Theoretically, the Public Service Loan Forgiveness Program (PSLF) is a mutually beneficial program: faced with an aging workforce, the Federal government now has a carrot on a stick incentive for younger professionals who would otherwise take higher paying jobs in the private sector. But how does PSLF work, how does one enroll in the program, and will the government really just forgive what could amount to billions of collective dollars in student loan debt?
Who Can Enroll in the Public Service Loan Forgiveness Program?
According to Forbes, 44.2 million Americans have student loan debt, totaling over one and a half trillion dollars. The average student borrower graduates with $37,172 in student loan debt — a significant $20,000 increase from just 13 years ago. That’s a lot of people who could use some relief from a student loan. However, not everyone can enroll.
Full-time employees of government entities of all levels (public, state, local, and tribal), as well as employees of tax-exempt non-profit organizations, are eligible for enrollment. One important thing to note is that it is not the nature of the individual’s job that determines eligibility; rather, the type of organization in which they are employed. Government contractors, labor unions, and most non tax-exempt organizations are not considered qualifying employers.
Terms of PSLF
Because the program is run by the federal government, only loans issued under the William D. Ford Federal Direct Loan Program may be eligible for forgiveness. Loans taken from private lenders like banks or companies such as SoFi and LendKey do not qualify. There are four types of Federal Direct Loans:
- Stafford Loans, also called Direct Subsidized Loans
- Stafford Unsubsidized Loans
- PLUS Loans
- Consolidation Loans
To fulfill the terms of the program, borrowers must make 120 on-time payments under a qualifying repayment plan. These payments do not have to be consecutive. For example, if a borrower briefly worked for a nonqualifying employer, those payments would not count, but any payments made before or after with a qualifying employer would count towards the required 120.
A payment must be made no later than 15 days after the due date to be considered on time. Qualifying repayment plans include all of the income-driven plans, and the 10-Year Standard Repayment Plan. The four types of income-driven based repayment plans set the monthly student loan payment at an amount based on the borrower’s income, and are:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
How to Enroll
Borrowers must complete and submit an Employment Certification Form to FedLoan Servicing, the U.S. Department of Education’s PSLF loan servicer. Once FedLoan receives the form, they will transfer all eligible Direct Loans, and FedLoan becomes the new servicer. Borrowers must then periodically re-submit the Employment Certification form so that FedLoan can track the payments.
One important thing to note is that FedLoan tracks payments retroactively; that is, once FedLoan receives the Certification they then go back and count all payments since the last Certification. FedLoan then updates the borrower’s account to reflect the amount of qualifying payments, and how many are remaining to reach the required 120.
FedLoan recommends submitting this form annually, but diligent borrowers can submit the form as often as they feel necessary. Some borrowers submit Certifications on a quarterly basis to ensure that their accounts are kept up-to-date.
What’s the Down Side?
Participants are betting on the likelihood that the program will still exist when they are ready to apply for a discharge. In fact, the government could discontinue the program for any number of budgetary or politically motivated reasons.
FedLoan has recently been on the receiving end of negative attention from the media for denying loan discharge applications. Despite borrowers ostensibly fulfilling all requirements, FedLoan has rejected many requests for discharge. The federal government enacted PSLF in 2007, so the first waves of borrowers applying for balance forgiveness have hit, and FedLoan has denied many applications. The burden is on the borrower to fulfill all criteria of PSLF by regularly submitting the Employment Certification form and actively making on-time payments.
Who Should Consider Public Service Loan Forgiveness?
For those with Federal Direct loans in good standing, Public Service Loan Forgiveness is a smart option. Even more so for those who plan to be employed by, or are already employed by, Government and non-profit entities. Because there’s no guarantee that PSLF will continue to be an option down the road, pursuing a career with such an organization on the promise of loan forgiveness is a gamble with a high level of risk, but a worthwhile payoff.
Find more information about PSLF on the Federal Student Aid website.
Have you considered the Public Service Loan Forgiveness Program? Let us know in the comments below.