The Public Service Loan Forgiveness Program (PSLF) will forgive its first student loan debt in October 2017. The amount of student loan debt forgiven is unlimited, and unlike most other cancellation of debt, the amount forgiven will not be taxable income to those who receive it. PSLF is not widely known, but if you fit the criteria, it can be a huge game changer. It’s designed for people working in the nonprofit and public service arenas who have large student loan debt. The right employment, type of student loan debt, and repayment record are the key criteria.
In order to be qualifying loan payments, the payments must adhere to some strict criteria. Only direct federal direct loans that are not in default are eligible for forgiveness. Private loans are not eligible. Not all federal loans are federal direct loans, but they can be consolidated into federal direct loans. Just realize that the required 120 qualifying loan payments only begin to count once you have consolidated them into federal direct loans. You must have made 120 separate monthly payments on the loans for which you are asking forgiveness. The repayment formula must be an income based repayment plan, and the payments must be made on time. If you did the math, you realized that 120 monthly payments translates to ten years of payments and that those individuals applying for loan forgiveness this October began making their first payments in 2007!
Let’s take an example of teacher with a master’s degree who graduates with $100,000 of student loan debt. Unfortunately, this is not an uncommon situation. Assume that the loans are direct federal loans and that he has made qualifying monthly payments of $660. After 10 years of this repayment, the balance on that loan is still $62,222. Since he has made 120 qualifying payments, that balance can be forgiven. And to add joy to the rapture, the debt forgiveness is not taxable to him!
So what do you do if you have been working full time in those eligible areas of employment, you still have a lot of student loan debt, you’ve been making steady payments, and you think you might qualify in October or in the future? I’ve listed some links below that will give you more specifics regarding the types of loans and repayment plans that qualify. There is no requirement to file anything before you are eligible to request loan forgiveness, but there is a PSLF Employment Certification Form which can be completed at any time and submitted to the Department of Education. The form requires employer certification, and the Department of Education will alert you if they find that your employment, loans or repayment do not comply with the program requirements. If you are anywhere in the process of making those 120 eligible payments, submitting the PSLF Employment Certification form will alert you to any problem and let you know if you are on your way to being eligible for the debt relief.
PSLF is a narrowly targeted program that’s been kept pretty quiet. It will likely get some additional press once loan forgiveness begins in October 2017. I’d advise anyone in the eligible employment fields who is carrying student loan debt to look into the details and see if their loans qualify—or if something could be changed to make them qualify. With the college application season starting, it’s also something for parents and college students to think about if the student is aspiring to work in one of the eligible employment fields. If you’re able to take advantage of PSLF, send me a note and let me know. I’d love to hear about it!