Public Service Loan Forgiveness, or PSLF, is a GREAT PROGRAM that can Benefit Millions of People!
Did you know that there are currently over 33 million Americans who qualify for the Public Service Loan Forgiveness program, but less than 1% will actually correctly enroll and take advantage of the program? If you work at a 501(c)(3) or a government organization and have student loans, please read this, it might save you thousands of dollars and lower your student loan payment. Don’t be part of the 99% who are eligible, yet fail to take advantage of this program.
Why is PSLF so Great?
Under the Public Service Loan Forgiveness Program, eligible borrowers will have their federal student loans forgiven after 120 qualifying payments (10 years). Currently, there are no limits on the amount that can be forgiven and forgiveness is not taxable income.
Who Qualifies for Public Service Loan Forgiveness (PSLF)?
Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a non-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for Public Student Loan Forgiveness purposes. Additionally, the type of services that these public service organizations provide does not matter for Public Service Loan Forgiveness purposes.
- Employer Qualifies?
- Federal, State, Local Government:Yes
- Non-Profit 501(c)(3):Yes
- Non-Profit in Public Services:Maybe, see below.
A private non-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the IRC may be a qualifying public service organization if it provides certain specified public services. These services include:
- Emergency management
- Military service
- 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 organization must not be a labor union or a partisan political organization. Generally, the type or nature of employment with the organization does not matter for Public Service Loan Forgiveness purposes. However, when determining full-time public service employment at a not-for-profit organization you may not include time spent participating in religious instruction, worship services, or any form of proselytizing.
What Types of Loans Qualify?
To qualify for Public Service Loan Forgiveness, you must have the following loan types:
- Direct Subsidized / Unsubsidized
- Direct Consolidated Loans
- Direct PLUS
- Direct Stafford Subsidized / Unsubsidized.
Unfortunately, private loans do not qualify under any circumstance, as well as other federal loan types. Student loans in default also do not qualify.
Have Federal Loans that Don’t Qualify–Consolidate Them
Many borrowers do not have Direct Loans and thus would not qualify for the program in their current scenario, but fortunately, there is a way to convert your federal loans into Direct Loans. The Direct Loan Consolidation program will take all of your federal loans, and consolidate 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. Consolidating your federal student loans is free if you apply on your own, or you can hire a private company to help you through the process.
Making Qualifying Payments
For you 120 payments to count towards forgiveness once you have Direct Loans, you must also:
- Be employed full time in a qualifying public service organization at the time of payment.
- Be making payments in the Income-Based Repayment plan, Income Contingent Repayment, or Pay As You Earn Plan. These three plans will give you a payment that is calculated based on your income and family size. Below are the estimated payments in the IBR program depending on family size and income. Loan balance and interest rates are not used in the calculation of the payment.
- Make your payment on time. On-time is defined as being within 15 days of the scheduled payment date. Payments that are made in a lump sum, or in advance for future months are not counted as qualifying payments.
120 Payments must be made, but they do not need to be made consecutively. So for some it may take exactly 120 months, and for others it may take longer.
How Much Can Be Forgiven?
Currently, no maximum amount can be forgiven.
Is Public Service Loan Forgiveness Taxable?
Amounts forgiven under this program are NOT considered taxable income (this is one of the huge benefits of using PSLF)
What is considered full time employment?
You must meet your employer’s definition of full-time. However, there must be a minimum of 30 hours of work per week. For full-time employment, time spent participating in religious instruction, worship services, or any form of proselytizing does is not counted. For teachers of other employees of a public service organization that is under contract for at least 8 out of 12 months, you meet the full-time standard if you work at least 30 hours per week during your contractual period. If you work in two separate public sector or non-profit jobs, you meet the requirement if the combined hours at both positions is 30 hours or more per week in combination.
What is the History of this Program and Why does it Exist?
In 2007, Congress created the Public Service Loan Forgiveness program. This program was designed to reward those who choose a lower paying job in the public sector or non-profit organization.
An Example of How Public Service Loan Forgiveness Can Work:
Example: Borrower is earning $40,000/yr 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, 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 will not change for ten years.
Public Service Loan Forgiveness Quick Checklist:
- Full forgiveness of Federal Student Loans after 10 years (120 qualified payments)
- Government or Non-profit employment 501(c)(3)
- Must be in the direct loan program making income-based payments
- Forgiveness is non-taxable
- Consider consolidating your loans to ensure you are making qualified payments
Recent Controversy over valid PSLF certifications:
In a very scary development for many people who were counting on Public Service Loan Forgiveness, the Department of Education is currently questioning the validity of many previous approvals for Public Service Loan Forgiveness submitted by FedLoan Servicing, even stating that borrowers may in fact see their approvals rescinded in the near future. This could result in many borrowers currently working in the public sector having their forgiveness benefits denied even after meeting all program requirements.
Many borrowers previously enrolled in the PSLF program recently reported being denied continued eligibility after re-submitted their certification forms. These denials are often retroactive, making all of their previous work experience now ineligible for the program.
These denials frequently come with no options attached and no way to appeal the decisions. Upon receiving these denials and failing to find an available solution, many borrowers are filing suit against the Department of Education as a result.
How to get started on PSLF–A step-by-step process:
If you’re interested in pursuing Public Service Loan Forgiveness, here is a quick step-by-step process to get you started:
- Check that your current government or nonprofit employer meets the requirements for eligibility.
- Make that your have Direct Federal Loans. If your federal loans are not eligible, or you are currently in default, try a federal consolidation program.
- Enroll in an Income-Driven Repayment plan
- Submit a certification form to FedLoan Servicing proving that you meet the employment requirements for Public Service Loan Forgiveness, after which the Department of Education will transfer your loans to FedLoan Servicing to track your mandatory 120 qualifying payments. These certification forms must also be re-submitted every year to ensure continued eligibility.
Other Benefits of Enrolling in the Income Based Programs:
Under the income-based programs, your payments are calculated based on your income, not on how much you owe. This can often provide borrowers relief from large payments they are otherwise unable to make. In some cases, for those with very low income, the monthly payment could be as low as $0.00 per month depending on the income and family size of the applicant. The payment regardless of how low it is (even $0.00) would count towards your forgiveness.
Is Public Service Loan Forgiveness Going Away? What should I do?
It appears President Trump and Education Secretary Betsy DeVos want to eliminate this program. While it is unclear whether that will happen at this juncture, to increase the chances of being able to take advantage of PSLF, borrowers that are eligible for the program should immediately take 2 simple steps:
- For borrowers that are eligible for PSLF immediately ensure you loans in the Direct Loan Program (consolidate your loans as necessary)
- If you’re in the Direct program already and eligible for PSLF, immediately certify your employment
While these steps will not ensure participation in PSLF as it stands today, it will certainly be harder to take this benefit away from those already enrolled than those not currently in the program.
If you think you may qualify for PSLF, now is the time to act. A huge number of people who could take advantage of this great benefit is missing the opportunity by not making the correct qualifying payments. When it comes to applying for the Public Service Loan Forgiveness Program, you have two different options.
- Apply on your own without paying anyone a fee, and work with the Department of Education.
- Your second option is to contact a private organization to you with the whole process. If you would like to speak with a private company that can help you better understand how the Public Service Loan Forgiveness program works and all the benefits it offers, contact us and a specialist will be happy to help you.