Yes folks, it is true – some loans do qualify for Loan Forgiveness or reduction. Continue reading to see if you qualify!
What is the Public Service Loan Forgiveness (PSLF)
The PSLF Program was established to encourage individuals to enter and continue in full-time employment in lower-paying but vitally important public service jobs. The program allows eligible borrowers to cancel the remaining balance of their Direct loans after serving full time at a public service organization for at least 10 years while making 120 qualifying monthly payments after October 1, 2007.
Eligibility Guidelines for the PSLF Program
- You must have an outstanding balance on a Federal Student Loan that you received under the William D. Ford Federal Direct Loan (Direct Loan) Program
- You must make 120 on-time, full, scheduled monthly payments on your Direct Loan, including only payments that were made after October 1st, 2007 (meaning that the earliest you can possibly have all of your debt forgiven under this program is October 1st, 2017, so there is no way for you to qualify for this entirely yet)
- You must make your 120 payments under a qualifying repayment plan (see below for qualifying repayment plans)
- While making each of these 120 payments, you must be working full-time at a qualifying public service organization (see below for qualifying public service organizations)
Which Federal Student Loans are Eligible for PSLF?
Any non-defaulted loan made under the Direct Loan Program is eligible for loan forgiveness. (See below for information on how non-Direct Loans may become eligible.) The Direct Loan Program includes the following loans:
▪ Federal Direct Stafford/Ford Loans (Direct Subsidized Loans)
▪ Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans)
▪ Federal Direct PLUS Loans (Direct PLUS Loans)—for parents and graduate or professional students
▪ Federal Direct Consolidation Loans (Direct Consolidation Loans)
If you do happen to have FFEL loans or Perkins Loans, and want to take advantage of the PSLF plan, then you will first have to consolidate your loans into a Direct Consolidation Loan. To find out about how to consolidate your FFEL or Perkins loan into a Direct Consolidation Loan, check out consolidation information.
NOTE: Parents who received a Direct PLUS Loan may qualify for forgiveness of the PLUS loan, if the parent borrower—not the student on whose behalf the loan was obtained—is employed by a public service organization (additional conditions apply).
What Payments Count Toward my 120 Payment Requirement?
Three different factors go into determining whether or not your student loan repayments qualify as one of the 120 required to receive complete PSLF forgiveness. They are:
- Payments Must Be Made On Time – Any payment received by whoever services your Direct Loan no later than 15 days from the scheduled payment due date counts as an “On-Time payment”.
- Payments Must Be Made In Full – Any payments make on your Direct Loan that equal or exceeds the amount you are required to pay each month according to your Direct Loan repayment schedule count as “Full Payments”. If you made, or make a payment that is less than the amount set in your repayment schedule, then those payments will not count toward your required 120 payments. However, if you make multiple payments per month equaling or exceeding the required full monthly payment amount, then you will get credit for a single Full Payment. You cannot game the system by making many payments each month though, as the maximum number of credits that you can receive in a 30 day period is 1.
- Payments Must be Scheduled – Any payments that you make on your Direct Loan which is made under a qualifying repayment plan after your loan servicer has billed you for the month’s payment will count as “Scheduled Payments”. Any payments made while your loans are in the in-school status, or during a grace period status, or under deferment or a forbearance period will not count as Scheduled Payments.
What Repayment Plans are Eligible Under PSLF Rules?
The two best repayment plans for PSLF benefits are the Income-Based Repayment Plan (IBR) and the Income-Contingent Repayment Plan (ICR). Using either of these two repayment plans will be your best bet for maximizing your PSLF benefits.
The 10-Year Standard Repayment Plan is also PSLF-qualifying, as are any other repayment plans where you make a monthly payment that would be as much, or higher than the amount you would be paying under the 10-year Standard Repayment Plan.
Keep in mind that your repayment plan could actually completely invalidate the PSLF benefit, as, for example, if you decided to use the 10-Year Standard Repayment Plan throughout the entire course of your loan, never missing a payment of paying less than the scheduled amount, then you wouldn’t have any student loan debt to forgive anyway, so the PSLF benefit would be worthless to you.
Using the IBR or ICR repayment plans, you will make a lower monthly payment, which allows you to stretch payments out for an extended period of time (more than 10 years), and will cost you more interest in the long-run, but allow you to take advantage of the PSLF benefits once you’ve satisfied all the eligibility criteria.
What Type of Employment Qualifies
Qualifying employment is any employment with: a federal, state, or local government agency, entity, or organization (including entities such as a public transportation, public water, or public bridge district, or a public housing authority) or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under section 501(c)(3) of the Internal Revenue Code (IRC). The type of services that these public service organizations provide does not matter for PSLF purposes.
A private not-for-profit employer that is not a tax-exempt organization under section 501(c)(3) of the IRC may be a qualifying public service organization if it provides certain specified public services. These services include: emergency management, military service, public safety, law enforcement services; public health services; public education, public library services; school library and other school-based services; public interest law services, early childhood education; public service for individuals with disabilities and the elderly. The organization must not be a labor union or a partisan political organization.
Generally, the type or nature of employment with the organization does not matter for PSLF purposes. However, when determining full-time public service employment at a not-for-profit organization you may not include time spent participating in religious instruction, worship services, or any form of proselytizing.
Seven Steps to Receiving PSLF Benefits Approval:
- Complete the Employment Certification for Public Service Loan Forgiveness form (view form) each year, or whenever you change jobs, providing the Government with your employer’s certification credentials.
- Submit the completed form to FedLoan Servicing, who services all PSLF loans, following the instructions found on the form itself (which you can read here).
- FedLoan Servicing will review the form you submitted, make sure it’s completely filled out properly, then determine whether or not your employment qualifies you for PSLF benefits.
- If the form wasn’t filled out properly or if you do not qualify for the PSLF Program, FedLoan Servicing will let you know and provide you with another opportunity to give them the correct information.
- If FedLoan Servicing can’t tell whether or not you qualify for the PSLF Program, they might request more documents from you to prove that you have been or are employed by a qualifying public service organization. You may be asked for IRS forms (W-2′s), pay stubs, or any other documents to prove your employment at the business you’ve listed, or to prove that your employer is in fact a qualified public service organization.
- If your employment does qualify you for the PSLF Program, but some or all of your federally held loans are not currently being serviced by FedLoan Servicing, then those loans will be automatically transferred to them so that you have a single servicer for all of your federal student loans. Once your loans have been transferred to FedLoan Servicing, all payments you made to different servicers in the past will be reviewed to see if they qualify as counting toward PSLF payments.
- FedLoan Servicing will let you know if your employment qualifies for the PSLF Program, and will let you know how many payments you have made that count as qualifying payments. You will know exactly how many qualified payments you still have to make before you are eligible for complete loan forgiveness under PSLF benefits.