There are few things cooler than being a do-gooder. Sure, you might not get a five-figure expense account or a big bonus every December, but if you work for the government or a non-profit organization, you get something better: the knowledge that you’re making your community or the world a better place.
But while knowing that you’re fighting the good fight is priceless, it doesn’t help pay off your student loans—or leave you much left over at the end of the month to buy any of that fancy imported goat cheese you’ve developed a taste for.
The goal was to help people like you: professionals working in public service who have more federal student loans than their public sector salaries allow them to easily repay. It’s aim is to ensure that the best and the brightest (that’s you!) don’t feel as though they have to leave these important jobs to join corporate America just so they can pay down their student debt.
Stressed out about your debt and hoping you qualify? Here’s some things you need to know about being eligible and getting your student debt forgiven.
Who is Eligible for the Public Service Loan Forgiveness Program?
Are you first in line when there’s free office pizza? If so, you’re probably ready to jump through hoops to get your student loans forgiven. Thankfully, the ability to jump through hoops is not part of the eligibility criteria.
However, working for a qualified government organization (municipal, state, or federal organizations count) or a qualified 501(c)(3) organization is required. And if you’re a full-time AmeriCorps or Peace Corps volunteer, you’ll be eligible as well.
Some other types of non-profits also qualify, but not labor unions, political organizations, and most other non-profits that don’t qualify for 503(c)(3) status. Work for a government contractor? Unfortunately, that doesn’t cut it. You have to be working directly for the qualifying organization.
But working for the right type of employer is only half the battle. You also have to have eligible loans, which include any Direct loans such as Stafford loans, PLUS loans (but not Parent PLUS loans), and Federal Direct Consolidation loans.
If you want to have your Federal Family Education Loan (FFEL) or Perkins loans forgiven, you may be able to, however, you have to consolidate those loans into a Direct Consolidation Loan first. However, any payments you made on the FFEL Program loans or Perkins Loans before you consolidated won’t count towards the necessary payments.
It’s also good to note that private student loans are not eligible for Federal forgiveness programs.
How to Apply
If you had to imagine how the Public Service Loan Forgiveness program would work, you would probably guess that you just have to fill out an application and hope for the best. Not exactly. You’re going to need those hoop-jumping skills after all. Here are the hoops you’ll need to jump through:
1. Consolidate any FFEL Program loans and Perkins loans you want forgiven into a Direct Consolidation Loan. This is necessary because if you consolidate your loans afterward, you won’t get credit for any qualifying payments you made on those loans. Already consolidated your Direct loans? You’ll want to consolidate your Perkins Loans separately and start making new qualifying payments.
2. Sign up for an income-driven repayment plan .
You have plenty to choose from; There’s Pay As You Earn, income-based repayment, income-contingent repayment, or Revised Pay as You Earn. This will likely allow you to pay less per month toward your loans than you would on the standard plan.
There are separate eligibility requirements for these plans, so be sure to check if you qualify. If you are eligible for one of these plans it might not mean you can start buying that fancy goat cheese you’ve been missing every day, but may just free up a bit of your income to help get you there.
3. Certify your employment. To do this, print out an Employment Certification form and get your employer to fill it out and send it in for approval.
4. Make 120 qualifying monthly payments on your student loans while you’re employed by a qualified public service employer. What if you switch employers? So long as you are still working for a qualifying employer, you’ll still qualify.
5. After you make the final payment, you can apply for forgiveness. You fill out an application , send it in, and wait. Then, of course, you celebrate your loan forgiveness. Maybe with goat cheese—or maybe you kick it up a notch and buy some gouda.
The Current State of the Program
Because the program was created in 2007, the first people to qualify to have their loans forgiven just applied for forgiveness in September 2017. But while the Congressional Budget Office estimates that the program could cost just under $24 billion in the next 10 years , and the U.S. Government Accountability Office believes that more than four million student loan borrowers qualify for the program, many aren’t aware that it exists. And even more graduates have gotten bad information from loan servicers that rendered them ineligible.
The future of the Public Service Loan Forgiveness program could also be in jeopardy. Lawmakers have proposed to scrap the program and potentially replace it with a new program that forgives student loans taken out by all borrowers after 15 years . The catch is that you would be required to pay 12.5% of your income toward your loans rather than the 10% that many income-based repayment plans currently require.
Pros and Cons of the Public Service Loan Forgiveness Program
The Advantages of the Program Are Pretty Straightforward:
1. Your balance of student loans are forgiven after a set time, which is a great relief. This works as a kind of bonus to make up for the lower pay you might get working in the public sector.
2. The amount forgiven usually isn’t considered income, so you aren’t taxed on it (that means you don’t have to save additional money to account for the IRS bill). There are other loan forgiveness programs that will forgive your loans, but you might see a big tax bill when they do.
3. You get rewarded for being a do-gooder (just like your mom promised you would). It will feel great to know that you’re making a difference, and your government appreciates it enough to give you a break on your federal student loans.
4. You may pay less monthly because you’re on an income-driven plan . This means paying out less of your hard-earned cash every month.
The Disadvantages of the Program Are That:
1. The program is only open to those with certain types of employers. And it’s contingent on you staying with a qualifying public service employer for 10 years, which might not be a guarantee.
2. A lot of people don’t know about the program, which is partly because of a lack of education by employers, loan servicers, and schools.
3. There are a lot of hoops to jump through to get your loans forgiven. Sounds fun, right? Plus, if you don’t jump through a hoop properly, you could jeopardize your forgiveness.
4. The extra money you would make from a corporate employer could help you pay off your loans sooner. Maybe much sooner—and then you would have money to buy a cheese fondue set and have all your friends over.
5. You might end up paying more interest by making 120 payments than if you budgeted to aggressively repay your loans in less than 10 years. Also, if you enroll in the PSLF program and then stop working for a public service employer, you might be left with a larger loan to repay because of the interest that’s accumulated under the income-based repayment plan.
Alternatives to the Public Service Loan Forgiveness Program
The first thing to remember is that the Public Service Loan Forgiveness program does not apply to any private student loans you have. If you are looking for ways to reduce your interest rate or monthly payments on your private student loans too, refinancing with a private lender could be the way to go.
It is important to mention that refinancing your federal student loans with a private lender may make you ineligible for Public Service Loan Forgiveness program should you choose that route. However, if your federal student loans are far from qualifying for the Public Service Loan Forgiveness program, or working for a qualified employer is not in your 10 year plan, don’t worry, you can refinance federal student loans as well.
The best part about refinancing is that there are not so many hoops to jump through. All you have to do is fill out a quick online application with a lender, and you could significantly lower the amount of interest you pay on your loans or even reduce your monthly payments.
You can refinance federal and private student loans, and because refinancing takes your current financial situation into consideration, you could get approved for a much lower interest rate than on original loans. When refinancing, you can bundle all of your loans into one loan—so it’s a lot easier to keep track of payments. And because you may be able to get more favorable repayment terms, you could end up saving a lot of money over the life of your loan.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.