Public Service Loan Forgiveness. The unicorn of student debt.
Its very existence is debated. Thousands of federal student loan borrowers pursue it. And for those who could prove they’d decided their lives to doing (the public) good—and followed all the eligibility rules—it was supposed to be attainable.
So far, however, the approval process has been grindingly slow—and difficult—which hasn’t helped borrower skepticism. The Department of Education’s Office of Federal Student Aid reported that of the 110,729 applications processed as of June 30, 2019, 100,835 had been denied—a whopping 91%.
And of the over 90,962 unique borrowers applying, only 1,216 have been accepted—about 1.3%. Although the numbers are improving, it seems that only the most tenacious and patient seekers will survive. The specifics are daunting, follow-through is a must, and a number of applicants don’t qualify from the start.
So is it even worth it to apply? Misinformation abounds. Here are some helpful things to know as you explore your options.
What Is the Public Service Loan Forgiveness Program?
The Public Service Loan Forgiveness Program, often referred to as PSLF, was introduced in October 2007 as a way for those working for a qualifying not-for-profit or the government to obtain forgiveness for their federal student debt after making a decade’s worth of payments. The program took effect in October 2007.
Under the plan, those who have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer may have their remaining balance on a federal direct student loan zeroed out.
That’s a lot of qualifying to be done, so let’s break it down.
What’s Considered Full Time, Qualifying Employment?
For starters, it’s not about the specific job you have, it’s about your employer. The following types should pass muster:
• Government organizations at any level (federal, state, local or tribal)
• Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
• Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3), if their primary purpose is to provide certain types of qualifying public services
• AmeriCorps or the Peace Corps (if you’re a full-time volunteer)
Student loan forgiveness is for eligible not-for-profit and government employees, so if you’re a freelancer or employed by an organization that is working under contract, that won’t count.
To be considered “full time,” you must work at least 30 hours per week. Or, if you work more than one qualifying part-time job at the same time for an average of at least 30 hours, you might meet this standard.
But any time spent on religious-type work (instruction, worship services, or any form of proselytizing) will not be included towards the 30 hours.
What Kinds of Loans Qualify?
Here’s where it starts getting complicated. OK, more complicated.
Only non-defaulted loans received under the William D. Ford Federal Direct Loan Program are eligible for PSLF. If you received a loan under the Federal Family Education Loan (FFEL) program or the Federal Perkins Loan program, you may be able to combine them into a Direct Consolidation Loan, which does qualify, but there’s a catch: Only the payments you make on your new consolidation loan will be applied toward the 120 payment requirement. The FFEL and Perkins payments you made before that won’t count.
And if you combine Direct loans and other federal loans when you consolidate, you’ll lose credit for the payments you already made on the Direct loans.
What Qualifies as a Monthly Payment?
Any payment made after Oct. 1, 2007 may qualify, as long as it’s for the full amount on the bill, is under a qualifying repayment plan, and was made on time (no later than 15 days after the due date) while you were employed full time by a qualifying employer.
Payments made while you were in “in-school status,” under a grace period, or in deferment or forbearance won’t qualify.
But here’s a bit of good news: Your 120 qualifying monthly payments don’t have to be consecutive. If you were out of work or worked for a for-profit company for a while, you won’t lose credit for the qualifying payments you made.
And there are special rules for lump-sum payments made by AmeriCorps or Peace Corps volunteers.
What’s a Qualifying Repayment Plan?
It’s important to know this: Even though the 10-year Standard Repayment Plan qualifies for PSLF, you aren’t actually eligible to receive forgiveness unless you enter into one of the income-driven repayment plans.
That’s because if you’re on a 10-year repayment plan, and you make all the payments, you won’t have a balance left to forgive at the end of that period. So if you plan to pursue PSLF, it may be in your best interest to switch to an income-driven plan ASAP.
What Does it Take to Apply?
First thing’s first. You won’t submit your PSLF application until after you’ve made your 120 qualifying payments. What you will need to complete first is the Employment Certification for Public Service Loan Forgiveness form annually or whenever you change employers.
In the ideal case, the government will use that information to let you know for sure that you’re making qualifying payments. (If you don’t stay on top of this, you can submit an Employer Certification form when you apply for forgiveness.)
After you submit an Employment Certification form and your loans have been transferred to FedLoan Servicing (if it wasn’t already your servicer), your form is reviewed and you’ll receive notification of the number of qualifying payments you’ve made. You can track that number by logging into your FedLoan account or by looking at your most recent billing statement.
When you have made enough qualifying payments, you can file your PSLF application . But you aren’t through yet: You must be working for a qualifying employer at the time you apply for forgiveness and when the remaining balance on your loan is actually forgiven. (We know—it’s complicated. Definitely review the Department of Education’s website to get all the details.)
What Happens if the Application Is Denied?
Don’t panic. You may still be eligible for forgiveness if you were denied because payments weren’t made under a qualifying repayment plan.
The U.S. Department of Education is currently offering Temporary Expanded Public Service Loan Forgiveness (TEPSLF) opportunity. (The word “temporary” means it won’t be around forever and it may be just as difficult to get a request approved as PSLF.)
You can get more answers at the Office of Federal Student Aid’s Q&A page . Or you can call FedLoan Servicing at 800-699-2908.
Pros and Cons of PSLF
Some of the basic pros and cons of going for PSLF are fairly straightforward.
If you took on tens of thousands of dollars in federal student loans, the prospect of losing at least a portion of that debt is likely huge.
And, as a bonus, the IRS isn’t going to ask you to pay federal income taxes on the loan amount forgiven under the PSLF program. (That isn’t the case with all student loan forgiveness programs.)
The big drawback, of course, is the time and effort required for the chance to get a PSLF application approved.
And if, after all that, you don’t receive forgiveness—because the government changes the rules, because you decided to go another direction with your career, et cetera—you may have missed out on other opportunities to pay down your debt.
Federal student loans come with lots of benefits and protections, but with an income-driven repayment plan, you’ll be looking at a 20- to 25-year loan term (depending on the federal student loans you have).
With income-driven repayment, your payments are lower, it’s usually because the loan term is longer, not because your interest rate has improved. Your interest rate will stay the same under this plan.
Applying for Public Service Loan Forgiveness could be worth the challenge, if you’re pretty sure you’ve got what it takes—both in mental fortitude and when it comes to fulfilling the requirements.
But it isn’t the only option for getting student debt under control.
Refinancing Your Student Loans
If you work through a private lender like SoFi to consolidate and refinance your student loans, you may be able to get a competitive interest rate and a better fit of loan term.
But it is important to remember that if you refinance with a private lender you will lose federal benefits such as Public Service Loan Forgiveness, income-driven repayment plans, and deferment.
With SoFi, there’s no prepayment penalty, and SoFi offers unemployment protection for qualifying borrowers who might run into a rough patch.
And with SoFi, you can combine all your federal and personal student loans into one manageable payment, so you can keep track of your debt.
Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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