Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) tends to be the most commonly known federal student loan forgiveness program. Some also call it the “Obama Forgiveness Program” although you should note that nobody with any real knowledge of the student loan programs will ever call it that. In fact, this misnomer is one of the clues we use to identify potential student loan scams. You should too. **Scroll to the bottom of the page for information on the Temporary Extension to the PSLF (TEPSLF)”**
To be eligible to get the balance of your loan forgiven under PSLF, the borrower will need to make 120 payments under an eligible repayment plan, on eligible loans, while working full time for an eligible employer. It’s important to note that all three of these things have to happen at the same time. Once you complete the 120 payments, the balance of your loans are forgiven, tax free.
Although the three requirements sound simple, there are some additional details that can trip borrowers up. We make sure to cover all of those below. And don’t worry if you don’t have the right kind of federal loans or aren’t on the right repayment plan, we’ll tell you what you can do to get on the path to forgiveness.
One last thing – PSLF isn’t for everyone. The name of the game is paying the least amount over time. For some people that means pursuing a program like PSLF, but for others that might mean paying your loans off aggressively. PSLF was never intended for all borrowers.
What is an Eligible Loan for PSLF Purposes?
Only Federal Direct Loans are eligible for PSLF. These can be Direct Stafford, Direct Graduate Plus, Direct Parent Plus and Direct Consolidation loans.
The following loans can be made into Direct Loans and become eligible for PSLF by consolidating through the Direct Loan program at www.studentaid.gov :
- Federal Family Education Loan (FFEL) Program Loans including
- Subsidized and Unsubsidized Stafford loans
- Parent Plus Loans
- Graduate Plus loans
- FFEL Consolidation Loans
- Supplemental Loans for Students (SLS)
- Federal Perkins Loans
- Federal Nursing Loans
- Health Education Assistance Loans
If you must consolidate to gain access to PSLF, do so as soon as possible. Any payments made prior to consolidation will not count towards PSLF and cannot be made to count. Once you consolidate, you will be starting at payment zero of the 120 needed for forgiveness.
If you have a mix of Direct and some other type of federal loan, such as FFEL, Perkins or HEAL, consolidate only your non-Direct loans. The Direct loans are already eligible for PSLF and consolidating them with the ones that aren’t will mean losing any PSLF eligible payments you may already have.
Remember, the name of the game is to pay the least amount over time. Sometimes this means pursuing forgiveness, and sometimes it means aggressively repaying the loans in full. If you have been paying your loans for some time, or have a balance under $50K or so, or have a fairly decent income, you should use this calculator to determine if pursuing PSLF is the smartest strategy for you before going through the consolidation process. You can also use the loan simulator here.
Private loans, state loans, institutional loans and other higher education financing tools are never eligible for PSLF. Defaulted Direct Loans are also not eligible for PSLF, but can be brought out of default.
For Those with Parent Plus Loans
Although Direct Parent Plus Loans are technically eligible for PSLF if the parent borrower is engaged in eligible employment, you cannot truly benefit from PSLF unless you convert them to a Federal Direct Consolidation Loan. See the section on payments for details.
If you aren’t sure what kind of loans you have, contact your loan holder or go to www.studentaid.gov
What Is An Eligible Payment?
For PSLF purposes, an eligible payment is one made after October 1, 2007, on time (no later than 15 days after the due date), on an eligible loan (see above for a list of eligible loans), while working full time for an eligible employer (see below for eligible employer definitions) under one of the following repayment plans:
- Standard 10 year repayment plan
- Income based repayment
- Income contingent repayment
- Pay As You Earn (PAYE)
- Revised Pay as You Earn (REPAYE)
You can learn more about each of these plans here.
When you are on an income-driven repayment plan, you must certify your income once a year. The servicer will be in contact with you when you need to recertify. (Note that IDR recertification dates are postponed during the COVID waiver period. Borrowers may, if they choose, wait up to a year from their anniversary date to recertify their IDR) If you have a drop in income, you can ask your servicer to reset your payment based on your new income without waiting for your recertification date. The servicer will tell you what kind of documents are required to verify your new income.
There are a Few Other Things to Know to Ensure your PSLF Payment is Eligible
You do not need to be under the same plan for all 120 payments, but only payment made under the 10-year standard plan or an IDR will be counted.
Payments don’t need to be consecutive to count. The only thing that will wipe out prior eligible payments is loan consolidation.
Payments made under a standard plan that is longer than 10 years, such as what is generally given to consolidation loans, do not count towards PSLF
Parent Plus loans are only eligible for the income contingent repayment (ICR) plan and only if they are consolidated under the Direct Loan program. Parent Plus borrowers pursuing PSLF should consolidate as soon as possible and apply for ICR right away to take advantage of PSLF.
New** In October 2020, the Department of Education(ED) announced new guidance regarding lump sum payments. Whereas lump sum payments did not do not count for PSLF unless they were made by AmeriCorps or the Department of Defense, the ED is now allowing other lump sum payments to count in a limited way. Lump sum payments made may now count up to 12 payments or until the borrowers next IDR recertification date, whichever comes first. Only lump sum payments made when the loan is under FedLoan Servicing will be treated this way. Note that this does not mean borrowers can achieve forgiveness any sooner with this new treatment of lump sum payments as you must still submit proof of eligible employment covering the months these lump sum payments were credited to. These payments cannot be counted for delinquent months as payments must still be made on time to count for PSLF.
It is possible to have a zero dollar payment under the income driven plans. Zero dollar payments that are due under these plans do count towards PSLF. Not being due for a payment because you are in forbearance or deferment or in school does not count towards PSLF.
NEW** During COVID-19, payment waivers were applied to all federally held federal loans. This meant that no payments were due on any Direct Loans. This period does count for PSLF purposes if the borrower submits proof of eligible employment during this time. There is no value to making payments during the COVID waiver period if you are pursuing PSLF.
Payments made on a defaulted loan do not count towards PSLF. If you rehabilitate a defaulted loan to get out of default, the payments made after loan rehabilitation will count. If you consolidate out of default they will not.
It does not matter who is making the payments for them to count for PSLF purposes.
Payments made under a graduated or extended repayment plan generally do not count towards PSLF, unless that payment is in an amount equal to or larger than what the payment would be under a 10 year standard plan. This is a rare occurrence.
Note that while 10 year standard plan payments do count towards PSLF, if you are under that plan, after you make the full 120 payments the loan will be paid in full with nothing to forgive.
It does not matter who is making the payments for them to count for PSLF purposes.
What is Eligible Employment?
Eligible employment depends on who you are working for, not what your job is. An eligible employer is one that meets one of the following criteria:
- Is a government employer. This includes:
- Is a Tribal college or university
- Is a 501(c)(3) non-profit
- Is a 501(a) as long as the activities that qualify the organization for this status are unrelated to religious instruction, worship services, or any form of proselytizing
Serving full time for AmeriCorps or the Peace Corps is considered eligible employment. So is serving full time in the military as that is a government employer.
There are other types of non-profits that also count as eligible employers for PSLF purposes. Those are employers whose primary function is one of the following:
- Emergency management
- Military service: service on behalf of the U.S. armed forces or the National Guard
- Public safety
- Law enforcement: crime prevention, control or reduction of crime, or the enforcement of criminal law
- Early childhood education: includes licensed or regulated childcare, Head Start, and state-funded prekindergarten
- Public service for individuals with disabilities and the elderly
- Public health: includes nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health support occupations, as such terms are defined by the Bureau of Labor Statistics
- Public education: includes services that provide educational enrichment or support directly to students or their families in a school or a school-like setting
- Public library services
- School library or other school-based services
Here are some online lists that may help you determine if your employer fits these criteria. This list is most government agencies and departments. This list is the IRS database of non-profit organizations. Note that for this second list, you’ll also need to determine if the employer is a 501(c)(3) or other type of non-profit. If it’s the latter, you’ll need to review the activities above to determine if it qualifies.
You must be full time for the employment to qualify. Full time is defined as whatever your employer defines it as, or 30 hours per week, whichever is greater. You can work part time for two eligible employers as long as the hours add up to at least 30 hours per week.
NEW** Note that hours worked at religious activities used to be excluded from hours worked for PSLF purposes, but this is no longer the case. If you submitted proof of employment in the past that was denied due to the exclusion of hours spent on religious activities you should resubmit proof of employment for those time periods.
You do not need to work for the same employer for the full qualifying time for PSLF. Your eligible employment also does not need to be consecutive. So if you work in eligible employment and make eligible payments during that time, then leave for the private sector, or to go to school, etc, and then return to qualifying employment, those prior payments you made will still count towards the 120 needed for PSLF.
For the vast majority of borrowers, the employer listed on your W-2 is who is considered your actual employer. Most contractors, unless the contractor themselves is an eligible employer, won’t be considered engaged in eligible employment. There are some, rare, exceptions where a third party is issuing the employees paycheck despite the employee actually working for an eligible employer. To be considered eligible, the employer must have hiring and firing authority over the employee.
Only the employment of the borrower on the loan counts for PSLF purposes. So for Parent Plus loans, it must be the borrower of the loan, rather than the student or spouse, who is working in qualified employment, regardless of who is actually making the payments. The borrower on the loan cannot be changed.
How to Apply for PSLF
There are a few things you need to do to apply for PSLF. First, you need to ensure the loan holder has proof that you have worked for a qualifying employer during the time you made your 120 eligible payments. You do that by submitting the employment certification form (ECF) to the address listed on the form. We strongly recommend you do this on an annual basis and keep copies in your files. Note that as of Fall of 2020, the PSLF ECF and Forgiveness application are contained all within the same form. It is solely your responsibility to prove your eligible employment so if you wait to submit ten years worth of forms, you could run into a situation where your prior employer is out of business or no longer has records of your employment. You CAN submit all ten years of employment forms at the same time, we just recommend against it for the reasons previously stated.
Once your loans are being held by FedLoan Servicing, you can upload future EFC forms here. You can also find out how many qualifying payments you’ve made at that link by logging in and clicking on loan details. In the fall of 2020, the ED released a new PSLF Help Tool that can be used to help determine eligibility and complete the required forms.
The first time you submit the ECF, your loans will be transferred to FedLoan Servicing (also known as PHEAA or AES). Nothing will change about your loan terms, only who you make payments to and who you communicate with. They will also begin counting your eligible payments for you at that point.
After you’ve made your 120th payment, you must submit the PSLF forgiveness application. (remember, this is now the same form as the ECF) This form is to prove that you are still working for an eligible employer. Note you must be working for an eligible employer when you submit the form AND when they process the form. The Department of Education has stated that they may contact your employer when reviewing your form to ensure you are still working there.
When they receive your application for forgiveness, they will place your loans in forbearance while they review it. This can take up to sixty days. If you make more than the required 120 payments they will return the excess to you. This can take additional time.
The amount forgiven under PSLF is not taxed.
The Department of Education has published some Frequently Asked Questions here. Most of that information is covered above, but we wanted to ensure you had a back-up source in case something wasn’t clear.
Temporary Expanded Public Service Loan Forgiveness (TEPSLF)
If you have been making payments under a plan that is ineligible for Public Service Loan Forgiveness (PSLF), you may still have hope.
Congress included a provision in the Consolidated Appropriations Act of 2018 that would allow payments made on a Direct Loan under a graduated, extended or standard consolidation repayment plan to potentially count towards PSLF. To qualify these payments, the borrower must complete the following steps:
- Make 120 qualifying payments while working for a qualifying employer as outlined above
- Some or all of these payments may have been made under a graduated, extended or standard consolidation repayment plan
- The payment you made 12 months prior to applying for the TEPSLF, as well as the last payment made, must have been at least as much as you would have paid under an income driven repayment plan. See details below.
- Submit the PSLF/TEPSLF combined application.
The Last 12 Payments Under the TEPSLF
The payment you make 12 months prior to applying for the TEPSLF, as well as the final payment you make, must be at least as much as you would have paid under an income driven plan. Just those two payments. You do not need to be on an IDR plan or be billed this amount, you just need to make two payments of at least this amount – one payment of this amount 12 months before the final payment and then one final payment of the same amount 11 months later. The 10 payments in between should be in the amount you are billed those 10 months.
If the difference between your current payment and your income driven plan payment is minimal, it’s easier just to get on an income driven plan for your final 12 months before you apply for forgiveness under the TEPSLF. You can do this through your loan servicer. If the IDR amount is much higher than your current payment, just make the two payments – the one 12 months before and the final amount in the necessary amount (at least as much as the IDR payment amount).
To determine what your IDR amount would be, we suggest getting 3 estimates of the necessary amount. Use the Department of Education’s repayment estimator at www.studentaid.gov, our calculator here https://studentloanplans.app, and ask your servicer for the amount. To be on the safe side, we strongly recommended you round up to the next dollar from the highest amount given. If you have Parent Plus loans you must use the amount shown under the income contingent repayment plan. If you don’t have Parent Plus, you may use the IDR payment amount for any of these IDR repayments plans: IBR (Income Based Repayment), PAYE (Pay as You Earn), REPAYE (Revised Pay as You Earn), or ICR (income contingent repayment).
It’s important to note that Congress allotted a finite amount of funds for this program. These funds will be allotted on a first come, first serve basis. Once these funds are used up, this fix will no longer be available. For that reason, we strongly recommend that any borrower in this situation switch to an income driven plan as soon as possible.
Payments made to a Federal Family Education Loan (FFEL) do not qualify under this provision, nor can ever qualify for PSLF. There is no remedy for this currently, nor is there expected to be one. If you have FFEL loans, you can consolidate under the Direct Loan program and start the PSLF process from scratch. It is strongly recommended you determine if you would pay less over time by taking this step, or by simply paying the remainder of your loans off aggressively.