Public Service Loan Forgiveness: What Is PSLF and Do I Qualify?

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Editor’s Note: In response to the coronavirus pandemic, as of March 13, 2020, the Trump Administration has halted interest payments on federal student loans. Please note that this applies to federally held student loans only and may not apply to your private student loans. Also note that student loan payments are still required, however your entire payment will now be made toward the principal of the loan. Check with your student loan provider for more information.

42.2 million – that’s the number of people with federal student loan debt in the U.S. This equals more than $1.48 trillion in federal student loan debt. Unfortunately, the student loan debt crisis won’t be ending anytime soon.

The Public Service Loan Forgiveness (PSLF) program was created to relieve some of the student loan debt burden faced by Americans. Still, it isn’t perfect.

How does PSLF work and who is qualified to have their student loan debt forgiven? Let’s take a look.

What Is PSLF?

PSLF is Public Service Loan Forgiveness, a government-funded student loan forgiveness program. PSLF provides tax-free assistance in the form of loan forgiveness to qualified applicants working in the public sector. Congress established the program as part of the College Cost Reduction and Access Act of 2007. Acceptance and review of PSLF applications from borrowers started in 2017, which is probably why you’ve been hearing more about it recently.

Am I Eligible for PSLF?

Having federal student loan debt forgiven through PSLF requires meeting specific criteria. It’s important to understand all the requirements before applying. There are five factors involved in qualifying for PSLF.

Eligible Employer

To qualify for PSLF, you must be working for a qualifying employer. Your specific job or role within the organization doesn’t matter. Eligibility is tied to your employer specifically. Qualifying employers include:

• Government organizations
• 501(c)(3) non-profit organizations
• Other qualified non-profit organizations
• Full-time AmeriCorps or Peace Corps volunteers

Government employees can be at any level of government including federal, state, local, or tribal. However, government contractors are not eligible for PSLF.

Full-Time Employment

Another requirement for PSLF eligibility is having full-time employment status. You are considered a full-time employee if you either:

• Meet your employer’s definition of full-time, or
• Work at least 30 hours a week

Part-time workers can still qualify if they are employed by two qualifying employers at the same time for a total of at least 30 hours a week.

If you work for a religious non-profit organization, some of your work may not be counted toward this requirement.

Direct Loans

Qualifying for PSLF requires that you have specific federal loans. The only loans that qualify for PSLF are federal Direct Loans. There are 2 types of Direct Loans: Direct Subsidized Loans and Direct Unsubsidized Loans.

Direct Subsidized Loans are available to undergraduate students with financial need. The U.S. Department of Education pays the interest on Subsidized Loans:

• While you’re in school at least half-time
• The six month grace period after leaving school
• During loan deferment

Direct Unsubsidized Loans are available to undergraduate and graduate students and have no requirement to show financial need. Borrowers are responsible for paying interest on unsubsidized loans during all periods, including while they are in school.

FFEL loans and Perkins loans don’t qualify for PSLF. However, these loans can qualify if you consolidate them into a Direct Consolidation Loan. One thing to note is that only qualifying payments made under the new consolidation loan would count toward PSLF requirements. Any prior FFEL or Perkins loan payments wouldn’t count.

People with both Direct Loans and other types of loans will want to be strategic with which loans they consolidate. Any Direct Loans you’ve been making payments on already shouldn’t be consolidated.

Income-Driven Repayment Plan

PSLF has repayment plan requirements, too. Applicants must be signed up for one of the four income-driven repayment (IDR) plans. The four IDR plans are:

• Revised Pay As You Earn (REPAYE)
• Pay As You Earn (PAYE)
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)

Monthly payment amounts with IDR plans are based on your discretionary income. IDR plans were created as a way to lower monthly student loan payments for people whose student loan debt is high compared to their income. If your income is low enough, you may end up with a monthly payment of as little as $0.

Qualifying Payments

Monthly student loan payments are an important piece of the PSLF puzzle. To qualify, applicants must make 120 full, on-time monthly payments. Remember, only payments made while working for a qualifying employer full-time will count toward that number. Payments do not need to be made consecutively or all be made while working with the same qualifying employer. You are eligible for PSLF as long as you’ve made 120 qualifying payments with any qualifying employers.

Payments only count during periods when they are required. This means payments don’t count if you’re still in school or if you make them during the grace period. Payments made on student loans in deferment or forbearance won’t count, either.

Meeting all five of the requirements is the only way to qualify for PSLF.

Problems With PSLF

You may have seen reports on PSLF in the news or online recently. This is because of the large number of people rejected for the forgiveness program. In September 2018, the U.S. Department of Education released its first report on PSLF applicants. Of the 29,000 processed applications, only about 300 were approved. The rest of the applicants were denied because they either were missing information on their forms or did not meet all of the requirements.

Since the initial PSLF report, the number of approved applications jumped slightly. The latest report from June 2019 shows 102,051 processed applications, with 100,835 denied and 1,216 approved. Of those that were denied, 55 percent were because of failing to meet qualifying payment requirements.

The number of applicants rejected creates the impression that PSLF approval is next to impossible. However, a closer look at the program reveals why this is happening.

PSLF went into effect in 2007, which means the first possible applicants didn’t occur until 2017. But when PSLF was created, only one repayment plan existed, not four. Income-Contingent Repayment (ICR) was the only option, and it often produced higher monthly payments than a standard repayment plan.

On top of that, most federal loans made before 2010 were FFEL loans, not Direct Loans. This meant that many of the first applicants were under the wrong repayment plan or had the wrong type of loans. As the years pass, more applicants will be approved, provided they meet the requirements.

For the 1,216 who had approved applications, though, it was probably life-changing. Those approved applications accounted for more than $52 million in forgiven student loan debt averaging $61,592 each. Can you imagine the impact of having $60,000-plus of student loan debt forgiven?

How to Apply for PSLF

Seeing the statistics above, it’s clear to see that it’s important to complete your application correctly if you want to increase your odds of being approved. The process of applying for PSLF isn’t difficult, but it’s essential to understand how it works.

Applying for PSLF occurs after you complete your 120 qualifying payments, not when you start making payments. However, when you are working toward PSLF, you’ll want to complete and submit the Employment Certification for Public Service Loan Forgiveness form (ECF) each year for each qualifying employer.

Why is this step important? When the Department of Education receives your ECF, staff members will do a review to ensure you are on the right track and meeting all of the requirements of PSLF.

If you’re initially approved, your loans will be transferred to FedLoan Servicing. FedLoan will calculate your number of qualifying payments and you’ll receive notice of your number.

Once you reach 120 qualifying payments, complete and submit the Public Service Loan Forgiveness Application for Forgiveness. The form can be mailed, faxed, or uploaded online through the FedLoan website.

Processing times vary based on factors such as whether or not you completed ECFs throughout the process.

Tips For Using PSLF

If you’re interested in pursuing PSLF, here are a few tips to help you along the way:

1. Fill Out ECFs Annually

The office of Federal Student Aid recommends that you fill out an ECF annually or whenever you change employers to ensure you’re still on track. Whenever an ECF is processed, you’ll receive an updated qualifying payment count.

2. Use the Free PSLF Help Tool

The Department of Education has created a free Public Service Loan Forgiveness Help tool. The goal of the tool is to help borrowers understand the ins and outs of PSLF to determine if they qualify. If you’re even thinking about loan forgiveness, take time to go through the tool. You can log in using your Federal Student Aid ID.

3. Be Informed

Many of the first applicants being denied for PSLF had no idea they didn’t qualify. They probably spent years making payments under the impression that their loan debt would be forgiven.

Don’t make the mistake of leaving it up to chance. Take time to familiarize yourself with all of the requirements of PSLF, your specific student loans, and your repayment plan. Make sure you’re on the right track. Don’t assume you’ll be approved, only to be surprised 10 years later.

Bottom Line: Is PSLF Right for You?

Are you thinking about PSLF? Students can have tens of thousands of dollars in student loan debt erased tax-free.

Remember, PSLF requires working for specific types of employers, which could significantly limit your earning potential. Instead of pursuing PSLF, other options could include finding a higher-paying job in the private sector or starting a side gig and refinancing your student loans to save money and pay off debt more quickly.

The amount of student loan debt you have is also a factor. If you have a large amount of student loan debt, it makes sense to use PSLF if you qualify. In the end, PSLF is a good tool available to federal loan borrowers. If you qualify for PSLF, it’s worth considering as a repayment option.

Have you been approved for loan forgiveness through PSLF? Tell us your story below!