July 5, 2018

Public Service Loan Forgiveness: Is PSLF Real?

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Public Service Loan Forgiveness (PSLF) can erase a portion of your student loan debt. But it can be hard to navigate and disastrous if you make a mistake. Read on to avoid common issues.


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Public Service Loan Forgiveness was created to encourage college graduates to go into the public sector. In exchange for their talents, the Department of Education would erase their remaining loans after ten years.

There are many nightmare stories about PSLF. People who made monthly loan payments for years only to find out that their employer doesn't qualify for the program. Or they are using the wrong repayment plan. Or they have the wrong type of loans.

There are clearly a lot of ways to go wrong in the PSLF process.

That doesn't mean you should bypass it, however.

If you have all of the information and you get your ducks in a row, you can say goodbye to tens, or even hundreds of thousands of dollars in student loans.

What is PSLF?

Back in 2007, Congress passed the College Cost Reduction and Access Act. This major piece of legislation brought some big changes to the student loan world, including income-based repayment plans and the Public Service Loan Forgiveness program.

PSLF rewards people who work in the public sector by forgiving any leftover federal student loan debt after ten years of payments. That means that the first round of recipients had their loans forgiven just last year. Income-based repayment plans help people qualify for the PSLF program.

Say you have $150,000 in student loans. After working in the public sector and making payments on your loans for ten years, you pay off $50,000. The remaining $100,000 is forgiven and you walk away debt free. We'll go into all of the details below.

How do I qualify for PSLF?

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  • Make sure you have qualifying loans:
    PSLF is only applicable to Federal Direct loans. How do you know if you have Direct loans? Log into your My Federal Student Aid account. If your loans have "Direct" in the title, then they qualify.

    Loans made after 2010 probably fall into the Direct loans program (you should still double-check), but be careful with loans made before then. It's quite possible that loans taken out before 2010 fall under the Federal Family Education Loan (FFEL) program, and therefore don't qualify. Other loans that might trip you up could be Stafford Loans, Perkins Loans, or Parent PLUS Loans. Unless they have "Direct" before the name, none of these loans are eligible for PSLF.

    Luckily, you can take those ineligible loans and turn them into eligible loans by consolidating them into a Direct Consolidation loan. It's important to note that you will be starting your 120 payments after you consolidate. Any payments you made pre-consolidation don't count towards PSLF. If you have a Direct Parent PLUS Loan, you can participate in PSLF. In that case, the parent must be working for a qualifying employer, not the student who received the loan.

    Other loans that don't qualify and can't be consolidated include private loans and Health Professions loans.

    Consolidation is where you take all of your separate loans and combine them into one big loan, hopefully with a lower interest rate.

  • Make sure you're working for a qualifying employer:
    In order to receive Public Service Loan Forgiveness, you have to be doing public service. That means that you are working full-time (at least 30 hours per week) for a qualifying employer.

    Tip: You can work multiple part-time jobs to qualify. As long as all of your employers qualify for PSLF and your total hours worked in a week are more than 30, you're good. Just submit an Employment Certification Form for each employer.

    Qualifying employers include government positions, non-profit organizations that have 501(c)(3) status, and those working full-time for AmeriCorps or the Peace Corps. If you're not sure if where you're working is a 501(c)(3) organization, check the IRS database.

    Political organizations, labor unions, or religious organizations won't qualify for PSLF. Nonprofits that don't have 501(c)(3) status are shaky, but they are a possibility. The organization must be focused on an approved area and you can't be doing directly political or religious work. For example, if you work in the cafeteria of a Christian school, you might qualify. If you're the school priest, you're out of luck.

    You should submit the Employment Certification Form to the Department of Education right away. Once it's processed, they'll let you know if your job doesn't count.

    Can I work out of the country and still qualify for PSLF? Yes, but your employer must be based in the U.S. and qualify under the PSLF guidelines.

  • Qualifying payment plan:
    The program requires that you sign up for an Income-Driven Repayment plan in order to reap the benefits of PSLF. These are the plans that determine your monthly payments based on—you guessed it—your current income.

    There is a reason for this. If you have an income-driven plan, it stretches your payments out for 20 years. The standard repayment plan has you paying off your loans in 10 years. Therefore, with the standard plan, you wouldn't have any loans left to forgive once you've made the 120 (or ten years of) payments required by PSLF. Under PSLF, after ten years, the rest will be forgiven.

    Check out your options and determine what's best for you:

    • PAYE (Pay as You Earn)
      • This is a solid, can't-go-wrong choice. It takes 10% of your monthly income. If you start earning enough that your payments on the PAYE plan would exceed what you paid with the standard plan, it will use the lowest number.
      • Here is an example: under the standard plan, you were paying $500 per month. You switched to the PAYE plan and your payments went down to $300. However, you get a great new job and your income increases significantly, so your payments go up to $550 per month. Lucky for you, the Department of Education will say "nope, that's not right" and only ask you to pay the $500 you were paying on the standard plan.
      • This is the best option if you are married, since two incomes could make your monthly payment increase significantly. With the PAYE plan, your payments are capped.

    • REPAYE (Revised Pay as You Earn)
      • Also a solid option. The only difference between this and PAYE is that there is no cap on the amount you have to pay. If you start making a lot of money, your payments will increase accordingly. If your payments get too big, it won't automatically revert to the amount you would have paid under a standard plan, like PAYE does.

    • IBR (Income-Based Repayment)
      • Depending on when you borrowed, you might not be eligible for PAYE (if you didn't receive a direct loan after 2011, for example). In that case you have a choice between REPAYE and IBR.
      • You'll pay 10% of your discretionary income if you're a new borrower after January 1st, 2014 with IBR.
      • You'll pay 15% of discretionary income if your loans date back to before 2014.
      • Like the PAYE plan, your payments are capped. They won't let your payments exceed what you would have paid every month on the standard plan.

    • ICR (Income-Contingent Repayment)
      • This is your only income-driven option as a Parent PLUS borrower.
      • This is a bad option for virtually everyone else. It takes 20% of your income (with payments stretched over 25 years) or what you would pay over 12 years on the standard plan. It's not worth your time for PSLF. Just don't.

Qualifying payments

Now that you've switched your payment plan to an income-driven option, you need to make 120 qualifying payments. But what does that mean? We'll explain.

A qualifying payment is a student loan payment that covers the monthly income-driven amount. 120 of these will add up to 10 years of payments, if you have no interruptions.

No, you can't speed up the process by making multiple payments in one month. You also don't help the process by paying more than the monthly amount. In fact, if you're pursuing PSLF, you should be making the minimum payments—that way, you can have the maximum amount forgiven after 10 years. Other payments that don't work include payments made during your grace period, while your loan is deferred or in forbearance, or payments made while you're still in school.

These payments can be interrupted. For example, if you work for the government for seven years, then work for a private company for two, you can go back to the government. After three more years of payments with a government job, you'll still have your loans forgiven.

If you go on maternity leave or otherwise need to use your three months of FMLA (Family Medical Leave) while working at a PSLF qualifying company, that doesn't interrupt your 120 payments. You just need to keep making monthly payments during that time.

How to apply/track your progress

You don't actually "apply" for PSLF until you have completed the 120 payments. However, you can make your life much easier by tracking your progress with the government.

The minute that you start working for a qualifying employer, send in the Employment Certification Form. If you change employers, submit this form as soon as you start your new job. If your loan servicer is already FedLoan, you can upload it directly on their website.

Send it in every year after that (or twice a year if you're an overachiever). Make sure you also keep a copy for yourself. When it comes to showing that you've been making payments while working for a qualified employer, these forms serve as your proof.

If there is something wrong with your employment (you aren't working for a qualified employer, you don't have the correct type of loans, or you aren't on the correct repayment plan), the Department of Education will let you know. This is also why it's helpful to do this immediately after you start working. You can then fix the problem and be on your way to loan forgiveness.

If you just discovered PSLF after you've been working in the public sector for a few years, you can still use the program. Send in the ECF immediately. Go back to any old employers and send in the ECF for them as well. The sooner you start the process, the easier things will be at the end.

The nightmare you want to avoid is trying to verify 10 years of employment at the same time. Or finding out that you haven't been making qualifying payments. If everything is tracked over time, the process moves much faster and you get to enjoy the student loan debt-free life sooner.

After your 120 payments, turn in that Application for Forgiveness. You must still be working for your qualifying employer when you submit this form. Then wait for a letter saying that your loans have been forgiven. Feel free to do a celebration dance when that letter comes in.

Extra things to know

  • Tax information
    Once you achieve that sweet, sweet loan forgiveness, you might be wondering how this affects taxes. You're in luck. All of that money from forgiven loans is untaxed.

    This is not to be overlooked. It's a huge tax benefit.

  • Public service vs Private jobs
    If you're currently figuring out whether to go into the public or private sector, PSLF should definitely factor into your decision. That does not mean that we recommend it in every situation, however. If public sector work doesn't call to you or if you stand to make significantly more money in the private sector, so much so that you can pay off your student loans comfortably in less than ten years, that's something to consider.

    PSLF will be a huge help if you have a significant amount of student loans and aren't about to pull in six figures. It is also a perfect option for those who really want to work in the public sector.

  • FedLoan
    Once you begin actively tracking your employment for PSLF, your loans are automatically transferred to FedLoan for loan servicing. There is no other option here. FedLoan is the only federal loan servicer authorized to process PSLF applicants.

PSLF in the News: PSLF has made the news a lot in the past couple of years. 2017 was the first year for eligible borrowers to be approved for forgiveness. It is estimated that of the 7,500 applicants, about 1,000 had loans forgiven. A group of lawyers working for the American Bar Association were denied loan forgiveness after being told their work qualified. The White House and Department of Education laid out a plan to eliminate the program. On top of all that, there is an act sitting in the House of Representatives, called the PROSPER Act, that is also aimed at eliminating the program.

However, that shouldn't deter you from pursuing the program. There is a powerful force of people opposed to the repeal of the program. Additionally, those who are currently under the program will most likely be grandfathered in.

If you're worried, set aside a small percentage of your income every month as a "just in case" fund. You have that should anything happen with PSLF. If nothing changes, you can treat yourself to a weekend away with the extra savings. Win, win.

Bottom Line

Public Service Loan Forgiveness is a huge opportunity that could take thousands of dollars of debt off of your shoulders.

If you're working in the public sector, or thinking about it, PSLF should definitely be on your radar. Use all of our information above to make sure that you are dotting all of your i's and crossing your t's, and you'll be saying goodbye to a ton of debt (after those 120 payments).

More from CreditDonkey:

How to Get Rid of Student Loans

Loan Forgiveness for Teachers

Loan Forgiveness for Doctors

Student Loans

Student Loan Rehabilitation

The cost of education has student loan debt at an all-time high. If you're struggling to keep up, student loan rehabilitation could help you. See if you qualify in our guide.

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