The Public Service Loan Forgiveness (PSLF) program was started by the federal government in 2007 in order to help those in nonprofit and government jobs free themselves from federal student loan debt. The program was straightforward in theory, but it turned out to be very confusing in practice. When the first borrowers became eligible for forgiveness in 2017, there was an uproar over the high percentage of applicants who were denied.
In an effort to help the thousands of borrowers who have been rejected by the program, as well as those who are currently working towards forgiveness, the Department of Education announced an overhaul of the PSLF program on October 6, 2021. In this article, we’re going to outline the original requirements of the PSLF program, the temporary changes that have been made, and what you should do to make sure you will qualify for PSLF going forward if that’s your goal.
Original Public Service Loan Forgiveness Requirements
The original PSLF program has four main requirements. In order to be eligible for forgiveness, a person must:
- Work full-time for a U.S. federal, state, local, or tribal government or a nonprofit organization.
- Have Direct loans. Those that don’t have Direct loans must first consolidate their federal loans into a Direct Loan in order to be eligible.
- Repay their loans under an income-driven repayment plan.
- Make 120 qualifying monthly payments.
While that may sound simple, in practice it was anything but. These requirements turned out to be more confusing and restrictive than initially planned. Many issues arose as borrowers tried to follow the rules. One common problem borrowers faced was payments that were a penny off or a day late not being counted towards the 120 qualifying payments. Also, neither FFEL loans (a type of federal loan issued prior to July 2010) nor Perkins loans (a federal loan that was issued prior to September 2017) were eligible for PSLF. Many people did not realize that those types of loans needed to be consolidated into Direct loans to qualify. Finally, there was a lot of poor guidance and, in some cases, wrong information from student loan servicers given to borrowers regarding their progress towards PSLF.
Temporary Changes to the Program
In response to these challenges with the initial program, some temporary changes have been enacted in order to help more borrowers qualify. On October 6, the Department of Education announced that they are offering what they call a “limited waiver” of some of the eligibility requirements for PSLF. As the terminology suggests, these are only temporary changes that last through October 31, 2022.
At a high level, this “limited waiver” will allow student borrowers to count payments on all federal loan programs or repayment plans toward forgiveness, including loan types and payment plans that were not previously eligible. As mentioned above, PSLF is only available for Direct federal loans. This has excluded FFEL and Perkins loans. With this limited waiver, however, any type of federal student loans including FFEL and Perkins loans are now eligible to count towards forgiveness through PSLF, as long as the borrower consolidates these loans into the federal Direct Loan Program before the limited waiver expires at the end of October next year. It is important to note that going forward, the loans must be consolidated. Borrowers also need to submit a PSLF form before October 31, 2022, to have previously ineligible payments counted. The best place to fill out this form is through the online PSLF help tool at StudentAid.gov/PSLF. Any payments on private student loans will continue to be ineligible for PSLF. This limited waiver will also count any prior monthly payments on federal loans towards forgiveness, whether you are on an Income-Driven Repayment (IDR) plan or not. However, like with consolidating to a Direct loan, you will need to be on an IDR plan going forward.
In addition to opening the program to more types of loans and repayment plans, the recent changes provide several other benefits. One that will affect many borrowers is that they will allow payments made a few days late or that were off by a penny or two to count. If you have already certified employment for PSLF, this will automatically take effect for you. If you have not yet certified employment for PSLF, in order for any of these types of payments to be counted, you must submit the PSLF form (mentioned above) before October 31, 2022.
Another change included in the limited waiver was removing barriers for military service members to qualify for PSLF. Prior to this limited waiver, months in which military members had deferment or forbearance due to being on active duty were not being counted for PSLF. These months will now be counted toward PSLF.
Finally, the Department of Education is taking it upon itself to review all previously denied applications. They will seek to identify and address errors so that borrowers who had been incorrectly denied may now be deemed eligible.
How to Ensure You’re on the Path to Public Service Loan Forgiveness
This overhaul to the PSLF program may be of great benefit to you, but you must remember that many of these changes are temporary and require action in order to benefit from them. There are two steps that we recommend everyone who is interested in PSLF take in order to ensure that you are on the path towards forgiveness. First, regardless of whether you have been following each of the requirements already, we recommend you submit a PSLF Form before October 31, 2022, and annually afterward. Second, we also recommend you confirm your contact information is correct on your StudentAid.gov account. If you don’t have a StudentAid.gov account, you should register for an FSA ID at StudentAid.gov/create-account.
Depending on your type of loan and repayment plan, further action may be required:
- If you were already making payments on an IDR plan and have only federal Direct loans, submit the PSLF form before October 31, 2022, to ensure you benefit from the temporary rules including getting payments counted that were a few days late or a penny off.
- If you have FFEL or Perkins loans, consolidate these loans into a new federal Direct loan and submit the PSLF Form through the PSLF Help Tool prior to October 31, 2022.
- If you are not currently enrolled in an Income-Driven Repayment plan, submit the PSLF Form through the PSLF Help Tool prior to October 31, 2022, to have payments you’ve made prior to October 31, 2021, be automatically counted towards PSLF. In order to have payments made since October 31, 2021, and future payments qualify for PSLF, you will need to switch your payment plan to an Income-Driven Repayment (IDR) Plan. Any payments made after October 31, 2021, will only be counted if they are made on an IDR plan.
Is Public Service Loan Forgiveness Right for You?
As you can see, these changes to the PSLF will likely benefit many people, maybe even yourself. But is PSLF right for you? Does it make sense for you to pursue PSLF or just pay off your loans?
There is no single way to answer that question because it is personal. It comes down to your own personal situation, goals, and values. If you’re trying to determine if PSLF is right for you, then we can help. Our comprehensive financial plans look at every aspect of your financial life, from student loans to career goals to retirement savings, to see how they can fit together to support the life that God has called you to. To learn more, schedule a free introductory call today.
About Guide Financial Planning
Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.