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Public Service Loan Forgiveness (PSLF) is the Holy Grail for paying off federal student loans. Offering complete and tax-free forgiveness of federal student loan balances after 10 years, it’s hard to find a better deal out there than PSLF. For workers who are saddled with federal student loan debt and who also work in lower-paying public service or nonprofit sector jobs, PSLF can be worth thousands of dollars.
It’s no wonder Public Service Loan Forgiveness is one of the most talked about student loan programs. But it’s often misunderstood. Trying to figure out if you qualify and when to apply feels about as difficult as getting your diploma.
In an effort to help answer some questions and clarify misconceptions, here are four surprising facts about the Public Service Loan Forgiveness Program.
Fact #1: It’s your employer, not you, who has to qualify.
In order to qualify for the PSLF Program, your employer has to be a very specific type of organization. The focus isn’t primarily on the work that you do – it’s on the organization you do it for.
Qualifying employers whose employees may apply for PSLF are:
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
- Any local, state, federal, or tribal government organization
- Certain not-for-profit organizations with qualifying public services
- Certain volunteer organizations, like the Peace Corps and AmeriCorps
There are certain groups that may seem like they would fall under the public service category, but don’t. For example, labor unions, political parties, for-profit groups, or nonprofit groups that don’t fall under Section 501(c)(3) of the Internal Revenue Code do not qualify as public service employers.
If you aren’t sure if your employer qualifies as a valid PSLF employer, follow the qualifying public services link above or talk to your company’s human resources department.
Fact #2: You have to be a full-time employee.
Part-time employees will not qualify for Public Service Loan Forgiveness, even if they are employed by a valid PSLF employer. You have to work at least 30 hours per week or however long your employer considers to be full-time.
Also, a noteworthy caveat to the 30-plus hours rule is that none of that time can be spent in any sort of religious capacity, such as instruction, worship, or proselytizing.
Fact #3: You must have qualifying loans.
Only loans received through the Direct Loan Program qualify for Public Service Loan Forgiveness. These loans include both subsidized and unsubsidized Direct or Stafford loans.
The only way to have Federal Perkins Loans, Federal Family Education Loans, or any other type of federal loan qualify for PSLF is to combine them into a Direct Consolidation Loan.
Unfortunately, none of your previous payments prior to consolidating with Direct Consolidation Loan will count as one of the 120 required qualifying payments.
If you don’t know whether your federal student loans qualify for the PSLF program, log in to the Federal Student Aid website to find out what types of loans you have.
Fact #4: You have to make 120 qualifying loan payments.
First off, only payments made after October 1, 2007 will potentially qualify as one of the 120 required payments necessary for loan forgiveness.
Second, the repayment plan you used to make those payments matters.
Luckily, payments you make under an income-driven repayment plan count toward PSLF. Your payments are eligible if you’re making payments on a Direct Consolidation Loan using the following plans:
- Income-Based Repayment Plan (IBR)
- Pay as You Earn Plan (PAYE)
- Income-Contingent Repayment Plan (ICR)
Another factor to consider: Will you have any debt left to be forgiven after 120 payments? It takes a long time to make 120 qualifying loan payments (a minimum of 10 years), and many borrowers won’t have much remaining on their federal student loan debt balance.
However, your payments could be as low as $0 a month, especially if you are in the IBR program. It depends on your income and the repayment plan you’re enrolled in.
The Bottom Line
The PSLF program typically caters to borrowers who have difficulty paying their loans because of a low salary and/or a high student loan balance.
If you qualify for the Public Service Loan Forgiveness Program, the remaining balance after your 120 qualifying payments will be forgiven.
To check if you qualify, it’s recommended you submit an Employment Certification Form to your student loan servicer each year. That way you can find out sooner rather than later if your current employment qualifies.
Not everyone who thinks they qualify actually will, so definitely do your research, keep a good paper trail, and log in to the Federal Student Aid website to keep track of your loans. Best of luck!
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