PUBLIC SERVICE LOAN FORGIVENESS
How does Public Service Loan Forgiveness (PSLF) work?
To be eligible for Public Service Loan Forgiveness you must make 120 of the right kind of payments, with the right kind of loan, while working in the right kind of job. The 120 payments do not have to be consecutive. If you’re doing all of these things, the first date that a payment can count towards PSLF is October 2007, and the first date that one can be eligible for forgiveness is October 2017.
More details on the eligibility criteria for PSLF:
- The right kind of job. In general, you should qualify if you are a full-time employee of a local, tribal, state, or federal government, or a 501(c)(3) nonprofit. Full-time is defined as an annual average of at least 30 hours a week, or the number of hours your employer considers full-time, whichever is GREATER (unless you work for multiple public service employers, in which case only the “30 hours a week” definition applies). For teachers and other public service employees whose typical employment period is for 8 months or more, the full-time guideline is working an average of at least 30 hours per week during that period. For more details on other jobs that may qualify, click here.
- The right kind of loan.These are federal Direct Loans (William D. Ford Direct Loan Program). If you have federal loans from a private lender through the FFEL Program, you can consolidate into a Direct Loan to take advantage of PSLF, even if you have consolidated previously.
- The right kind of payment. These are payments made under the Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), or Standard 10-Year Repayment plans. PSLF is intended for people who have high debt relative to income and qualify for ICR or IBR for at least part of their career in public service. Therefore, if you make all 120 payments under the Standard 10-Year plan, you will pay off your entire debt in ten years and have nothing left to forgive.
Where can I find more information about job eligibility?
According to the Department of Education’s final regulations for PSLF, your job is eligible if you:
- are employed by any nonprofit, tax-exempt 501(c)(3) organization (not sure if yours counts as a 501(c)(3)? Check with the IRS);
- are employed by the federal government, a state government, local government, or tribal government (this includes employment by the military, public schools and colleges, public health centers, etc.); or
- serve in a full-time AmeriCorps or Peace Corps position.
If you don't meet these criteria, the Department of Education's regulations create a two-part test of other circumstances under which you may still be eligible:
- your employer is not "a business organized for profit, a labor union, a partisan political organization, or an organization engaged in religious activities, unless the qualifying activities are unrelated to religious instruction, worship services, or any form of proselytizing;" AND,
- your employer provides any of the following public services: emergency management; military service; public safety; law enforcement; public interest law services; early childhood education; public service for individuals with disabilities and the elderly; public health; public education; public library services; and school library or other school-based services.
Can I qualify for Public Service Loan Forgiveness if I work overseas?
As long as you are working for a U.S. nonprofit organization or a U.S. government employer you should meet the eligibility criteria for employment. PeaceCorps volunteer work is explicitly eligible for Public Service Loan Forgiveness, but unpaid volunteering is not.
I think I qualify for Public Service Loan Forgiveness, but how can I be sure? Is there a way to register for the program?
Unfortunately, the Department of Education does not currently have a formal process for "registering" for public service loan forgiveness, or for confirming eligible employment. However, we are putting substantial pressure on the Department to put an eligibility confirmation process in place swiftly so that borrowers can make good financial decisions regarding their student loans. In the meantime, save records that identify your employer and the dates and hours of your employment.
Do income-sensitive, graduated, or extended loan payments count towards PSLF?
No. Only Income-Contingent, Income-Based, and Standard 10-Year payments count. PSLF is intended for borrowers with high debt-to-income ratios for at least part of their careers in public service. Graduated and extended repayments are available to all borrowers regardless of income, so it would be easy for higher-income borrowers to game the system if these payments were eligible.
I'm doing my medical residency at a public/nonprofit hospital. Do those years count toward PSLF?
Yes, as long as you are working full-time at a public or 501(c)(3) nonprofit hospital and meet other requirements for Public Service Loan Forgiveness.
I work at a nonprofit and am still paying off my loans for my undergraduate degree. If I take out more loans to go back to school for a graduate degree while still working, will those loans also qualify for Public Service Loan Forgiveness?
Your new loans could also qualify for Public Service Loan Forgiveness, but keep in mind that 1) the loans must be in the Direct Loan program and 2) you cannot start the PSLF clock on your second set of loans until you have entered repayment. Also be aware that if you choose to consolidate your old loans with your new loans, you would then have one big "new" loan, causing the PSLF clock to start over and any PSLF-eligible payments you made on your undergraduate loans before consolidating would no longer count toward the 120 required PSLF payments. You are not required to consolidate your loans to access PSLF for each individual loan as long as the loans are in the Direct Loan program.
So, with IBR, I can receive loan forgiveness after making 10 years of qualifying payments if I work in an eligible public service job, and after 25 years otherwise. Is there any middle ground for someone who works in public service for a period of time, and then moves to the private sector?
Someone who works for less than 10 years in public service would not receive a pro-rated amount of forgiveness. For example, if you worked for 8 years in public service and then left to work in the private sector, you would have to make an additional 17 years of payments in IBR (or ICR) to qualify for forgiveness. You can, however, come back to public service and restart the clock where you left off. Continuing with the example above, if after working for several years in the private sector you decided to switch to an eligible public service job, your remaining debt would be forgiven after just 2 more years of eligible repayments.
It says that the “Standard 10-Year Repayment Plan” is one of the eligible repayment plans for receiving Public Service Loan Forgiveness. But if I make 120 payments (10 years) in that plan, won’t I have paid off all of my debt?
Yes, if you make Standard 10-Year repayments for 10 years, you won’t have any debt left to forgive. PSLF is intended for people who have high debt-to-income ratios and qualify for ICR or IBR for at least part of their career in public service. However, if you pay under the IBR or ICR repayment plans for even a portion of your PSLF-eligible 120 payments, you would have some debt to forgive after 120 payments, even if you mostly made Standard 10-Year payments during that time.
I want to make Standard 10-Year payments until IBR becomes available in July, so that my payments count towards Public Service Loan Forgiveness. But for my amount of debt, I was told that the “standard plan” is longer than 10 years. Would these lower “standard” payments count towards PSLF?
Unfortunately, the word “standard” can be confusing, as it is used in several different contexts regarding student loan repayment plans. ONLY the Standard 10-Year Repayment Plan is eligible for PSLF, regardless of what a loan representative may say the “standard” repayment plan is for your debt level. There’s no minimum time frame for your loan repayment plan, only a maximum. For example, if your consolidation loan balance is $60,000, the MAXIMUM timeframe that you can take to repay this amount is 30 years, but you can legally choose a payment plan that is any number of years less than or equal to 30 – including the Standard 10-Year plan. You may have to explain this to the loan representatives you speak with, as they are probably not used to borrowers trying to shorten the time frame within which they repay their loans!
Will forgiven loan amounts be taxed as income?
The U.S. Department of the Treasury determined that debt forgiven through PSLF is not considered taxable income under current law. That means that when you qualify for PSLF, you won't get slapped with a huge tax bill as if you'd won the lottery.
Unfortunately, the same good news doesn't extend to debt forgiven through IBR. In response, Congressman Sandy Levin (D-MI) is leading a bipartisan effort to ensure that borrowers who qualify for loan forgiveness through IBR (and Income Contingent Repayment) get the same treatment. Responsible borrowers with modest incomes shouldn't have to pay potentially crippling taxes on forgiven student loans. We are confident that this issue will be resolved before any borrowers qualify for forgiveness through IBR. We'll continue to work on this issue and keep you informed.
Will IBR and Public Service Loan Forgiveness remain available in the future, or could these programs be somehow taken away?
IBR and Public Service Loan Forgiveness were passed into law through the College Cost Reduction and Access Act of 2007, and any major changes to these programs would require new legislation to be passed by Congress and signed by the president. This seems highly unlikely to occur in the foreseeable future, and we recommend that borrowers proceed with confidence.