I receive a lot of questions on the Public Service Loan Forgiveness Program (PSLFP) as a way to pay off federal student loans. Washington DC is concentrated with public service professionals who are potentially eligible for this program. Be mindful of the answers to the following three questions and you’ll be on your way to having your loans paid off under the PSLFP:
- What loans qualify for forgiveness?
- What repayment plan must you use?
- What qualifies as public sector work?
In a nutshell, the remaining balance due on your William D. Ford Federal Direct Loan Program (Direct Loan Program) loans after you have made 120 qualifying payments will be forgiven so long as you were employed full-time by certain public service employers. You must make 120 qualifying payments on your eligible federal student loans after October 1, 2007 (the beginning date of the Direct Loan Program).
Loans Qualifying For Forgiveness
Any non-defaulted loan made under the Direct Loan Program is eligible for loan forgiveness. The Direct Loan Program includes the following loans, which were made after 2007:
• 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, and
• Federal Direct Consolidation Loans (Direct Consolidation Loans).
It is important to note that loans made under the Federal Family Student Loan Education Program (FFEL) (generally those made before 2007) are NOT eligible for forgiveness unless you consolidate them into a Direct Consolidation Loan. ONLY payments made on the Direct Consolidation Loan will count toward the required 120 qualifying payments. The following loans may be consolidated into the Direct Loan Program:
- Federal Family Education Loan (FFEL) Program loans, which include Subsidized Federal Stafford Loans and Unsubsidized Federal Stafford Loans
- Federal PLUS Loans—for parents and graduate or professional students
- FFEL Consolidation Loans (excluding joint spousal consolidation loans).
The key point is to make sure you have loans eligible for forgiveness before thinking you will be able to wipe away your remaining balance after 10 years of on-time payments.
Qualifying Repayment Plans
To maximize forgiveness under the PSLFP you should repay your loans on one of the income-driven repayment plans, which qualify for PSLFP. Under the Income-Based Repayment (IBR), Pay As You Earn, and Income Contingent Repayment (ICR) plans, your monthly payment amount will likely be lower than under any of the other PSLFP-qualifying repayment plans (such as a standard 10-year repayment plan) and your repayment period will likely be longer. Because of the longer repayment period, additional interest that will accrue on your loan, and the smaller monthly payment amount, you will be left with a higher loan balance that could be forgiven. However, if you ultimately do not meet the eligibility requirements for PSLFP, you will be responsible for repaying the entire balance of your loan, including all accrued interest, unless you qualify for forgiveness under the terms of the IBR, Pay As You Earn, or ICR plan.
If you are in repayment on the 10-year Standard Repayment Plan during the entire time you are working toward PSLFP, you will have no remaining balance left to forgive after you have made 120 qualifying PSLF payments. Therefore, if you are thinking you will use the PSLFP and are not already repaying under an income-driven repayment plan, you should consider changing to an income-driven repayment plan as soon as possible.
Washington is brimming with professionals in public service, whether it is federal, state, local government or the plethora of diverse non-profit organizations serving many worth causes and issues. But note the following rules for qualifying employment. Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization 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. The type of services that these public service organizations provide does not matter for PSLFP purposes. The type or nature of your employment with the organization also does not matter for PSLFP purposes. In other words, it is the organization that matters – not the services provided by the organization or type of work you do for the organization.
There is one other category of organizations that may qualify for the PSLFP. A private not-for-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code may be a qualifying public service organization if it provides certain specified public services. These services include emergency management, military service, public safety, or law enforcement services; public health services; public education or 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.
Heed these three tips and you are likely to know whether you qualify for the Public Service Loan Forgiveness Program. I encourage you to check with your loan servicer, however, to verify your eligibility for the PSLFP to pay off your student loans to make sure you don’t have any issues later.