Curious about PUBLIC SERVICE LOAN FORGIVENESS?
EVERYTHING YOU NEED TO KNOW ABOUT PUBLIC SERVICE LOAN FORGIVENESS
The Public Service Loan Forgiveness Program (PSLF) is exactly what it sounds like. It is a federal student loan forgiveness program for public service employees. It applies to people with federal student loans in specific fields of work, with specific types of loans, and who make certain qualifying payments. Not vague at all right?
Figuring out how to navigate your student loan debt is like trying to figure out what to eat for lunch when you’re already hangry. (anger induced by hunger).
There are so many different options, that it leaves you (or at least, me) feeling like sticking my head under a rug and sobbing. (I get dramatic when I’m hungry). And to make matters worse, each student loan option is needlessly complicated. Its like trying to order a basic meal (a #1– a plain hamburger with fries and a Diet Coke) and then having your waiter assault you with sundry of questions. Well do you want special sauce with that? Do you want onions? What about grilled onions? Lettuce? Tomato? What about trying something crazy on it, like pineapple? Jalapeno? And before you know it, you’ve collapsed on the ground, too hungry to make any decisions. In each of the federal student loan forgiveness options, you have to follow the rules with precision in order to have your loans forgiven. So, first, you have to know what those rules are before you can make a decision. But the rules can be hard to understand. And your hungry. And understanding things when your hungry is hard. So, in our student loans simplified series, we are breaking down each of the federal student loan repayment options in bite sized pieces to help you understand and make the best decision for you.
Who’s hungry?
In our Student Loans Simplified Series, we are breaking down all of the available federal student loan repayment plans in a simple, unbiased way, to help you make the best decision for paying back your student loans.
Curious about our personal student loan repayment plan? Read about it here.
Let’s break down PSLF into small bites. Here are all the things you should know about PSLF before you count on it.
MOST IMPORTANT FACTORS TO CONSIDER FOR PSLF:
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PSLF is under pretty severe scrutiny.
There has been chatter about altering the terms of PSLF or eliminating the program entirely. You could hypothetically plan for PSLF, make all 120 payments, and not have the balance of your loan forgiven.
TIP: If you’re planning on PSLF, fill out this form every few years to make sure your payments qualify you for the program.
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Only Federal Direct Loans qualify for PSLF.
TIP: IF you have an FFEL Loan or Federal Perkins Loan that otherwise does not qualify, you can consolidate those loans into a direct loan to qualify them for PSLF. Make sure you do this at the time you decide you want to go the PSLF route, as consolodating your loans will essentially reset the clock for your 120 qualifying payments. Read a horror story about this at CNN.
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There is no tax on the balance of your loans that are forgiven.
Unlike other federal student loan forgiveness programs, you are NOT taxed on the balance of your student loans the year that they are forgiven. This makes PSLF easily one of the most generous student loan forgiveness options.
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You MUST work for a qualifying employer to be eligible for PSLF.
Employers this includes: (1) Government organizations, and (2) non-profit organizations that qualify for tax exempt treatment under 501(c)(3). If you are not sure whether your employer qualifies, fill out this form and make sure. There are too many examples of people who thought their employer qualified them for PSLF only to discover later that they did not qualify. Don’t take any risks here– all you have to do is verify that your employer qualifies. Filling out the form is smart too because it keeps a paper trail of confirmation that your employer qualifies. Paper trials are good.
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You should sign up for an income driven repayment plan to be eligible for PSLF.
There are four different income driven repayment plans: REPAYE, PAYE, IBR, ICR. In reality, REPAYE or PAYE are going to be your best options. You could also in theory sign up for a standard repayment plan, but to utilize PSLF most effectively, the goal would be to make your monthly payments as small as possible. This is achieved through REPAYE or PAYE, which caps your payments to 10-15% of your discretionary income. Under a standard repayment plan, you would likely be paying the most per month (compared to the other plans), and there is a chance that you’d have paid off your loans before they could be forgiven. Maximize your savings with an income driven repayment plan.
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You must work full-time during the duration of the loan forgiveness period (120 months/10 years).
TIP: Your chances of actually having your loans forgiven are much higher if you stay with the same qualifying employer for the full 10 year commitment. This is because the year that your loans would be forgiven, the government will first verify employment and eligibility. If you have several different employers, this slows the process down.
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The qualifying time line for PSLF does NOT have to be consecutive.
You don’t have to work in the public sector for ten years in a row to be eligible for PSLF. For example, say you worked in the public sector for five years, got pregnant, and decided not to return to your job for two years following the birth of your child. The clock would stop ticking when you quit your job. Assuming you returned to your job after the two years were up and started making qualifying payments again, you would pick up where you left off. You would have five more years to go until your loans could be forgiven under PSLF. In other words, the five years that you worked previous to the birth of your child still count towards your repayment, even though you took time off.
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You can still earn credit for PSLF while on Maternity Leave or other Family Leave under the Family Medical Leave Act.
For the 12 weeks that are available to you under the FMLA, you can still earn credit towards PSLF so long as you continue to make qualifying payments.
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It is still unclear whether anyone has actually had their student loans forgiven under PSLF even though the charter group of students who would otherwise have been eligible could have received forgiveness as early as October of 2017.
This should give you pause. I’m not saying that your loans won’t be forgiven in the end, but you have to pay careful attention to the things we’ve discussed in this post. Make sure your employer qualifies. Make sure you make qualifying payments. Make sure all of your loans are federal direct loans (or consolidate them if they aren’t). You HAVE to do everything exactly right, and there are several areas where you could get tripped up. This fact alone scared me into paying off my $48k in student loans from law school even though I work in the public sector.
Examples of good candidates for PSLF:
- a public service lawyer (like a public defender or assistant district attorney) who has six figures of student loan debt but is only earning $30k-$50k per year (owe more than twice the amount they earn per year)
- a public school teacher
- a doctor in residency or practice whose student loans are at least twice as much as his/her income
- a dentist with twice as much student loan debt as his discretionary income, working in an underserved area, who is willing to remain there for ten years
What questions do you have about PSLF? Are you planning on PSLF? Do you know anyone who made mistakes with PSLF or (in contrast) has had their loans forgiven? Comment below!
This article is part of the Student Loan Debt Movement, which is encouraging and inspiring people to take action on their student loans.
OTHER POSTS IN OUR STUDENT LOANS SIMPLIFIED SERIES:
EVERYTHING YOU NEED TO KNOW ABOUT THE EXTENDED REPAYMENT PLAN
EVERYTHING YOU NEED TO KNOW ABOUT THE GRADUATED REPAYMENT PLAN
Hi there! I’m Amber! And welcome to the Deeply in Debt blog where we’re offering simple solutions for big debt.
Social workers are good candidates for this too.
For sure!! Excellent candidates.
My husband is a PA with loans more than double his income. We are signed up for PSLF, but don’t trust it yet. So currently we are doing IBR, but paying more than double each month of what we should. We have over 2 years of qualifying payments into PSLF, and we fill out all of the recertifying forms each year, AND call each year to make sure everything is in order. I think once we start seeing people actually get their loans paid off, and see what’s going to happen with the bill about it, we may dump all of our eggs in the PSLF basket. The scary part for us, is that if we did REPAYE and paid the minimum, it is less than half of the amount we would need to pay each month just to cover the interest!! So if they pulled out the rug from under us in say 6 years, we would owe so much more on them than we do now. Scary!! however, I feel like if this new bill goes through and they get rid of PSLF, but leave everyone who is in it alone, we will probably go for it. I don’t really see it being messed with if it has an end date. We shall see! Student loans are scary business!!
Ah your situation is the perfect example. It’s so frustrating that you can’t just count on the program!
We are not doing PSLF even though my husband has worked for the state for almost 4 years now and would happily work for the government for 10 years. The biggest factor is uncertainty – the stress would not be worth it to me. Also, it inhibits your flexibility if you do get a job offer from a private firm. They will probably pay more and maybe that would be worth leaving PSLF but again, it’s so risky.
Our minimum payment is $28/month under REPAYE, but we have been putting every extra dollar toward it and hope to have all of our loans (initially $73K) paid off in 5 years total. We hopefully have less than 2 years to go now!
Awesome Jenni! That’s exactly how I feel about it. I can definitely see why some folks would choose PSLF, but for me it was scary. Good luck on the pay off!
I keep reading that you ARE taxed on the forgiven amount through the PFSL and based on you financial assets. You state that you don’t. So which is it?
Hey there! You are definitely NOT taxed on PSLF (but you would be under all of the other income driven repayment plans). So, assuming all goes well and you have your loans forgiven under PSLF, you won’t be taxed like you would under the other programs. Here it is on the government’s website if you are interested in hearing it straight from the horse’s mouth — https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service/questions
There may be some confusion here because if you make your payments under PSLF and something doesn’t work out so that your loans are not forgiven after ten years, you will remain on whatever income driven repayment plan you’ve chosen. If that’s the case, you’ll be taxed the year the balance is forgiven. Does that make sense?
I keep reading that you ARE taxed on the forgiven amount through the PFSL and based on you financial assets. You state that you don’t. So which is it?
I keep reading that you ARE taxed on the forgiven amount through the PFSL and based on you financial assets. You state that you don’t. So which is it?