Public Service Loan Forgiveness (PSLF)
What is Public Service Loan Forgiveness?
The PSLF program is a federal program that forgives up to 100% of your federal student loan debt if you work in a qualifying public service job. The program was created in 2007, as a way to help people in lower-paying government jobs to able to manage their student loan debt. Additionally, as opposed to any of the income-driven repayment plans, the amount of loan that is forgiven, is NOT taxable income to the borrower. However, many people who would otherwise be eligible to receive PSLF fail to qualify because they did not understand the process or go through it correctly.
5 Pillars of PSLF
2. Right Payment Plans
3. Right Loans
4. Right Payments
5. Prove it
To qualify for PSLF, you must be employed full-time with an organization that is considered “qualifying employment”. Full-time means 30 hours a week, or your employer's definition of full-time. Your job or duties of your employment generally does not matter.
Generally, any non-profit defined by the IRC 501(c)(3) may qualify if it provides certain specified public services. These services include:
Public safety, or law enforcement services
Public health services, public education or public library services
School library and other school-based services
Public interest law services
Early childhood education
Public service for individuals with disabilities and the elderly.
The following organizations are not considered qualifying employment by PSLF:
For-profit organizations, including for-profit government contractors
Partisan political organizations
Non-profit organizations that are not exempt under Section 501(c)(3) and which don’t provide a public service.
PSLF And Qualified Repayment Plans
For your monthly student loan payments to count towards PSLF, you need to be using the right income-driven repayment plan. This is one of the ways many people miss out on their opportunity to earn loan forgiveness through PSLF.
The loan repayment programs that qualify you for PSLF are the following:
ICR (Income-Contingent Repayment)
Any payment made under a Standard Repayment Plan or Graduated Plan will not count toward the 120 monthly payments needed to qualify for PSLF.
What Types of Loans Qualify?
Only the following types of loan qualify for PSLF:
Direct Subsidized / Unsubsidized
Direct Consolidated Loans
Direct Grad school or Professional PLUS Loans
Direct Stafford Subsidized / Unsubsidized
Private loans, loans in default, and federal loans not listed above do not qualify for PSLF.
What if My Federal Loans Don’t Qualify?
Fortunately, there is a way to convert your federal loans into Direct Loans so that they can qualify under PSLF. The Direct Loan Consolidation program works by taking all of your federal student loans and consolidating them into one new Direct Loan.
If you do not have Direct Loans but want to apply for Public Service Loan Forgiveness, you will need to consolidate your loans in this way.
Making 120 Qualifying Payments
One of the biggest reasons people fail to qualify for PSLF forgiveness every year is because qualified applicants fail to make qualified payments. If you think you’re qualified for PSLF, you must check in every year to make sure the payments you’re making on your student loans are qualified.
To qualify for loan forgiveness under PSLF, you must make 120 qualified payments that meet the following payment requirements:
Payment was made after October 1, 2007;
Payment was made on time (no more than 15 days after the due date);
Payment was made in full (for the full amount shown on your bill). Payments that are made in a lump sum or in advance are not counted as qualifying payments.
Payment was made while you were employed full-time with a qualified employer; and
Payment was made under a qualifying repayment plan (see above).
This is a MUST!!
Many borrowers get denied PSLF because they do not prove it annually.
To prove it, all you have to do is verify income and family size and certify employment annually.
An Example of How Public Service Loan Forgiveness Can Work
A borrower is earning $40,000 per year with a family size of 4. The loan balance is $48,000, with an interest rate of 6.875%. The borrower could qualify for an income-based payment of $52/mo. After making 120 qualifying payments, this borrower would have paid $6,240 in student loan payments, and the balance of $48,000 – $6,240 = $41,760 would be forgiven.
This does not include interest that would also be forgiven and assumes that the personal income and family size did not change for ten years.
If you would like to discuss your situation and see if I can help you, please use the link below to schedule a FREE, NO OBLIGATION meeting, either ZOOM or Phone. Please do so ASAP as my schedule fills up very quickly. Click here to access my calendar https://calendly.com/michaelgaer/college-financial-planning