The federal government’s Public Service Loan Forgiveness (PSLF) program has received scathing news coverage lately, and understandably so. The program, which is supposed to offer loan forgiveness to borrowers who make 10 years’ worth of monthly payments while working in federal government and other “public service” jobs, has approved forgiveness for only 289 out of more than 29,000 applications it has received so far – an approval rate of less than 1%.
No one can say for sure why the program is turning so many applications down. That’s dismaying for currently enrolled borrowers, who may justly worry that they have been making payments under PSLF for nothing. What we do know is that the program has worked out for a few (albeit very few) who met the program’s narrow criteria for eligibility.
What are the criteria for student loan forgiveness?
- A Qualifying Employer
Federal employees are eligible, as long as they are permanent agency employees and not government contractors – the Department of Education’s website is explicit on this. Employees of some nonprofit organizations can qualify, too, if their nonprofits are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. Certain teachers and social workers are eligible, as well: The New York Times ran a feature this month on Michael Mitchell, a social worker and clinical psychotherapist who got $170,000 of loan debt forgiven via PSLF.
- A Direct Loan
PSLF is for loans that borrowers received under the William D. Ford Federal Direct Loan Program. Your loan is one of these if it has “Direct” anywhere in its title, e.g., Direct Subsidized Loan, Direct Unsubsidized Loan, etc. Loans that went out under the Federal Family Education Loan Program or the Federal Perkins Loan Program are not – unless the borrowers have first consolidated them under the Direct Loan program.
The Department of Education said that at the time of the PSLF’s creation in 2007, only 25% of student loans were Direct Loans. This alone may account for some of the application rejections.
- An Income-Based Payment Plan
Borrowers must be making payments under a qualifying payment plan. The Education Department’s website states that any of these “income-based” payment plans qualify: Pay As You Earn (PAYE) Plan, Revised Pay As You Earn (REPAYE) Plan, Income-Based Repayment (IBR) Plan, and Income-Contingent Repayment (ICR) Plan.
Plans that calculate monthly payments based only on the loan balance and interest, not on the borrower’s ability to pay, do not qualify for PSLF. These include the Graduated Payment and Extended Payment plans, which require that the borrower pay enough each month to pay off the loan balance in full in anywhere from 11 to 25 years.
The Standard Repayment Plan, which consists of set monthly payments large enough to pay the loan off in 10 years, doesn’t qualify, either. The reason why isn’t hard to see: The borrower on this plan is expected to have the balance paid off within 10 years anyway, and therefore not have any loan balance left over to forgive.
but borrowers are getting Mixed Messages
These rules may seem simple and straightforward enough, but they weren’t always. Many borrowers say that they got incorrect information about PSLF from FedLoan, Navient, and other companies servicing their loans over the years. The companies reportedly told them that their loans or payment plans were PSLF-eligible when they were not.
Congress made a one-time payout of $350 Million earlier this year to get these misled PSLF borrowers some relief. The provision, part of the government-wide omnibus spending bill that President Trump signed into law in March, will go toward ensuring that tens of thousands of applicants who had signed up for a Graduated or Extended plan can still get their loans forgiven.
There is no telling when or if future relief packages of this kind may become available. So if you’re a current PSLF enrollee, you had best take some precautions to protect yourself now:
- Review your loan documents and make certain that you are on an income-based repayment plan – and if you aren’t, switch over to one immediately.
- Submit your “employer certification” form every year and track your qualifying payments. The Department of Education needs to keep getting this form from you, or else it may think you’ve dropped out of the program.
- While you’re at it, you may also look for other loan forgiveness programs available outside the federal government. The military, many state governments, and professional or public-service organizations offer loan forgiveness of various kinds. You may find a program that offers you even more favorable terms, not to mention some added peace of mind.
