Working in government service or for a non-profit organization might qualify you for the public service loan forgiveness program (PSLF). However, to fully qualify, you'll also need to have made ten years' worth of loan payments to have the remaining balance forgiven under the program.
What is the PSLF Program?
Public service loan forgiveness, or PSLF, will forgive the remainder of your loan balance once you pay 120 monthly payments for ten years under a qualifying repayment plan while working full-time.
When qualifying for the program, you'll need to work for government services, which include local, state, federal, or tribal levels. In addition, working at a non-profit organization qualifies you for the program. You can also be eligible for loan forgiveness if your employer provides qualifying services.
Eligibility and Application Process
To qualify for PSLF, you must:
Be Employed By a Qualified Employer.
Employment with the following organizations qualifies for PSLF.
- Government organizations at local, state, federal, or tribal levels, including employment with the U.S. military.
- Non-profit organizations that qualify for tax exemption under section 503(c)(3) of the Internal Revenue Code (IRC).
The following employers do not qualify for PSLF.
- For-profit organizations, including for-profit contractors.
- Labor unions.
- Partisan political organizations.
Have Full-Time Employment.
You must work at least 30 hours per week with the employer or meet your employer's definition of full-time work, whichever is greater.
Have Direct Loans.
Any loans received under a Direct Loan Program will qualify you for PSLF. However, student loans taken from private financial institutions do not qualify.
Even though people consolidate federal loans into direct loans, the PSLF program still requires payments to direct consolidated loans to qualify.
Repay Your Loan Under Income-Driven Repayment Plans.
You can prepay monthly payments in lumpsum, which will apply to your future payments for up to 12 months or till your repayment plan is due. The payments will qualify for PSLF once you have certified your employment for 12 months.
All repayment plans qualify for PSLF except the following:
- Extended repayment plans.
- Alternative repayment plans.
- Graduated repayment plans.
- Standard repayment plans.
Make 120 Monthly Payments.
To qualify for loan forgiveness, you must make 120 qualifying monthly payments.
Before applying for PSLF, you need to:
- Check if your employer qualifies.
- Certify your employment every year.
- Apply for loan forgiveness after fulfilling all the criteria.
- Generate a PSLF form to sign and submit to the PSLF officer.
Types of Repayment Plans
The repayment plans that qualify you for PSLF are:
- Income-based repayment. An income-driven repayment (IDR) plan reduces your monthly bill depending on your family size and income.
- Pay as you earn. According to the IDR plan, you must make federal student loan payments for up to 10% of your discretionary income. At the same time, the program will forgive your balance after 20 years of repayment.
- Income contingent repayment. An IDR plan will limit federal loan payments to 20% of your discretionary income and will last 25 years.
- Revised pay as you earn. According to the IDR plan, you must make federal student loan payments of up to 10% of your discretionary income. At the same time, the program will forgive your balance after 20-25 years of loan repayment. It is a good option if you are single and do not have grad school debt.
Benefits and Limitations
The Benefits of PSLF:
- After ten years or 120 months of loan payments, PSLF forgives the balance of your qualifying loan, making you debt free.
- There is no tax implication for any forgiven balance under the PSLF.
- The PSLF program encourages you to take government and non-profit sector jobs.
- You enjoy the benefits that come with federal student loans.
The Limitations of PSLF:
To qualify for loan forgiveness under the PSLF program, you need to satisfy specific criteria like the following:
- You must work full-time.
- You must work for a local, state, federal or tribal government or a qualified not-for-profit organization.
- You must have qualifying student loans.
- You must pay the student loans under income-driven repayment plans.
- You must make 120 qualifying monthly payments.
- You need to record your qualifying payments and qualified employment history for ten years.
- You need to provide the necessary paperwork relating to eligibility.
When you hold a full-time job under a qualifying employer and have excessive student loan debt, you can consider the PLSF to become debt free after ten years.
Seeking PSLF is a ten-year commitment. Therefore, you must clearly understand the risks and benefits before considering them.