U.S. Department of Education found 73,554 borrowers have submitted applications for loan forgiveness, but only 864 have been approved. That’s not very many.
Over 2 million people also took the first step of having their employer certification approved. Since not all of those people followed through the rest of the process, critics argue it suggests there continues to be confusion around the requirements.
In fact, this was exactly why Congress approved the the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) opportunity in 2018—which allows people who had their loan forgiveness applications initially denied because they were on the wrong repayment plan to get re-approved under the new requirements.
But the most recent numbers found only 442 of those TEPSLF applications had gotten their loans forgiven. That’s been frustrating for a lot of applicants and lawmakers. It’s even prompted a lawsuit from a number of teachers who’ve had their applications denied.
Even with all the distressing public service loan forgiveness news, many were still frustrated to hear the program was at risk of being eliminated in the most recent budget proposal .
What does all this mean for you?
Should You Still Try for PSLF Forgiveness?
Just because there’s been a lot of bad news for PSLF lately doesn’t mean you should necessarily give up on loan forgiveness.
Some of those applicants have been successful and, according to the data, the average amount of loan forgiven was $59,224. That’s worth following up on—even if it takes a lot of attention to detail.
The number-one reason applications were denied was because of qualifying payments—either not enough payments had been made yet or they weren’t made under a qualifying income-driven repayment plan.
That doesn’t mean those applications won’t eventually be approved, either after making additional payments or through the new temporary expanded program. (The average loan amount forgiven under the TEPSLF program was $39,723.) But it does mean you want to double-check all the requirements.
To do this, you may want to use the Department of Education’s PSLF Help Tool. Many who applied for loan forgiveness simply didn’t actually qualify for it in the first place.
It also means you should have a back-up plan and shouldn’t assume you’ll get your loans forgiven. Because employment gaps or payment forbearance periods (for instance, if you went to graduate school) can lead to delays in meeting the 120-month time requirement, you may want to plan ahead.
In this case, it may take an extra year or two to qualify for loan forgiveness. It also may take extra work on the application.
And if you’re working in a qualifying public service job just to get loan forgiveness, then you may want to consider your options if there are other jobs you’d want instead that might have a higher salary.
Regardless of the latest public service loan forgiveness news, you can always ask yourself: Is PSLF right for you?
How Can You Plan Ahead for Any Changes to Public Service Loan Forgiveness?
The good news is if you’re currently working towards Public Service Loan Forgiveness, then you could still qualify even if the program is cut. The proposal is only to eliminate loan forgiveness for students taking out new loans starting July 1, 2020, so it hopefully wouldn’t negate those already making qualifying payments.
It also may be true that federal loan forgiveness programs may yet get revised or amended to address the many rejections. But because these things can be uncertain, it may be a good idea to budget with the plan of paying your full student loans.
Ultimately, your goal is probably to save money and do good in the world. Public Service Loan Forgiveness is a great way to have any remaining loan balance after 10 years of payments wiped clean if you work in public service, and if you qualify, but it also has some drawbacks.
It means you have to stick to an income-driven repayment plan, which means your monthly payment amount will increase as your income increases. In that case, the loan could potentially be repaid in full before the standard 10-year repayment period ends, leaving no balance to be forgiven.
If you choose to consolidate federal loans that don’t qualify for PSLF without consolidating them, such as the Federal Perkins Loan and the Federal Family Education Loan (FFEL), keep in mind that the interest rate for the consolidation loan could be higher due to how the rate is calculated (and the interest rate of a Direct Consolidation Loan has no cap).
So, might you save money with the PSLF Program? The answer is a firm maybe. Another option, which would make you ineligible for loan forgiveness and other federal repayment benefits and protections, is to refinance your student loans at a lower interest rate or more ideal terms for your situation.
Refinancing is typically a better option for those who are in a stronger financial situation than when they graduated.
Through refinancing, borrowers consolidate their student loans into one new loan, ideally with rates and terms that work better for them.
For example, if you qualify for a lower interest rate that could help save money over the life of the loan and could allow you to pay off your student loans quicker— depending on the loan term you choose. You may want to weigh the pros and cons to consider what makes the most sense for you.
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