Public Service Loan Forgiveness: Separating Truth and Myths

Is Public Service Loan Forgiveness too good to be true or just sorely misunderstood? A mere 1% of Public Service Loan Forgiveness applications were approved in the first nine months of borrowers reaching eligibility.

While there have been issues with servicers providing incorrect information – or no information at all – to borrowers, this is not a big surprise to those of us who have been following the program since its inception. It’s all in how the program was designed; in the next few years you can expect to see those numbers grow. In the meantime, we’re here to share our knowledge of the program to help ensure your payments count.

What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness (PSLF) was passed in 2007 during the Bush Administration with the goal of making public service more appealing to college graduates. Graduates working for Government agencies and Non-profits are typically paid much less than their counterparts in private industry, yet they need the same level of education; PSLF offers forgiveness on the remaining balance of qualifying Federal student loans after 120 qualifying payments, while working for a qualifying employer. This is where much of the confusion has come in.

Qualifying Employment

For anyone who works full time for any Government Agency (Federal, State, County, City, Tribal) or a 501c3 not-for-profit agency, there is no question that their employer qualifies: these employers are written into statute. For other non-profit employees there has been some confusion. The law lists “Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if their primary purpose is to provide certain types of qualifying public services,” as also being qualifying employers. Qualifying employers include:

• Emergency management
• Military service
• Public safety
• Law enforcement
• Public interest law services
• Early childhood education
• Public service for: individuals with disabilities, or the elderly
• Public: health, education, or library services
• Other school-based services

Not-for-profit organizations that are not qualifying employers include:

• Labor Unions
• Partisan Political Organizations
• For-profit organizations (including for-profit government contractors

For the most part it doesn’t matter what your position is within the organization as long as you are considered full time by your employer (at least an average of 30 hours per week). However, time spent engaged in any form of religious instruction, worship services or proselytizing may not be counted towards meeting the full-time requirement.

Your time may also count if you work at two different qualifying employers as long as you average a total of 30 hours per week. 

Qualifying Loans

Qualifying loans are loans made through the William D. Ford Federal Direct Loan Program: they can be Direct Subsidized, Direct Unsubsidized, Direct Grad PLUS Loans, Direct Parent PLUS loans, or Direct Consolidated Loans. Do you a see a pattern here? One of the reasons why many borrowers are not qualifying yet is because they borrowed through the Federal Family Education Loan program (FFEL or Stafford Loan programs), which ended June 2010. If you attended college before then you may have FFEL Loans.

If you are not sure if you have FFEL loans go to nslds.ed.gov and complete a financial aid review. All your Federal Student loans and the types will be listed there.

If you have FFEL loans you can change them into Direct Loans through a consolidation, even if you only have one loan (including an FFEL Consolidation loan). Be very careful not to include any Direct Loans you have already made payments on: this will set your payment count back to zero! Seek out assistance from an LSS Student Loan Repayment Counselor if you are unsure. Once consolidated a loan cannot be “unconsolidated” for any reason.

Qualifying Payments

With so many different payment plans available for your Federal student loans, it’s important to make sure you are making the correct payments to count towards Public Service Loan Forgiveness. Qualifying payments are on-time payments made under either a 10-year standard repayment plan or any of the Income-Driven Repayment plans. The payments do not have to be consecutive, so if you leave public service for a while and then return, you can resume your payments where you left off.

Am I Qualified Yet?

This is a lot of information, but hang on…there are two more important steps. First, you must turn in an Employment Certification Form to start your payments counting towards forgiveness. I recommend you turn it annually; whenever you recertify your Income Driven Repayment plan. Once you have made 120 payments you can turn in the Forgiveness Application (hint: both forms have expiration dates in the upper right-hand corner. Make sure the application is still good before turning it in). Also, you must still be working in public service at the time you submit your application and at the time forgiveness is granted.

Make sure your forms are filled out completely and correctly! Many of those rejected for Public Service Loan Forgiveness were initially rejected due to incomplete or incorrect forms.

At first glance, Public Service Loan Forgiveness seems like a simple concept, but add in a bit of government bureaucracy and you get layers of complexity. If you are still unsure if you qualify, or how to qualify try out the Department of Education’s new PSLF Help Tool, or schedule a free and confidential with one of LSS’s Student Loan Repayment Counselors today.

Author Shannon Doyle is a certified LSS Financial Counselor.