Student loan forgiveness is the lifesaver of our country’s college graduates.
As we’ve reported in many student loan stories, the collective national student loan debt amount is more than $1.4 trillion and is higher than any other consumer debt in the nation, even mortgages.
There certainly are millions of us who wish we could snap our fingers and watch our student loan debt disappear. While that sort of thing will never happen instantaneously, the federal government offers several different ways to have your student loans forgiven after 10, 20 or 25 years.
The quickest way to student loan forgiveness is through the Public Service Loan Forgiveness program. Up until the end of 2016, the PSLF was a rock-solid way to get your student loans forgiven.
At the end of 2016, that changed. Four members of the American Bar Association sued the Department of Education because they were told less than a year before their loans were to be forgiven that the jobs they’d chosen no longer qualified for loan forgiveness.
Needless to say, we think our society has a lot of anxiety and fear about student loans, and news articles about vital programs either disappearing or being temperamental does nothing to allay our frayed financial nerves.
The purpose of this beginner’s guide is to help you understand exactly what you need to know about the Direct Loan program’s public service loan forgiveness program:
- What is public service loan forgiveness?
- Who can file for public service loan forgiveness?
- How the program works
- The ABA lawsuit and the 2018 White House budget
Before we dive into these important details, we want to present a few facts that should make you pause for a moment. We gathered these facts from a webinar conducted by Betsy Mayotte, a policymaker and expert in federal student loan programs:
- 25% of the workforce is working for an eligible public service employer (more on that later)
- Around 10% of student loan borrowers are eligible for PSLF
- Around 1% of those eligible for PSLF actually applied for it
If there’s one thing we’ve learned from this trio of data is that there are millions of borrowers out there who are eligible for public service loan forgiveness and they just aren’t using it.
We’re going to take the next few minutes to help you avoid being one of those millions of confused and/or misled borrowers by breaking things down for you in a way that’s accurate and easy to read.
What Is Public Service Loan Forgiveness?
The government’s PSLF program will forgive the loans of borrowers who work for what are considered “public service” employers. If they can work for a public service employer while making 120 payments on their student loans, the remaining balance is forgiven after 10 years.
Within that explanation, though, there are a lot of nuances you need to know about.
Who Is Eligible for Public Service Loan Forgiveness?
The question of who is eligible for public service loan forgiveness isn’t really a matter of what kind of person gets it so much as what types of loans get forgiveness and which types of jobs qualify for the program.
Loans That Get Public Service Loan Forgiveness
According to StudentAid.gov (bookmark it … it’s the best federal resource for borrowers), the only loans eligible for public service loan forgiveness are Direct loans. These are loans given by the government, not private loans funded through a bank or credit union.
Now, just because you don’t have Direct loans doesn’t mean you can’t make other loans eligible for PSLF.
If you have loans through the Federal Family Education Loan or Federal Perkins Loan programs, those loans can be made eligible for PSLF if you consolidate them through the Direct Loan Consolidation program.
Basically, what that means is the government buys up all your loans and packages them into one loan with a single interest rate.
Here’s the catch: Payments you made before all those loans were consolidated don’t count toward the 120-payment requirement, which we’ll talk about in a few minutes.
Jobs Eligible for Public Service Loan Forgiveness
Remember that lawsuit we mentioned earlier? Well, it happened because borrowers thought the jobs were eligible for PSLF only to find out from the government that the jobs were not eligible.
You need to be double, triple and quadruple sure that your job qualifies and this section is going to help you do that.
The government’s term for jobs that are eligible under the PSLF program is “qualifying employment.” Here are the jobs that qualify:
- Government organizations (local, state federal or tribal)
- 501(c)(3) tax-exempt nonprofits
- Certain nonprofits that are not tax exempt
That last category is a little tricky because only jobs that have specific primary purposes are eligible. If your job falls into this third category, it’s really important that you contact FedLoan Servicing, the loan servicer who deals specifically with the PSLF program: 1-855-364-4038.
In the meantime, here’s a list of “primary purposes” that are PSLF valid for jobs that are nonprofit but not tax exempt:
- Emergency management
- Military service
- Public safety
- Law enforcement
- Public interest law services
- Early childhood education
- Public service for individuals with disabilities
- Public service for the elderly
- Public health
- Public education
- Public library services
- School library services
As a warning, the list is actually longer than this, so make sure you call 1-855-364-4038 to verify even if you think your current employment qualifies.
Either way, you’ll have to fill out an employment certification form in order to get into the program, which means, at some point, you’ll receive confirmation that your job does or does not qualify.
We downloaded that form to get an idea of what it’s like. Basically, you’re telling them everything about your current job:
- Name of employer
- Federal employer identification number
- Start of job
- End of job
- Full-time or part-time
- Hours per week
You’ll also run through a checklist to determine if your type of job is eligible. In Section 5 of the application, you get an explanation of some of the nonprofit, non-exempt jobs we listed earlier. Read through this, as it will help you know if your job qualifies.
Remember, the employment certification form is not the Public Service Loan Forgiveness application.
Pro tip: You have to be working at least 30 hours a week in order qualify as a “full-time” worker, according to PSLF standards.
How the Public Service Loan Forgiveness Program Works
The PSLF program has several different steps and criteria that you need to know just to make sure there aren’t any surprises along the way.
The PSLF Application
As we mentioned a few seconds ago, your PSLF application is different from your employer certification application. The PSLF application is what you fill out once you’ve made 120 qualifying payments and you want your student loan debt forgiven.
The employment certification application is how you qualify for the plan, though, so it’s really important that you fill it out once you decide to do PSLF.
To be honest, you can do the certification program whenever you’d like. You could, if you’re crazy enough, track your 120 payments yourself and then, when you’re applying for loan forgiveness, submit employment certification forms for every job that qualifies.
However, we’d say common sense wins here – fill out your employment certification first so that you know your employer qualifies. Do this every time you get a new job that you think may qualify for PSLF. This way, there won’t be any surprises when it comes time to get your student loans forgiven.
If accepted into the program, then you’ve got one goal: to make 120 qualifying payments toward your loans while working at a qualifying employer.
FedLoan Servicing will tell you if your employer qualifies. As for the payments, each payment you make must meet the following criteria in order to be considered “qualifying”:
- Made after Oct. 1, 2007
- Payments are the full amount listed on your bill
- Not more than 15 days late
- Made during qualified employment
There are certain situations where your payments, even if they meet the criteria we just listed, won’t be counted toward your 120. You won’t get credit for payments made while:
- While you are in school
- During the six-month grace period you have after you graduate
- During deferment
- During forbearance
PSLF Payments Don’t Have to Be Consecutive
“Your 120 qualifying monthly payments do not need to be consecutive,” the StudentAid.gov website says. “For example, if you have a period of employment with a nonqualifying employer, you will not lose credit for prior qualifying payments you made.”
Extra Payments Won’t Count
If you make extra payments while you’re enrolled in PSLF, they won’t be counted to your 120-payment goal. Only one payment a month, StudentAid.gov says, will be valid toward the 120.
So, making two payments a month for five years (120 payments total) won’t get your loans forgiven any faster than if you made one payment a month for 10 years.
Qualifying Repayment Plan
Only borrowers enrolled in an income-driven repayment plan can make eligible payments toward their PSLF program.
Most income-driven repayment plans were created in the past 10 years to help borrowers manage high monthly payments by adjusting your payments to match your income, family size and how much money you have left over after paying for necessities (discretionary income).
Technically, you could be in a Standard Repayment Plan and still make qualifying payments, but the whole point of a Standard Repayment Plan is to pay off your loans in 10 years.
“If you are in repayment on the 10-year Standard Repayment Plan during the entire time you are working toward PSLF, you will have no remaining balance left to forgive after you have made 120 qualifying PSLF payments,” StudentAid.gov says. “Therefore, if you are seeking PSLF and are not already repaying under an income-driven repayment plan, you should change to an income-driven repayment plan as soon as possible.”
Pro tip: You can see how many qualifying payments you’ve made by logging into your FedLoan Servicing account.
The Final Step: Forgiving Your Loans
As we mentioned earlier, you’ll need to fill out an application to have your student loans forgiven once you’ve made 120 qualifying payments. Only Direct Loans or loans consolidated under the Direct Loan program will be forgiven – private loans or federal loans not included in your Direct Loans will not be forgiven.
Keep records of all the certification applications you’ve filled out as well as any correspondence from FedLoan Servicing and your loan servicer regarding employment certification. These may come in handy if FedLoan needs to verify past employment status and/or verify qualified payments.
The One Thing That Can Ruin Your Chances of Loan Forgiveness
In addition to this, there’s one extremely important thing you need to know: You have to be working for a qualified employer when you apply for loan forgiveness.
Here’s how the federal PSLF page describes this crucial detail:
“You must be working for a qualifying employer at the time you submit the application for forgiveness and at the time the remaining balance on your loan is forgiven.”
You Won’t Pay Taxes on the Forgiven Balance
One of the advantages that the Public Service Loan Forgiveness program offers is that the IRS doesn’t count your forgiven loan amount as income, which means that you won’t pay any taxes on that forgiven amount.
For those who sign up for an income-driven repayment plan like the IBR (income-based repayment plan), remaining loan balances are forgiven at the end of 20 or 25 years, but the IRS counts the forgiven amount as income, which means you’ll be taxed on the forgiven amount.
The American Bar Association, the President, and the PSLF
The lawsuit we mentioned at the beginning of this article struck a lot of fear into the borrowing public. Shortly after the lawsuit made headlines, the Trump administration announced it may make changes to the Public Service Loan Forgiveness program.
These two bits of news made it seem like borrowers could, out of the blue, lose the chance to get their student loans forgiven through PSLF.
ABA Challenges Department of Education About Public Service Loan Forgiveness
The ABA’s lawsuit came about after at least one of its employees and an employee of the Vietnam Veterans of America received letters from the Dept. of Ed stating that the jobs the DoE previously certified were, in fact, not eligible for certification.
Sadly, none of the payments the plaintiffs made counted toward their 120.
In one case, a lawyer verified that his employer, the ABA, was eligible for PSLF certification. Both the ABA and FedLoan Servicing agreed it was.
For two and a half years, the ABA says, he made payments on his loans. Then, the DoE dropped the bomb: the ABA wasn’t, in fact, certified and none of his payments counted.
The Department of Education’s response? The original approval was “provisional,” not permanent.
What’s interesting about this case is that the ABA doesn’t meet the requirements for an eligible organization.
All you have to do is read through the requirements we listed earlier in this article. The company is not a 501(c)(3) organization or a federal job and it doesn’t offer public services (those funded by local, state, federal or tribal governments).
The rules say that, basically, politically motivated or groups that do lobbying are disqualified from certification.
We like how Travis Hornsby from Student Loan Planner put it.
“I think it’s clear both in the literal interpretation of the definitions and the spirit of the PSLF certification form, the individuals in the lawsuit did not qualify,” Hornsby wrote. “The analogy I’d make is if someone at the IRS incorrectly processed my taxes. It doesn’t mean they can’t send me a correction and ask for more money.”
President’s Possible Elimination of PSLF
The Trump administration caused a few freak outs when the press alerted borrowers to the fact that the White House’s 2018 budget indicated that they might do away with the Public Service Loan Forgiveness program.
There was a lot of worry going around because borrowers were assuming the worst: That the administration would end the program and nobody – even those already making payments and working at certified jobs – would lose the chance to shed their loans after 10 years.
In reality, the administration wanted to streamline the income-driven repayment and PSLF processes by distilling them down into one single program that was easy for borrowers to understand.
Here’s that exact section of the budget:
“To support this streamlined pathway to debt relief for undergraduate borrowers, and to generate savings that help put the Nation on a more sustainable fiscal path, the Budget eliminates the Public Service Loan Forgiveness program, establishes reforms to guarantee that all borrowers in IDR pay an equitable share of their income, and eliminates subsidized loans.”
Could PSLF be removed? Yes. But will current borrowers lose PSLF privileges for existing loans? No. Here’s the budget’s explanation:
“All student loan proposals apply to loans originated on or after July 1, 2018, except those provided to borrowers to finish their current course of study.”
Here’s the short explanation: Changes could be coming, but if you’ve already received your loans their eligibility for PSLF won’t be affected.
Our Final Thoughts
The Public Service Loan Forgiveness program is an excellent way for borrowers to earn money and get forgiveness for any remaining debt they have after 120 consecutive payments.
The keys to qualifying for the program are making sure your employer qualifies, knowing the definition of qualifying payments and applying for employer certification any time you change jobs or your company’s IRS status.
If you can take the time to read through the information here and available on StudentAid.gov’s PSLF page, you’ll have a really strong grasp of the Public Service Loan Forgiveness program.
Considering that only about 10% of the 4 million students who work at PSLF-eligible workplaces actually apply, you have a great opportunity to use your knowledge to become an outlier.
But being different isn’t the point here – it’s to maximize the opportunities you have to come up with a realistic, long-term plan to pay off your loans and achieve financial strength and freedom.
We know that student loans are intimidating. I know from my own life how stressful it is to decide when to consolidate loans, actually consolidating them and then having to recertify for an income-driven repayment plan every year.
It’s not fun and it can be full of anxiety but it’s what we’ve got and, for the sake our own financial security, we have to become experts in whichever student loan situation we’re in.
We’ve done our research and consulted experts to build some helpful articles about all the aspects of student loans you’ll want to know:
- How to Discharge Your Student Loans
- 8 Different Options You Have to Pay Off Your Student Loans
- 5 Proven Strategies for Repaying Student Loans Faster
- The Pros and Cons of Student Loan Refinancing