Government Grants

How To Qualify For Loan Forgiveness

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 8 minute read

After finishing medical school, my wife racked up more than $300,000 in debt. A portion of her debt was put on hold throughout her three-year residency, when it silently accrued interest at a rate of nearly $20 each day. 

Despite my wife’s relentless income-driven repayments due to her meager residency salary, the bigger non-deferred sum rose, although more slowly. Her total student loan debt reached in the mid-$300,000s just before she finished residency.

My wife’s medical school debt — technically our debt, as what’s mine is legally hers and vice versa — is decreasing now that she has a stable practice. Even under the most optimistic of circumstances, it will be a long time before her loan is paid off.

This optimistic projection is predicated on her qualifying for and taking advantage of the Public Service Loan Forgiveness Program offered by the U.S. Department of Education (DOE), which is a federal benefit that may provide accelerated forgiveness for federal Direct Loans and certain consolidated student loans held by borrowers who are employed by government entities and some nonprofit organizations.

Is the possibility of loan forgiveness through the Public Service Loan Forgiveness Program something you should look into? What you need to know, how to tell if it will work for you, and some popular alternatives are detailed below.

What Is the Loan Forgiveness Program for Public Employees?

When compared to other public student debt forgiveness schemes, the Public Service Loan Forgiveness (PSLF) Program is both substantial and accessible. The CCRAA, or College Cost Reduction and Access Act, was approved in September 2007 with PSLF as a central tenet. Other crucial aspects of the CCRAA are:

  • A gradual increase of around 20% in maximum Pell Grant payments from 2008 to 2012
  • A progressive, temporary drop in Stafford loan rates, from 6.8% in 2007 to 3.4% in 2011 (according to the Department of Education, subsidized loan rates have subsequently increased to around 5%).
  • IBR is a new form of income-driven repayment plan with a maximum payback window of 20 to 25 years, depending on the date of the first installment.

PSLF was proposed as a way to encourage recent college grads to work in the public sector. PSLF borrowers are those who, after working full-time for an eligible company for at least 120 payments, are able to get forgiveness of the outstanding amount of their qualifying federal Direct Loans. That’s a fraction of the time of other government loan forgiveness programs, which need 240–300 payments over 20–25 years.

Requirements for Eligibility

The devil is, as always, in the specifics. What follows are the steps you must take to become and remain PSLF-eligible.

When it comes to PSLF, the DOE has the last say. The Federal Student Aid website is the first place to look for answers to queries concerning PSLF, whether they be about eligibility, repayments, or anything else.

  1. Loans That Qualify

PSLF covers four types of loans:

  • Loans with Direct Subsidies
  • Direct Unsubsidized Loans, which include TEACH Grants that have been changed to

Direct Unsubsidized Loans

  • Direct PLUS Loans are available to graduate and professional students.
  • Loans for Direct Consolidation

There is a long list of ineligible loans that includes the following:

  • Stafford Subsidized FFEL Loans
  • Stafford Unsubsidized FFEL Loans
  • Stafford Unsubsidized FFEL Loans
  • Federally Guaranteed Student Loans
  • Health Care Professions Loans for Students
  • Perkins Loans From the Government
  • Parent PLUS Loans Direct

When a borrower obtains a loan that is not PSLF-eligible, they are not immediately disqualified. Non-eligible loan amounts become PSLF-eligible if and only if they are merged into a Direct Consolidation Loan.

If you have previously made qualifying payments toward a PSLF-eligible loan, you should not combine it into a Direct Consolidation Loan since doing so will restart the PSLF payment clock.

  1. Employment that qualifies

The Department of Labor considers work that is higher than 30 hours per week to be “full-time,” but recognizes that employers may define full-time work differently. Part-time workers who want to meet the 30-hour weekly cap can add up the hours they put in at two or more jobs that qualify.

Time spent on religious activities, including attending a religious service or giving religious instruction, during working hours is not counted against the full-time minimum.

Teachers whose schools have lengthy summer holidays are considered full-time if they work for an institution that considers the school year to be a full-year cycle, or if their school treats them as such during the summer.

  1. Public Service Activities That Qualify

Examples of public service activities that can be performed by organizations that are not exempt from taxes are:

  • Civilian assistance for the United States Armed Forces or National Guard (excluding for-profit military contractors)
  • Emergency response
  • Public security
  • Legal services in the public interest that are partially sponsored by recognized government agencies
  • Licensed child care providers are included in early childhood education.
  • Practice of public health
  • Public or school library services for the elderly, those with impairments, or both
  1. Repayment Plans That Qualify

Any of the following four income-based payment schedules qualifies for PSLF:

  • Repayment Plan Based on Earnings (PAYE Plan)
  • Pay As You Earn Repayment Plan Revised (REPAYE Plan)
  • Repayment Plan Based on Income (IBR Plan)
  • Repayment Plan Based on Income (ICR Plan)

Terms of Non-PSLF Forgiveness

These programs offer forgiveness periods of 20 to 25 years for debtors who aren’t qualified for PSLF. Any outstanding debt is cancelled upon completion of the forgiving period. Nonpayment due to financial difficulty and payments made under other eligible plans are also accepted under all four plans.

Monthly Payments

The monthly contributions to a PAYE, REPAYE, or IBR plan shouldn’t be more than 10% of your disposable income. A participant in an ICR plan is not required to make a monthly payment that is greater than the smaller of (a) the monthly payment that would be incurred under a 12-year fixed payment plan after adjusting for income, or (b) 20% of the participant’s monthly discretionary income.

Due to the vast range in monthly payment amounts across loan types, it is important to discuss your options with both a PSLF specialist and, if applicable, a financial planner or adviser.

Applying for Loan Forgiveness from the Government

Even if you’ve made every payment on time and have a spotless credit history, your debts won’t be canceled after 120 years even if you pay them off. Even now, you must submit an application to get PSLF.

Information concerning your employer’s public service activities, your loans, and your qualifying repayments will be requested on the Public Service Loan Forgiveness Application for Forgiveness. The application needs to be approved by your company. The application has a wealth of eligibility facts that you’ll want to check against your circumstances, so even if you’re just starting out on your PSLF adventure, you should evaluate it carefully as soon as possible. If there is a potential flaw in your certification status, finding it sooner rather than later can reduce the amount of hassle associated with fixing it.

You must keep working in a qualifying occupation and making qualifying loan payments while your application is being processed. Your loans will not be discharged if you are not actively working in an eligible occupation on the date your application is accepted.

What Should You Do If Your Application Is Rejected?

PSLF denials are rather typical, as seen by the DOE’s regular PSLF reports.
If your PSLF application was rejected because part or all of your loan payments were not completed under an acceptable repayment plan, you may be eligible for Temporarily Expanded Public Service Loan Forgiveness (TEPSLF).

The TEPSLF program is a short-term extension of the PSLF program. Loans that qualify under TEPSLF are forgiven for those who qualify, just as they are for those who qualify under PSLF. TEPSLF-approved repayment strategies include:

  • Plans for Gradual Repayment
  • Plans for Extended Repayment
  • Consolidation Standard Repayment Schemes
  • Consolidation Plans for Gradual Repayment

TEPSLF Eligibility

To be eligible for TEPSLF, you must also fulfill all of the PSLF’s other eligibility criteria. In addition, both your most recent payment and the sum of all payments made in the 12 months prior to your TEPSLF application must be equal to or more than the minimum required payment under a qualifying repayment plan.

Send an email to [email protected] requesting that the DOE review your PSLF qualification for TEPSLF. Your PSLF application must bear the same name as you. A first answer will let you know if you pass the preliminary PSLF eligibility check. For instance, in order to qualify for TEPSLF, you must first submit a PSLF application.

A final decision on your TEPSLF application will be made within 60 to 120 days following submission, depending on your eligibility. Keep in mind that TEPSLF is a short-term, restricted opportunity; once all the money set aside for the program has been dispersed, that’s it.

Keeping PSLF Eligibility

Now we’re getting down to brass tacks. The Department of Energy found that out of the 29,000 PSLF applications reviewed as of June 30, 2018, over 70% were rejected because the applicants did not meet one or more of the program’s eligibility requirements, such as having made 120 qualifying payments or being employed by a qualifying organization. 

Another 28% of applications were turned down owing to documentation mistakes that the borrower could, in principle, rectify without relocating or otherwise altering their financial circumstances.

I can’t even fathom the disappointment of finding out after making payments on student loans for ten years that they wouldn’t be forgiven after all. My wife and I have trouble sleeping because of the remote possibility that we’re overlooking anything.

Make sure you’re on track for PSLF by following these actions in addition to completing the job, loan, and payment requirements indicated above:

  • Ensure the transfer of your loan information from any third-party servicer. If you have already made qualifying student loan payments to a loan servicer other than FedLoan Servicing, you must complete an Employment Certification Form in order to transfer your loans to FedLoan Servicing. Confirm that your complete federal student loan portfolio remains under FedLoan Servicing once this has been accomplished.
  • Annually Recertify Your Employment. Employers must recertify their PSLF-qualifying employees annually utilizing the Employment Certification Form. This is a tedious but important stage; you will need to catch the attention of your supervisor or human resources contact for as long as it takes them to evaluate the form. But it is crucial to ensure that your eligible payments count toward the total of 120.
  • Regularly review your qualifying payment count. Check your FedLoan Servicing account shortly after recertifying your employment for the year to ensure that the prior year’s payments are included in your total. Qualification is retroactive; if you make 12 payments between January and December, then re-certify your job after the new year, the prior year’s payments will not count until the re-certification is approved.

Bottom Line

Unfortunately, there is no partial Public Service Loan Forgiveness. One of two things must happen for student debts to be forgiven: the borrower must make 120 qualifying payments, or they must continue actively employed in public service for 10 years after the forgiveness period ends.

To be clear, PSLF is not an either/or situation. Despite popular belief, PSLF is not the only option for debt relief. If you have outstanding student loans, you may (and should) look into alternative options for debt forgiveness. My wife, for instance, has applied to the National Health Service Corps (NHSC) Loan Repayment Program, which, if she is accepted, will alleviate a sizable portion of her outstanding debt. She considers the NHSC to be a little but significant protection against the potential risk of PSLF.

Considering all of your choices is never a bad idea. Your financial plan merits all the assistance it can obtain.

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