A Student Loan Borrower’s Complete Guide to Public Service Loan Forgiveness

The Public Service Loan Forgiveness program could save student loan borrowers large amounts of money, but there’s a lot you should know before you apply.

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It’s been a little over a year since the first student loan borrowers became eligible for Public Service Loan Forgiveness, and the initial reports haven’t been great. Many borrowers have had their applications rejected for one reason for another.

The biggest problem is that the Public Service Loan Forgiveness program isn’t well understood by many people, including both borrowers and employees of student loan servicers. With that in mind, here’s a thorough, but simple-English guide to the Public Service Loan Forgiveness program, so you’ll know if you’re eligible and what you need to do in the meantime to make sure you don’t get any unpleasant surprises when it’s time to submit your application.

What is Public Service Loan Forgiveness?

The short version is that the Public Service Loan Forgiveness, or PSLF program, is designed to forgive any remaining loan balance after a borrower makes 10 years’ worth of monthly payments. In a nutshell, the program is to incentivize highly-qualified college graduates to pursue public-sector jobs, even though in many cases they can earn higher salaries in private-sector employment.

From the Department of Education’s website:

“The PSLF Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.”

You’ll notice that the word “qualifying” appears three times in that sentence, so there’s definitely more to the story. What is a qualifying monthly payment? What is a qualifying repayment plan? What is a qualifying employer? And finally, what qualifies as a Direct Loan? Let’s take a deeper dive into what this description of the PSLF program really means.

What is a qualified monthly payment?

A qualified monthly payment is made after Oct. 1, 2007, when the program began. It is made under a qualified repayment plan while employed at a qualifying public service employer (more on those in a bit) and is made for the full amount shown on your bill and no later than 15 days after your due date. And it must have been a required monthly payment -- for example, payments made while you’re on an in-school deferment don’t count.

You can only get credit for one payment at a time. If you’re required to pay $400 towards your student loans this month and you pay $1,200, you don’t get credit for three payments towards PSLF. (Although there’s an exception to this rule for AmeriCorps or Peace Corps volunteers, who are allowed to pay up to 12 qualifying payments at one time).

It’s also important to mention that your 120 qualifying monthly payments don’t necessarily need to be consecutive. For example, if you work in qualifying public service employment for five years and make 60 qualifying payments, then work in the private sector for three years, and then return to the public sector, the clock doesn’t start over -- you can potentially qualify for PSLF after another 60 qualifying payments.

What is a qualifying repayment plan?

There are a few student loan repayment plans that qualify for PSLF, and any of the following will qualify for the program:

  •         The standard (10-year) student loan repayment plan
  •         The Revised Pay As You Earn Repayment Plan (REPAYE)
  •         Pay As You Earn Repayment Plan (PAYE)
  •         Income-Based Repayment Plan (IBR)
  •         Income-Contingent Repayment Plan (ICR)

In practice, the way to go in virtually all cases is with one of the income-driven repayment options, which includes all of the repayment plans on the list except for the standard plan. Think about it this way -- at a minimum, you’ll need to make 10 years’ worth of qualifying payments to get PSLF. On the standard repayment plan, you’ll pay your loans off after 10 years anyway, so there will be nothing left to forgive. Generally speaking, if you anticipate qualifying for PSLF, there’s no sense in paying any more towards your loans than you have to.

Another key takeaway is that the extended or graduated repayment plan options offered to Direct Loan borrowers are not qualified repayment plans. However, due to widespread issues with borrower confusion, the Department of Education has temporarily expanded the definition of qualified repayment plans if being on the extended, graduated, or consolidated repayments plans were the only reason for PSLF rejection. This is known as the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) opportunity and has limited funding, and is available on a first-come, first-served basis.

What types of employment qualify as public service?

There are a few types of employers that are considered to be qualifying employment. It doesn’t matter if your specific job serves the public, if the employer falls into one of these categories:

  •         Government organizations, including federal, state, and local governments.
  •         Non-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
  •         Other non-profit organizations if their primary purpose is to provide certain public services.
  •         AmeriCorps and Peace Corps both qualify if you’re serving as a full-time volunteer.

It’s also important to mention some types of employers that never qualify. These include (but aren’t necessarily limited to) any type of political organization, for-profit organizations of any kind, and non-profit organizations not 501(c)(3) tax-exempt that don’t provide a public service.

Also, qualifying employment must be full-time, defined as meeting your employer’s definition of full-time or 30 hours per week, whichever is greater.

What exactly is a “Direct Loan”?

The fourth major piece of the qualification puzzle is having a so-called Direct Loan. This term refers to a non-defaulted loan that you received under the William D. Ford Federal Direct Loan Program.

Other loan programs do not qualify, which, as I’ll touch on in a minute, is a big reason borrowers’ PSLF applications get rejected. Borrowers whose loans were originated before July 1, 2010, for example, may have received loans made under the Federal Family Education Loan (FFEL) Program, and these do not qualify. The same goes for Federal Perkins Loans.

Loans from these two programs aren’t eligible on their own, but qualify for Direct Consolidation Loans, which do qualify for PSLF. However, it’s important to realize that only the payments you make after consolidating them will count towards PSLF. It’s generally a smart idea to leave any existing Direct Loans out of consolidation, especially if you’ve already started making qualifying payments on them.

If you’re not sure what type of federal student loans you have, you can log into the Department of Education’s My Federal Student Aid website to find out. Once you do this, it’s simple enough to determine -- you'll see the word “direct” in the name of any Direct Loan. If you don’t see “direct” in the loan’s name, it’s probably not.

Just to be 100% clear, private student loans are never eligible for PSLF, regardless of your other qualifications.

The application process

Public Service Loan Forgiveness requires at least 10 years of payments as a condition of eligibility, so there’s no need to apply before you’ve completed your 120 payments. In other words, if you started making qualifying payments in January 2018, you won’t need to apply for PSLF until at least January 2028.

Having said that, there’s one important thing you should be doing in the meantime -- getting your employment certified.

If you are planning to eventually apply for PSLF and are working in public service employment, the DOE advises you to fill out and submit the Employment Certification form annually, or whenever you switch employers. You can fill out the form through the Federal Student Aid website, or you can download the form and send it in.

The DOE will assess the information on the form, and will let you know if your employment qualifies for PSLF, eliminating potentially costly surprises down the road. They’ll also let you know if you don’t have PSLF-eligible loan types and will review your payment history to determine how many qualifying payments you’ve made.

Additionally, while you don’t have to submit these as you go, you will have to submit them with your eventual application for PSLF for every employer you worked for while you made qualifying payments. Do you really want to have to track down your old employers from a decade ago? What if the nonprofit organization you’re working for right now no longer exists when you’re ready to apply?

Once you have made 120 qualifying payments, it’s time to submit the application for forgiveness.

Are people actually getting their loans forgiven?

The first PSLF applicants started to apply for forgiveness in fall 2017 (10 years after the program started), and while some borrowers are certainly having their loans forgiven, the initial data regarding approvals has not been good.

Early PSLF data shows that an astonishing 99% of applications had been denied. As of Sept. 30, 2018, 44,724 PSLF applications had been processed, and just 423 of those had been approved -- an approval rate of slightly less than 1%. About 72% of processed applications were denied because the borrower didn’t meet the program’s requirements, and I’ll get into specific reasons in the next section. Another 27% of applications were denied because of missing information.

The 423 approved applications through Sept. 30, 2018 came from 206 unique borrowers (meaning that some people had multiple applications), with a total of $12.32 million in student loan debt forgiven -- an average of $59,806 per person. While most applicants (as of the latest data) have been rejected, those who are successful in getting their PSLF applications approved have gotten substantial debt relief.

It’s safe to say that many of these applications aren’t likely to be permanently denied. In particular, applications with missing information could potentially be corrected and resubmitted. For example, if an application claimed PSLF eligible employment, but information about the employer was missing or incorrect, the borrower could get the required information and resubmit.

Furthermore, some of the applicants who didn’t meet program requirements could ultimately have their loans forgiven. For instance, if the Department of Education determined that a handful of a borrower’s payments didn’t qualify, the borrower could apply again once they are over the 120 payment mark.

While the rejection rate may sound alarmingly high (and it is), the ultimate acceptance rate is likely to be well over the 1% the data implies. Keep in mind, this is early data based on the first-ever applicants for PSLF, so it’s not likely to be an accurate representation of the program’s long-term trends, one way or the other.

Common reasons people don’t qualify

As we’ve discussed, there are four things that you need in order to be eligible for PSLF:

  •         Qualifying employment
  •         A qualifying repayment plan
  •         120 qualifying monthly payments
  •         Direct Loans

If any of these things aren’t true, the DOE will reject a PSLF application.

One common reason applicants who think they qualify end up getting rejected, at least according to early reports, is because they have the wrong type of student loans. It looks like there has been a real problem with miscommunication between loan servicers and borrowers who intended to apply for PSLF, as many people have reported making it years into the repayment process before finding out they have loans that don’t qualify.

Many people are also finding out that they’ve worked in non-qualifying employment for years when they thought their jobs met the qualifications, or that they’ve been paying under the extended or graduated repayment plans (which don’t qualify).

Finally, another common reason for denial is missing information. Almost 12,000 out of the initial 40,000 PSLF applicants were denied for this reason. For example, if information about their employment was incomplete or missing, the DOE has no way to determine if they qualify.

One crucial step to take now if you work in public service

The most important thing you should do if you plan to eventually qualify for PSLF is to file your employment certification paperwork every year, or more frequently if you change jobs. This can not only help keep track of your progress, but by doing so the DOE will let you know if you have any major qualification issues.

It’s fair to say that PSLF qualification issues can be far easier to deal with if you know about them sooner rather than later. For example, if you need to consolidate FFEL and Perkins loans to a Direct Consolidation Loan, you’d certainly rather know when you’re a year into making your repayment than when you’ve been paying for seven or eight years. That said, the biggest favor you can do for yourself as a future PSLF applicant is to certify your employment regularly.

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