Pursuing Public Service Loan Forgiveness, or PSLF, can make sense for many student loan borrowers who are employed full-time by a nonprofit or the government.
In my student loan repayment 101 webinars and presentations I always love highlighting how PSLF can literally mean a $100k+ swing in net worth for certain borrowers.
To put PSLF in perspective, a borrower can receive tax-free loan forgiveness after 120 qualified monthly payments, which is the equivalent of ten years. Income-driven loan forgiveness is available to borrowers who don’t qualify for PSLF and takes 20-25 years. The forgiven amount is taxable income, which differs from the tax-free treatment of debt forgiven under PSLF.
Despite how much more favorable PSLF is than income-driven loan forgiveness, pursuing income-driven loan forgiveness still will benefit millions of borrowers. That shows you just how much of an impact PSLF can have, especially given the relatively short ten-years worth of payments.
PSLF has a number of strategies that can be leveraged to maximize the amount forgiven. We’ll get into some of those when we start going through the tips one-by-one.
My personal experience with PSLF involves pursuing PSLF for my wife’s student loans. I also researched PSLF extensively for my book Student Loan Solution: 5 Steps to Take Control of Your Student Loans and Financial Life.
Let’s start going through some of the top tips for pursuing PSLF.
Ignore PSLF Scare Tactics
There’s a lot of scary media headlines about PSLF, given the large rejection rate for the initial batch of applicants. There are also a lot of financial personalities who are attempting to scare borrowers out of pursuing PSLF. Some of the information these leading personalities are giving is downright false, and at best is misleading.
I wrote a post that explains why fears around student loan forgiveness are overblown. There are a number of reasons so many in the first batch are getting rejected, and we will see the acceptance rate increase every single year from here on out. PSLF is a very complicated program, but it can – and has – worked.
There are two primary ways to repay student loans: aggressively or strategically. PSLF is an example of a strategic loan payoff. Your goal with PSLF should be to maximize the amount forgiven while improving your financial life in other areas, whether it’s building up investments, paying off credit card debt, or building an emergency fund. Student loans are nearly impossible to discharge in bankruptcy, so taking advantage of loan forgiveness can be the right move for many borrowers.
Eligible Loans: Only Federal Direct Loans are Eligible
This is a basic but important tip: only Federal Direct Loans are eligible for Public Service Loan Forgiveness. If you have Federal Family Education Loan (FFEL) Program loans you need to consolidate them into a Direct Consolidation Loans to make them eligible.
It’s also worth noting that Direct Parent PLUS loans are only eligible for PSLF if they are consolidated through a Direct Consolidation Loan. If you do consolidate Parent PLUS loans, you shouldn’t include any other loans because Direct Consolidation loans that repaid a Parent PLUS loan are only eligible for one of the four income-driven repayment plans, Income-Contingent Repayment, or ICR, which is the least favorable repayment plan. I go in-depth on options for repaying Parent PLUS loans here.
You do want to be careful when consolidating loans. Let’s say you consolidate all your Direct and FFEL loans into one Direct Consolidation loan. If you had made any progress towards PSLF on the Direct loans you are back at square one because consolidation creates a brand new loan; your old loans no longer exist.
Refinancing your loans has a similar effect, but worse because. When you refinance federal loans you create a private loan. In general you will want to keep your federal loans as federal loans, especially because once you refinance loans there is no reversing it. Here’s when you should and shouldn’t refinance student loans.
Private student loans are not eligible for PSLF or any form of loan forgiveness, but more and more borrowers have them. In fact there is an estimated $100 Billion of student loans in the United States today. If you are one of the many private student loan borrowers, check out my guide for dealing with private student loans.
Eligible Repayment Plan: Must be on one of the Four Income-Driven Repayment Plan
You must be on an eligible repayment plan for a payment to be a qualifying payment for PSLF.
Qualifying repayment plans for PSLF include:
- The Standard Ten-Year Repayment Plan
- All four income-driven repayment plans: PAYE, REPAYE, IBR, ICR
I share detailed overviews of each of the income-driven repayment plans in my book Student Loan Solution, but you can also read a high level summary of each here.
You will want to be in an income-driven repayment plan if you are pursuing PSLF. If you are on the standard ten-year repayment plan, you would pay off your loans after ten years and wouldn’t get anything forgiven. So why is the standard ten-year repayment plan a qualifying repayment plan for PSLF?
One example where this would matter is if someone worked for an eligible employer for a couple years and did not know about income-driven repayment plans or PSLF. If they worked for an eligible employer, there is potential that the payments made on the standard ten-year repayment plan would count towards their 120 required monthly payments for PSLF. In theory someone could have been unaware of PSLF and really stretched themselves financially on the standard ten-year repayment plan for a year or two before learning about PSLF and moving onto an income-driven repayment plan. They get to take credit for any qualifying payments they made.
Rejected for PSLF? Check Eligibility for Temporary Expanded Public Service Loan Forgiveness (TEPSLF)
You may not have heard of TEPSLF, but for a select group of borrowers it will be the difference between having their loans forgiven this year and starting from square one. TEPSLF was part of the 2018 Consolidated Appropriations Act, which was funded at $700 million over the course of two years. This is a first-come first-serve program, where borrowers who were rejected from PSLF because they made payments on their Direct Loans under a non-qualifying repayment plan (such as extended repayment) can potentially have their loans forgiven.
Keep in mind for TEPSLF you must first submit an application for PSLF and be rejected (even if you know you will be rejected). It also does not offer relief for anyone who made payments on FFEL loans instead of Direct loans, and failed to realize they had to consolidate their FFEL loans into a Direct Consolidation loan to start down the path of PSLF.
You can read the details about TEPSLF on the Department of Education’s website.
Eligible Employer: Must be Working the Equivalent of Full-Time
There are three categories of qualifying employers for PSLF:
1) Government organizations at any level (federal, state, local, or tribal)
An important caveat to this is that if you are a government contractor you may not qualify. For example, let’s say your for-profit employer provides services for a contract they have with the federal government. You are not directly employed by the government and, even if you are referred to as a “government contractor,” your employment is with a for-profit employer. In this case, you are not eligible for PSLF.
2) Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
There are exceptions to this. Employment with a labor union or partisan political organization is not eligible employment for PSLF. PSLF eligibility may also be in jeopardy if you work for a religious organization, depending on the nature of your job. Any time spent on religious instruction, worship services, or proselytizing does not count as eligible hours towards PSLF. Because you need to work the equivalent of what your employer would define as full-time hours (typically forty hours) or thirty or more hours, whichever is greater, the government could have grounds for denying PSLF even if only a small portion of your weekly work is spent on religious instruction, worship services, or proselytizing.
3) Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if their primary purpose is to provide certain types of qualifying public services
The services these additional potential qualifying employers provide are laid out on the PSLF Employment Certification Form.
I get nervous with this third bucket because it is a bit of a gray area. The program is complicated enough so having a gray area isn’t ideal. With that being said, if you submit the Employer Certification Form and start getting payments tagged as qualified payments, that should give you confidence you are on the right path.
Speaking of the Employer Certification Form…
Submit the Employer Certification Form at Least Once a Year
The Employer Certification Form is what is used to tell FedLoan (which is the loan servicer loans are moved to once you start down the path of PSLF) and the Department of Education that you worked for a qualifying employer. You aren’t required to submit this form at any time, but I encourage borrowers working towards PSLF to submit it at least once a year, if not twice. It costs nothing and it gets payments tagged as qualified.
Let’s say you are just starting down the path towards PSLF. You made on-time payments the past twelve months while on a qualified repayment plan. But the total number of qualified loan payments on your statement hasn’t budged. That’s because FedLoan needs that employer certification form to tag those payments as qualified; they aren’t going to assume you worked for a qualifying employer during that time.
You can access the paper form here. There is an online option but my wife said the paper form has (surprisingly) been easier to use.
Keep Records of Everything
Because of how much money is on the line it only makes sense to keep all your paperwork related to your student loans and PSLF. Ideally you won’t need it, but you can never be too sure when dealing with a federal government program that is granting borrowers $100k+ of tax-free loan forgiveness.
There have been numerous reports from people that student loan servicers gave them false and misleading information about PSLF. For example there are borrowers who had FFEL loans but were assured by a call center employee for a loan servicer that they were on the path to PSLF. This is one reason why I like to have a paper trail for everything. If these borrowers had written confirmation from a loan servicer (which I will admit the chances of getting them to provide something in writing were slim to none) they may have had legal recourse against the servicer.
Bottom line: keep good records and don’t throw out your paperwork.
If you are one of the millions of borrowers who PSLF may benefit, it makes sense to look into the program and learn as much as you can. If you want to maximize the amount you get forgiven under PSLF, be sure to check out these strategies for maximizing PSLF.
Related: Keep your student loans organized by grabbing a copy of our free student loan spreadsheet which comes with useful calculators and information.
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