While many individuals believe they qualify for the PSLF, it has been historically shown that only a very small % get approved for loan cancellations through PSLF. The PSAF is authentic; however, the program has many technicalities/or qualifications that many applicants may not be aware of, and therefore their applications may not be approved based on those technicalities.
Public Service Loan Forgiveness (PSLF), is a Loan Forgiveness program that was initiated in 2007. The premise behind it is quite simple: if you work in Public Service and make monthly loan payments for ten years, any remaining balance after that period will be forgiven. Although it sounds quite simple, it is not. You will need to have great precision as well as patience.
Have the Right Type of Loans to be Eligible for the PSLF Program
Any student loans that fall into Direct Loans will be eligible for the PSLF Program. In fact, the PSLF Program will not recognize or accept any Federal Student Loans issued under the FFEL or Perkins Loans or any private student loans as qualifying for the PSLF Program.
There is a possibility of consolidating some non-eligible Federal student loans into Direct Loans through a Direct Loan Consolidation, however, all payments made prior to consolidating your loan will not count towards the total length of time you are required to make payments during the ten-year period in order to be eligible for receiving PSLF forgiveness, thus leads to a lot of individuals being disappointed by this.
The Payments: How to Get Qualified Payments
So far, we have identified a total of 120 monthly payments that qualify and the word “Qualified” carries a lot of weight in this section.
In order to make 120 monthly payments that qualify, you must meet the criteria below:
- Your payment must be made after October 1, 2007
- Your payment must equal the amount of the total bill
- Your payment must be received before the 15th day of the due date
- You must be employed by an employer that qualifies
- You must be enrolled in a repayment plan that qualifies
The good news is that payments do not have to be consecutive. Since people go through life changes, the PSLF program accepts these circumstances.
Repayment Plans That Count Towards PSLF
If you are currently on a repayment plan that is not considered a qualifying repayment plan, you may as well not have made any payments.
PSLF is intended to work in conjunction with an income-driven repayment plan such as:
- PAYE
- REPAYE
- IBR
- ICR
The 10-year standard repayment plan does not qualify for forgiveness after 120 qualifying payments has been made, so it is likely that if you remain on the standard 10-year plan until completion, you will pay the loan off before you get the forgiveness. What a waste of time!
Flexibility in Full-Time Work:
Full-time employment as defined in PSLF doesn’t need to come from a single employer, rather, for PSLF purposes generally means the employee works a minimum of 30 hours per week across all jobs.
This allows some applicants to still be eligible for PSLF when combining different employers’ hours into the total.
The Employer Rule That Frustrates Many Applicants
This section can be confusing. Qualifying employers will be one of four types:
- Government entities at any level of government
- Nonprofits that have 501(c)(3) tax-exempt status
- AmeriCorps or Peace Corps
- Certain nonprofit organizations providing Public Services (based on the Public Service Loan Forgiveness program).
The key element that causes confusion is identifying who qualifies as your employer. In general, the employer or organization to which the employee is employed is determined by who signs the employee’s paycheck. Therefore, employees who work for a government entity but are compensated by a private entity typically do not qualify for PSLF, unless the private employer holds an eligible commitment on behalf of the employee.
This has led to a number of applicants losing their PSLF opportunity due to this piece of information.
Timing is everything when applying for student loan forgiveness under the PSLF program.
Once you’ve met all the requirements to qualify for PSLF, you need to actually apply for PSLF and continue working for an eligible employer during that time of applying.
If you stop working for an eligible employer before applying, your application will be denied without exception. Understanding that this is critical because timing is much more important than people think.
There are No Tax Consequences
The other great news to support the above point about timing is that when your loans are forgiven through PSLF, the IRS does not count that loan forgiveness amount as taxable income.
For example, if you have $60,000 in loans forgiven through PSLF, that amount will not be taxable by the federal government. This benefit alone makes PSLF the most powerful student loan forgiveness program in comparison to all the others available.
A Resource to Help Eliminate Confusion
A free resource known as the PSLF Help Tool is available on the official federal student aid website and is designed to provide you with assistance with regards to PSLF. The PSLF Help Tool will allow you to:
Verify that your employer is an eligible employer.
Verify where you are in your payment process.
Create the required documentation to submit each annual application to the PSLF program.
Filing these forms every year is a great way to document that your payments are counted, so you don’t have to wait until 10 years later only to discover there was a problem.
The Public Service Loan Forgiveness Program is not a windfall. It is like a contract for a long period, with no uncertainty (i.e., no surprises). If you learn the requirements of the program at an early stage and strictly adhere to them throughout, you can potentially change your financial life completely positively.
By ignoring some of these requirements, you can find yourself experiencing a level of frustration unparalleled in the personal finance world.
The same program produces two completely different financial results for two very different borrowers.
