Public Service Loan Forgiveness: What It Is, How It Works

You can seek federal loan forgiveness if you decide to work in public service. Read to know if you are eligible for forgiveness under the new Limited PSLF Waiver.

What is Public Service Loan Forgiveness and How Does it work?

The College Cost Reduction and Access Act of 2007 (CCRAA) introduced the Public Service Loan Forgiveness (PSLF) program to provide debt relief support to distressed borrowers and bring more workforce into essential services. It helps borrowers discharge their debt by working in select professions like teaching, nursing, firefighting, etc. The program faced many hurdles as more than 98% of PSFL applications were rejected due to eligibility issues.

In 2018, Congress introduced the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program, which expanded the type of repayment plans eligible for loan forgiveness. In Oct 2021, the E.D. launched the Limited PSLF Waiver program, further relaxing the eligibility rules to include more borrowers. Borrowers who were earlier ineligible or got rejected can now submit their PSLF form for reevaluation.

According to the U.S. Department of Education, over half a million students are now expected to be eligible for student loan forgiveness under the Limited PSLF Waiver. Only 16,000 borrowers had ever benefited from the program before the new guidelines. Let's understand what is public service loan forgiveness and how you can check your eligibility under the new guidelines.

What is the public service loan forgiveness program?

The federal government incentivizes prompt repayment and public service through the PSLF program, headed by the Department of Education (E.D.). It's important to understand the different eligibility guidelines of the PSLF program and who qualifies for public service loan forgiveness to understand what is public service loan forgiveness. You can be eligible for Public Service Loan Forgiveness under certain circumstances. Broadly, you may need the following to qualify under the PSLF program-

1. Employed full-time by a government organization (federal, state, local, or tribal) OR Not-for-profit organizations OR full-time volunteer service in the U.S. military (AmeriCorps or Peace Corps)
2. Have outstanding direct student loans. FFEL program loan or Perkins loan borrowers are now eligible for loan forgiveness under the Limited Public Service Loan Forgiveness Waiver if they have applied for debt consolidation to a Direct Loan before October 31, 2022.
3. Follow any of the qualifying income-driven repayment (IDR) plans.
4. Make 120 qualifying payments while working full-time for a qualified employer. Regular payments made after October 1, 2007, are considered eligible. Any prior payment made while working for a qualifying employer will count as a qualifying payment, regardless of loan type or repayment plan.

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How has payment forbearance affected PSLF?

On April 6, 2022, the Department of Education extended administrative forbearance for all its loans through August 31, 2022. This includes suspension of all loan payments, 0% interest rate, and no debt collection on defaulted loans. The suspended repayment period is already counted for PSLF payments, meaning that each month during COVID forbearance will count towards the 120 PSLF eligible payments. It may be wise to repay loans while interest is set at 0%, but it won't affect your PSLF eligibility.

Moreover, the E.D. found that loan servicers have misled borrowers to opt for long-term forbearance when their monthly payments could have been as low as zero dollars under some IDR plans. To rectify the problem of forbearance steering, the E.D. will make a one-time account adjustment by this year. If you have availed the 12 or more months of consecutive forbearance or the 36 or more months of cumulative forbearance, you will still get PSLF credit for the forbearance period.

Limited Waivers for PSLF

On October 6, 2021, the E.D. provided limited waivers for PSLF on account of the COVID-19 pandemic that would provide student loan forgiveness for state employees who were earlier ineligible. These changes were-

• You may receive credit for past loan payments that were earlier not eligible for PSLF.
• Federal Family Education (FFEL) Program loans, Perkins, or other federal student loans can be eligible loan types after consolidation into a Direct Loan.
• No payment or late payment will not affect the repayment period count.
• Non-income-based repayment plans are temporarily included in PSLF subject to other eligibility criteria.
• One-time account adjustment to provide PSLF credit during consecutive or cumulative forbearance months.
• Members on active duty service (uniformed services) will get PSLF credit during deferments and forbearance.
• PSLF credits for military service holders and federal employees will be automatically mapped using federal data matches.
• Reevaluation of PSLF applications that were earlier rejected erroneously.

You are still ineligible for PSLF if-

• A government contractor hires you.
• You have a Parent-PLUS loan
• You were in an in-school deferment
• You have periods of default.

Can PSLF be retroactive?

Borrowers who have already applied for PSFL will get all accrued benefits from the date of launch of the PSLF limited waiver. However, borrowers who are yet to consolidate their loans to Direct loans will start their 120-month PSLF repayment period count from zero.

Another common question is, can PSLF be retroactive with regard to tax liability? You won't bear any tax liability if your loan is forgiven. The American Rescue Plan Act states that the debt discharged between December 31, 2020, and January 1, 2026, will not be taxed.

Who else qualifies for public service loan forgiveness?

From April 2022, the E.D. has started an easy online process for reconsidering PSLF and TEPSLF applications. Borrowers who were previously rejected can now submit the PSLF form along with employment certification for PSLF reconsideration. The process will be overseen by the Department of Education and not by loan servicers.

Who has already received PSLF?

The Department of Education estimated that the new Limited Waiver PSLF scheme would automatically clear all debt of 40,000 student loan borrowers. Additionally, 3.6 million borrowers who were previously ineligible will receive PSLF credits.

According to a statement from the Education Department, the federal government wiped off debt for 725,000 borrowers totaling $17 billion under the new scheme. It also provided temporary relief from loan payments to 41 million borrowers while receiving PSLF credits.

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How does loan forgiveness work?

Many borrowers who are new to PSLF ask how loan forgiveness works. You need to update your PSFL records annually by submitting the PSLF form to the Department of Education. If you are a federal govt employee or in military service, the E.D. may automatically update your PSFL records if you are eligible. However, in most cases, you may need to find out your eligibility on your own and apply accordingly.

Loan Type Eligibility

The PSLF program only covers student loans sanctioned under the William D. Ford Federal Direct Loan (Direct Loan) Program. If you have different types of federal loans, you may want to consolidate them into a single Direct Consolidation Loan before applying for loan forgiveness. This can help you choose the right Income-Driven Repayment plan and apply for loan forgiveness. You can change your loan type by logging into studentaid.gov. An FFEL program or Perkins loan can now be eligible for PSLF under the Limited Waiver Scheme if you change it to a Direct Consolidation Loan before October 2022.

Work type & Employers Eligibility

There is no work type eligibility under the PSLF program, and you only need to work for an eligible employer to qualify for loan forgiveness. So it does not matter if you are working as an accountant, teacher, or manager, as long as you work for a qualifying employer. A qualifying employer includes-

• Federal, State, local, or Tribal government organization, agency, or entity; a public child or family service agency; or a Tribal college or university.
• A not-for-profit organization that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
• Private not-for-profit organizations engaged in public services like public safety, helping the elderly and individuals with disabilities, public health, public litigation services, public education, public library, school-ancillary services, etc. It cannot be a labor union or a partisan political organization.
• AmeriCorps or Peace Corps.

Repayment Plan Eligibility

You can reduce your monthly loan payments considerably if you follow an Income-Driven Repayment (IDR) plan. You can have any of the income-driven repayment plans to be eligible for PSLF-

Ten-year standard Repayment: Though this repayment plan is eligible for PSLF, you would not benefit from it since no amount will be left to forgive after you make 120 loan payments.

Income-Contingent Repayment (ICR)- You can opt for this repayment plan if you have a Direct Loan. Your monthly payment would depend on your income; either 20% of your discretionary monthly income or a fixed payment based on 12-year repayment, whichever is lesser. ICR plans do not have monthly payment caps, and your EMI may increase as your income increases. This is the only IDR option available for parents PLUS loan borrowers.

Income-Based Repayment (IBR)- Your monthly payments will be adjusted based on your income and family size. Usually ranges between 10-15% of your discretionary monthly income.

Revised Pay As You Earn (REPAYE)- Your loan EMI will depend on adjusted gross income, family size, and total outstanding balance. Usually, you may pay 10% of your discretionary monthly income as loan payments. Your payments may increase as your income increases.

Pay As You Earn (PAYE)- You can pay the lowest loan payments of all IDR plans with PAYE. Payments are lower than the 10-year standard repayment plan and generally 10% discretionary income.

If your PSLF application was rejected because of repayment plan eligibility, you can apply for T​​EPSLF, which includes the Graduated Repayment Plan, the Extended Repayment Plan, the Consolidation Standard Repayment Plan, and the Consolidation Graduated Repayment Plan for debt forgiveness.

PSLF Application and Approval Process

You need to submit the PSFL form and employment certification annually to keep your records updated. Once you have completed 120 qualified payments, you can start applying for PSLF through the following steps-

1. Verify your loan type by logging into studentaid.gov using your Federal Student Aid username and password. Visit the Aid Summary, scroll down to the Loan Breakdown section, and click on Loan Details to see your federal loan type. Loans eligible under PSLF will start with the word "Direct." If your loan type is not Direct, you need to consolidate it into a Direct Loan by October 31, 2022. You can apply for debt consolidation through the studentaid.gov dashboard.
2. Certify your employment from your current and past (since January 1, 2007) employer/s. You can approach the H.R. department for the relevant signatures.
3. Fill out the PSLF form with the help of the PSLF Help Tool.
4. Once completed, you can mail the form to the U.S. Department of Education, FedLoan Servicing, P.O. Box 69184, Harrisburg, PA 17106-9184 OR fax it to 717-720-1628.
5. You can also upload the scanned copy of your PSLF form here if FedLoans directly serve your loan.
6.  The E.D. will verify your information, including your loan type, employment, and repayment history.
7. If your loan forgiveness application is approved, your loan will be transferred to FedLoans Services, and all your outstanding principal and interest will be forgiven. If you may make any excess payment after the 120th qualifying payment, the extra amount will be reversed to your account.
8. The E.D. will inform you if they require additional information or if your application fails, along with the reason.

If all else fails, there are other options

There are multiple federal student loan forgiveness and cancellation options for borrowers whose PSLF got rejected. Your next step depends on your circumstances. If you are working as a teacher, you can apply for the Teacher Loan Forgiveness Program or the Perkins Loan Cancellation for Teachers program. Each state also has its own student loan forgiveness program/s. Depending on your residence, you can find out more about the state-sponsored student loan forgiveness programs here.

If you are unable to pay your debt, you can choose a student loan refinance plan or consolidate your debt into one single loan for lower monthly payments. You can also check out different Income-Driven repayment plans to lower your monthly payments to as low as zero dollars. You can also apply for forbearance or deferment to get relief from monthly payments.

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Student Loans