If you work for the government or a nonprofit, you could qualify for the Public Service Loan Forgiveness Program. But is it too good to be true? We explore.
The Public Service Loan Forgiveness Program (often referred to as just PSLF) is a program put in place by the government to help give individuals relief on their student loan debt if they work for a nonprofit or government organization.
The program is designed to completely eliminate the balance remaining on your qualifying Direct Loans, assuming you've met all the requirements.
PSLF was a part of the College Cost Reduction and Access Act that went into place in 2007. According to The Institute for College Access & Success, the act
"redirects taxpayer subsidies away from student loan companies and toward increased grant aid and improved benefits for borrowers."
It came with three other major provisions in addition to loan forgiveness: interest rate cuts, income-based repayment options, and an increase to Pell Grant dollars.
In this article, I'll cover the requirements you need to meet in order to qualify for this awesome benefit, as well as share some cautions to be aware of with this new(ish) program.
How to qualify for the Public Service Loan Forgiveness Program
1. You must have "qualifying employment"
This requirement is all about who your employer is - not about the actual job title you have. In nearly all cases, your employer has to fall into one of two categories: government or nonprofit.
Government jobs include all local, state, and federal government jobs. It also includes tribal organizations.
For a nonprofit to qualify, it must be registered as a 501(c)(3) organization. Some other types of nonprofits in public services industries (think education or health) may also qualify.
The types of employers that don't qualify are organizations like labor unions, nonprofits not falling under the 501(c)(3) classification, partisan political organizations, and for-profit companies.
Two other important things to note:
- If you're a teacher, you can look into Teacher Loan Forgiveness if you don't qualify for PSLF.
- If you're a member of AmeriCorps or Peace Corps, your employment will qualify for PSLF.
2. You have to be employed "full time"
In the eyes of the government, you need to meet your employer's definition of "full-time" or work a minimum of 30 hours each week to qualify. But there's a catch -- if your employer's definition of "full-time" is 15 hours -- you'll have to work 30 at minimum. PSLF uses the greater of the two.
If the nonprofit you work for is involved in any type of religious activity (think worship services), that time will likely not count toward your full-time hours.
If you work a few part-time jobs, you might still qualify. You just need a minimum of 30 hours per week at a qualified employer. So for example, you could work 15 hours per week as a government employee and also spend 15 hours per week at a qualified nonprofit and meet the requirement for full-time.
3. Your need to have the right loan type
If your loan is under the William D. Ford Federal Direct Loan Program (commonly known as Direct Loans) it's eligible for the Public Service Loan Forgiveness Program. The thing to be aware of is you may have loans that don't fall under this category.
Prior to 2011, there were other federal student loan programs like Perkins Loans and Family Education Loans (FFEL). Neither of these would qualify for PSLF.
But there's a loophole.
You can consolidate non-Direct Loans into a Direct Consolidation Loan. One caveat though -- only the payments you make toward that newly consolidated Direct Loan will count toward the 120 you have to make to qualify for PSLF (more on this below). Meaning even if you've paid on your Perkins Loans for 10 years, it won't count.
There's another important thing to know. If you have Direct Loans and loans that don't qualify (like Perkins and FFEL loans), you'll lose credit for the payments made to the Direct Loans once you consolidate. Here's what this means:
Say you have a Direct Loan (which qualifies) for $30,000 and a Perkins Loan (which doesn't) for $10,000 and you've been making payments on them for five years. Assuming you meet all the other requirements, you're halfway to getting the remaining balance of your $30,000 Direct Loan wiped out through PSLF. But if you consolidate all $40,000 into one new loan, you start over.
Basically, if you have Direct Loans you've been paying on - leave them where they are and don't consolidate them because you'll lose credit for any payments you've made toward them (as it relates to PSLF that is). I would suggest consolidating only the non-Direct Loans.
If you're unsure about the type of loan you have, definitely call your service company to make sure.
One final note I want to make on consolidation. There are many companies out there that will refinance your student loans into a new, non-government loan. Companies like SoFi, Earnest, and College Avenue are all making waves in the student loan world by offering flexible payment plans and lower interest rates.
This is fantastic if you're not looking to take advantage of PSLF. But if you want your loans wiped out, refinancing with a company like this will take it out of a Direct Loan, making it ineligible.
Think long-term with your student loan strategy -- and don't refinance just to refinance. You might be better off waiting for PSLF to pay off.
4. You have to make 120 "qualifying monthly payments"
In order to qualify for PSLF, you have to make 120 qualifying monthly payments. These payments don't have to be consecutive and can even be made while working for different employers. The goal is to make 120 total payments while meeting all other requirements.
So what constitutes a "qualifying monthly payment"?
First, only payments made after October 1, 2007 will count. This is when the law was put into place, so payments made before this won't count. Sorry folks.
You also have to pay the full amount due on your bill and can't be more than 15 days late. A quick note on this, though -- you won't be "disqualified" from PSLF if you have late payments (greater than 15 days) on your student loans, necessarily. Those payments just won't count towards the 120 you need.
Finally, you need to be on a qualifying repayment plan, which falls under two categories:
1. Any of the income-driven repayment plans (i.e. Pay As You Earn, Income Contingent, etc.)
2. The Standard Plan*
*Note that if you're on the 10-year Standard Repayment plan, you'll essentially have paid your entire loan balance off before getting the benefit of PSLF, so it's in your best interest to go with an income-driven repayment plan (just be aware of the pros and cons).
Here are a few more things to know to ensure your payment qualifies:
- You can't have in-school status, be in a grace period, deferment, default, or forbearance
- You only get credit for one payment per month, so multiple payments per month will not benefit you with PSLF
- Paying more than the amount due won't get you ahead -- in fact it might cause you to miss credit on a month's payment
- AmeriCorps and Peace Corps workers have a special benefit -- the Segal Education Award - to make a large payment that can count for up to 12 PSLF payments
If you're unsure about any of the rules with qualifying payments, contact your loan servicer and/or the Federal Student Loan office to ask.
How to apply for PSLF
The Federal Student Loan office suggests that you submit their application form annually or whenever you change jobs. It sounds kind of tedious, but this could help to ensure you're on track to receive PSLF after 10 years.
You send this form along with your employment certification to FedLoan Servicing (the information is on the form itself) and they'll review it and get back to you with information such as what you're missing. Again, it sounds annoying but it'll help you stay on track of your progress.
A few words of caution
Does PSLF sound too good to be true?
To some it might. Recently it's been the center of some serious controversy (and potential lawsuits). 2017 is the first year students would be eligible for the benefit, and some students who thought they qualified were actually rejected.
While the benefits of this program sound incredible you need make sure to meet every requirement for the 120 payments. If you miss one thing, it could disqualify you or cause you to wait longer.
The government also doesn't just come to your door with a cake after your 120th payment and throw you a party while they pay off your loans. If you don't submit anything, they won't do anything. Make sure you stay on top of it and submit your paperwork each year to check in on your progress.
Remember
The Public Service Loan Forgiveness Program is an awesome program and a wonderful ideal to help people get out of student loan debt in exchange for their public service. But the fact is, it's still too new to know if and how people are actually benefiting from it.
Stay on top of the news and start making sure you're lining yourself up to qualify in a decade.
A decade seems like a long time but if you consider the insane amount of student debt that's floating around out there, 10 years might seem like nothing compared to the amount of money you can save.
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