It sounds like a financial fairy tale, but certain federal loan borrowers can make their debt “disappear” with student loan forgiveness programs. Some of these programs, like those for death or permanent disability, can result from uncontrollable circumstances. For the savvy student loan borrower, there are happier options, including the Public Service Loan Forgiveness program (PSLF).
Broadly, PSLF forgives the balances on student loans for borrowers serving in certain public-service positions. But as with most promises, there’s some fine print. The program has come under fire for its notoriously tricky rules and loopholes, leaving some borrowers without forgiveness even after they’ve spent years making payments they thought qualified.
That’s why borrowers should be doubly diligent when applying for this forgiveness option. Here’s what you need to know about this program, and how to help your chances of success.
What Is Public Service Loan Forgiveness?
If you’re a government or nonprofit employee with eligible federal student loans and you make 120 qualifying payments (that’s 10 years worth), your remaining debt can be forgiven. Your specific job isn’t important, as long as you work full-time and your employer meets the program’s guidelines.
You should file the Department of Education’s Employment Certification form annually to make sure your job and your payments are eligible. This can help you stay on track with the program’s requirements and make sure you don’t run into any unpleasant surprises later.
After you’ve completed the 120 payments, you can submit the PSLF application. If approved, your remaining debt will be forgiven. If denied, you’ll be notified about why you’re ineligible.
However, even if you’re denied you may still be able to appeal the decision through the Temporary Expanded Public Service Loan Forgiveness plan. This program softens the rules around qualifying payments, so if you made regular payments in an ineligible repayment plan, you might still be approved if you can submit additional documentation.
Do I qualify for PSLF?
The biggest factors to qualify for PSLF are your employer, what types of loans you have, and how you repay them. Here’s what to review before opting for this forgiveness path.
You must work for an eligible employer in a full-time role, which is defined as 30 hours or more a week. Qualifying employers include:
- Federal, state, local, or tribal governments
- Nonprofit organizations that are tax-exempt under Section 501(c)(3) of the IRS code
AmeriCorp or Peace Corp volunteers who work full-time may also be eligible.
Any loan in the Federal Direct Loan program qualifies for PSLF. Perkins and FFEL Loans don’t qualify, but if you consolidate them into a Direct Consolidation Loan, they may be eligible. However, only the payments you make after you consolidate your loans will count towards PSLF.
Private student loans from banks, credit unions, online lenders, or other establishments are not eligible for federal forgiveness.
You must make 120 qualifying payments before you can apply for PSLF. The keyword here is “qualifying,” and this is where many borrowers get tripped up.
For a payment to count towards PSLF, it must be:
- Made after October 1, 2007
- Paid in a qualifying repayment plan (more on that below)
- Paid in full for the amount billed
- Submitted no later than 15 days late
- Made while you are currently working for an eligible employer
If you make voluntary payments while you’re in school, during your grace period, or while your loan is deferred, they will not count towards PSLF.
Note that payments don’t need to be consecutive. If you make qualifying payments for two years before switching to a job in a private sector, you don’t have to start from scratch when you return to a public-service employer later. However, any payments you made while working in the private sector would not count towards PSLF.
It’s also important to know that paying more than required won’t speed the process up. If you make an extra payment on your loans each month in hopes of beating the system, you’ll be sorely disappointed — only one payment per month will count towards PSLF.
Eligible Repayment Plans
The payments you make must be made under a qualifying repayment plan to be eligible for PSLF. Eligible plans include all income-driven plans, such as Revised Pay As You Earn Repayment (REPAYE), Pay As You Earn Repayment (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).
Repayment plans that do not qualify include Standard Repayment, Graduated Repayment, Extended Repayment, and Alternative Repayment. Why is that? For some of these plans, your debt would be completely paid off after 120 payments — which means that there would be nothing to forgive once you applied for PSLF.
Review the Rules Carefully Before Committing to PSLF
The PSLF program is a great option for those interested in public service jobs, but before you plan on forgiveness, make sure you understand the rules and can abide by them fully for the next decade. Want to make sure you’re on the right track? Check out the Department of Education’s PSLF Help Tool, which can walk you through the requirements and help you fill out the required forms.