Recently, I posted some blog posts on my listserv at work regarding student loans. I posted on the new repayment plan REPAYE and how you could obtain student loan forgiveness as a part-time employee. In those posts I pointed out some important factoids regarding both programs, but I never did a point by point analysis of how to actually obtain Public Service Loan Forgiveness. Hence, the subject of this post. This will be, according to my point of you, the process one can take to enroll in PSLF. I will also put in some important guidelines along the way. These are the questions to have answered put forward by the federal government.
If you have a high amount of student loan debt and also work for an organization (e.g. public service) that qualifies as public service (teacher, firefighter, cop, etc) than you might be eligible for loan forgiveness, but there are specific steps you need to complete for that to happen.
The Steps for PSLF
First, you must enroll in a income-based repayment plan. In order to be eligible for PSLF you MUST enroll in an income-based repayment plan for your student loans during the majority of time you are in repayment. That only works if you don’t make enough money to make payments on the standard student loan payment plan, which would have your loans paid off in 10 years. During the 10 year period you can have a combination of standard repayment and income based repayment, but the vast majority of that 10 year period should be based on income-based repayment plan.
To get on an income based payment plan you need to go to studentloans.gov. Log-in to your account and apply for an income based plan. Be careful when you apply for the first time and you renew. It sometimes won’t sign you up for the plan that automatically gives you the lowest plan. In essence, the application will import your tax returns and the government will determine whether you are eligible. Remember, this only applies for GOVERNMENT LOANS NOT PRIVATE! Private loans you can refinance with another company (e.g. SOFI, Earnest, etc).
Second, once approved for income-based payment start the paperwork. The paperwork for PSLF is fairly self-explanatory. It is a two-page application that you can fill out online. Make sure you read the directions and fill out the form correctly. I didn’t the first time and had to send it back in.
Third, once you fill out the form you need to take it to your Human Resources Department of your full-time job and/or part-time jobs that allows you to claim public service. Some HR departments might have an issue with this. I know that Mrs. ROB’s 2nd employer didn’t know what they were signing, which is why we included the rules and paperwork for them to review. At our current employer we had no problem because they were familiar with the process. Make sure they fill it out fully.
*Note: If you are part-time you must have ALL of your jobs that qualify as public service (e.g. two campus jobs) fill out SEPARATE forms for PSLF and then you submit the application at once.
Fourth, submit the application and wait. It usually takes about 4-6 weeks for an answer from the government. While you are waiting you should make your regular loan payments.
Fifth, if you are approved your student loans servicer will be moved to myfedloans.org. If you have student loans you have a servicer (e.g. Great Lakes, Cornerstone, etc). If you are approved your student loans will be moved to myfedloans.org where they will be managed.
Sixth, the government will determine any retroactive payments for PSLF. In order to be eligible for PSLF you must make 120 payments while you are under an income-based repayment plan the majority of the time. However, if you have been on an income-based plan for a couple of years and/or made standard repayment plans and then switched to income-based plan, are applying for PSLF, and have been with public service employers for a while it is possible that you can get RETROACTIVE credit for those payments toward the 120.
For example, Mrs. ROB recently was approved for PSLF, but she has been on an income-based payment plan for the past 3-4 years. Because she has been actually employed by the same folks during that time she was eligible to get some of those payments retroactively to count for her application. She was able to get 2 years of payments to count for her application. I was able to get a year.
If you change employers, you probably want to go to your previous employer, if it is public service eligible, and have them fill out the paperwork as well so you can submit it. Try to get all the retroactive ones you can!!!
Seventh, you need to make regular student loan payments. Remember, you are not eligible for student loan forgiveness until you have made 120 QUALIFYING PAYMENTS. Qualifying payments only count if they are made while under an income-based payment plan and/or a combination of standard payment plans. However, if you combine income-based and standard then the income-based payment plans must be the majority of time and you need to be employed by an eligible PSLF employer this entire time.
Eighth, you should RE-CERTIFY your EMPLOYMENT and you RENEW INCOME-BASED payment applications each year. This is fairly painless and can be done online, but you should try to renew both every year because every year you MUST apply for income-based repayment to continually be put on it. If you don’t, you will be put back on a standard payment plan that could increase your payments greatly, which could still count for PSLF, but could provide a financial burden for you.
Finally, apply for the forgiveness. After you have made your 120 qualifying payments and demonstrated you have worked for a public service employer over those 120 payments you can apply for forgiveness. Considering the first eligible people won’t be able to do it until October 2017 we aren’t sure how it will work yet. However, according to current law all student loans forgiven will be NOT be taxable income (that is an addendum from my previous post and I was mistaken. PSLF forgiveness is NOT considered taxable income by the IRS so you won’t have to pay taxes on it). That is fantastic news for many who may have tens of thousands of loans forgiven.
*Note this could change. The Obama administration has proposed capping student loan forgiveness at $57,500. However, as of yet there has been no action taken by Congress approving the measure.
Some Caveats to PSLF
Even though PSLF can be good for many there are some thing to consider.
First, you have to make 10 years of qualifying payments. 10 years of student loan payments is a LONG time and you might skip some of those payments because you make too much money or go back to school so it might not be 10 years it could be longer. That is long time to have student loan debt.
Second, you need spend a good chunk of your working life on income-based repayment. In other words, PSLF, in some respects, depresses wages (unless you have a ton of student loan debt). For example, if you are a lawyer, work as a public defender or prosecutor for less money and you want your student loans forgiven you MUST stay in that job probably for the majority of the time during your time making 120 qualifying payments to get the forgiveness. PSLF may actually provide disincentives to go out an earn a better living, at least for a short period of time in your career.
Third, government loans are the ONLY loans eligible. Private loans, even with worse interest rates, are NOT eligible for the PSLF program. You will owe money to private lenders no matter if your loans are forgiven.
Fourth, navigating the student loan application and reapplication can be a bit maddening. Some of the paperwork can be confusing and if you make a small mistake they will send it back to you to get it right. It took me 4 times for them to finally accept my paperwork.
Fifth, will PSLF actually encourage wasteful borrowing? There is no proof this is happening, but some people could borrow a bunch of student loans with the idea that they will take a job in public service and pay it off that way. The problem with that mindset is it puts you into a decade of debt slavery where your ability to buy a home, cars, save for retirement is hampered. Second, regulations could change in mid-stream making you responsible for those loans. Third, I don’t think it is good policy to encourage massive borrowing, particularly for young people who don’t know a lot about money. We need to find smarter ways to pay for higher ed. Whether that be work, free tuition for community college, more scholarship, pell grants, whatever, the point is it isn’t good for the economy to have such high student loan debt.
The Bottom Line: These are the basic steps we took to apply for PSLF. There might be a couple of others that you encounter and I certainly did not describe the websites in details or the forms needed to fill out for PSLF, but I figure if you are pointed in the right direction you most definitely figure it out. Good luck everyone.