Public Service Loan Forgiveness, or PSLF, is a GREAT PROGRAM that can Benefit Millions of People!
If you work at a 501(c)(3) or a government job and have student loans, please read this, it might save you thousands of dollars and lower your student loan payment.
Why is it so Great?
Under the Public Service Loan Forgiveness Program, eligible borrowers will have their federal student loans forgiven after 120 qualifying payments (10 years). Currently there are no limits on the amount that can be forgiven and forgiveness is not taxable income.
How Many People are Eligible for Public Service Loan Forgiveness?
There are over 33 million people employed in the government and non-profit sectors (that’s over 20% of US Employees). Anyone of these people who has student loans may be able to benefit form public service loan forgiveness. Sadly, As of Summer 2015, only 336,000 were enrolled in Public Service Loan Forgiveness–That’s only 1%!
It’s extremely important to understand that certain steps need to be taken to qualify for this program. Many borrowers wrongfully believe that by just working in the public sector, their loans will be forgiven in ten years. This is unfortunately not the case, as many borrowers do not have the right loan types, or are not in the correct repayment plan. Make sure you take the necessary steps to make your payments count!
Who Qualifies for Public Service Loan Forgiveness (PSLF)?
Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a non-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 (IRC). The type or nature of employment with the organization does not matter for Public Student Loan Forgiveness purposes. Additionally, the type of services that these public service organizations provide does not matter for Public Service Loan Forgiveness purposes.
Federal, State, Local Government Yes
Non-Profit 501(c)(3) Yes
Non-Profit in Public Services Maybe, see below.
A private non-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the IRC 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. Generally, the type or nature of employment with the organization does not matter for Public Service Loan Forgiveness purposes. However, when determining full-time public service employment at a not-for-profit organization you may not include time spent participating in religious instruction, worship services, or any form of proselytizing.
What Types of Loans Qualify?
To qualify for Public Service Loan Forgiveness, you must have the following loan types:
- Direct Subsidized / Unsubsidized
- Direct Consolidated Loans
- Direct PLUS
- Direct Stafford Subsidized / Unsubsidized
This means that private loans do not qualify under any circumstance, as well as other federal loan types. Loans in default also do not qualify.
Have Federal Loans that Don’t Qualify–Consolidate Them
Many borrowers do not have Direct Loans and thus would not qualify for the program in their current scenario, but fortunately there is a way to convert your federal loans into Direct Loans. The Direct Loan Consolidation program will take all of your federal loans, and consolidate them into one new Direct Loan. If you do not have Direct Loans but want to apply for Public Service Loan Forgiveness, you will need to consolidate your loans. You can attempt the yourself, or, Student Debt Relief is a private company that for a fee, can help you through this process.
Making Qualifying Payments
For you 120 payments to count towards forgiveness once you have Direct Loans, you must also:
- Be employed a qualifying public service organization at the time of payment
- Be making payments in the Income Based Repayment plan, Income Contingent Repayment, or Pay As You Earn Plan. These three plans will give you a payment that is calculated based on your income and family size. Below are the estimated payments in the IBR program depending on family size and income. Loan balance and interest rates are not used in the calculation of the payment.
- Make your payment on time. On time is defined as being within 15 days of the scheduled payment date. Payments that are made in a lump sum, or in advanced for future months are not counted as qualifying payments.
Please note, the 120 payments do not have to be consecutive
How Much Can Be Forgiven?
Currently, no maximum amount can be forgiven.
What is considered full time employment?
You must meet your employer’s definition of full-time. However, there must be a minimum of 30 hours of work per week. For full-time employment, time spent participating in religious instruction, worship services, or any form of proselytizing does is not counted. For teachers of other employees of a public service organization that is under contract for at least 8 out of 12 months, you meet the full-time standard if you work at least 30 hours per week during your contractual period. If you work in two separate public sector or non-profit jobs, you meet the requirement if the combined hours at both positions is 30 hours or more per week in combination.
What is the History of this Program and Why does it Exist?
In 2007, Congress created the Public Service Loan Forgiveness program. This program was designed to reward those who choose a lower paying job in the public sector or non-profit organization.
An Example of How Public Service Loan Forgiveness Can Work:
Example: Borrower is earning $40,000/yr with a family size of 4. The loan balance is $48,000, with an interest rate of 6.875%. The borrower could qualify for an income-based payment of $52/mo. After making 120 qualifying payments, borrower would have paid $6,240 in student loan payments, and the balance of $48,000 – $6,240 = $41,760 would be forgiven. This does not include interest that would also be forgiven and assumes that the person income and family size will not change for ten years. Public Service Loan forgiveness You may qualify for public service loan forgiveness if you work full-time in a civil service job. After making 120 payments under certain repayment plans while working full-time in a public service position, the balance of your Federal Student Loan would be completely forgiven. For more information go to our Public Service Loan Forgiveness page. Public Service Loan Forgiveness Summary:
• Full forgiveness of Federal Student Loans after 10 years (120 qualified payments)
- Government or Non-profit employment 501(c)(3)
- Must be in the direct loan program making income-based payments
- Forgiveness is non-taxable
- Consider consolidating your loans to ensure you are making qualified payments
Other Benefits of Enrolling in the Income Based Programs:
Under the income based programs your payments are calculated based on your income, not on how much you owe. This can often provide borrowers relief from large payments they are otherwise unable to make. In some cases, for those with very low income, the monthly payment could be as low as $0.00 per month depending on the income and family size of the applicant. The payment regardless of how low it is (even $0.00) would count towards your forgiveness.
How Do I Get Started?
You have a few options to apply for the public service loan forgiveness program. The first (and free) option it to make all the necessary changes to your student loans as required and explained in the above yourself, and then apply for the forgiveness once you have taken all of those necessary steps through the Department of Education. Another option would be to hire a private organization to assist you with the whole process. If you would like to better understand how a private company can help you prepare the documents to get into the right programs, call 1-866-909-6290 and a specialist would be happy to help.