With the ten-year mark on Public Service Loan Forgiveness (PSLF) approaching this October 2017, the program is on the mind of many borrowers who may qualify or want to qualify to discharge remaining student loan balances. Whether you currently work in a public service job or are looking for an effective way to achieve loan forgiveness, here is what you need to know about the student loan public service forgiveness program.
Do Your Loans Qualify for the Program?
Loans taken out under the Federal Direct program qualify, including previously non-qualifying loans rolled into a Direct Consolidation loan. Perkins loans, do not qualify for this program but have an independent public service loan forgiveness option run by the school issuing the loan. FFEL loans, the other popular federal loans issued before the formation of Direct loans only qualify if converted to a Direct consolidation loan. Loans cannot qualify for the program when they are in default.
Qualifying loans include:
- Federal Direct Subsidized and Unsubsidized
- Federal Direct PLUS loans (based on the parent’s occupation, not the students). To qualify the parent must consolidate the loan and apply for the Income Contingent Repayment Plan.
- Federal Direct Consolidation Loans.
All federal student loan disbursements after July 1, 2010, are Direct or Perkins loans, due to changes in the how the government handles the student loan program. Loans disbursed prior to that time could consist of either Direct or FFEL loan (Federal Family Education Loans).
Does Your Employment Qualify?
The employer must qualify as a public service company. Requirements also include working full time, for 30 hours or more per week. It is possible to combine two part time jobs to reach the 30-hour weekly threshold, provided both companies meet the public service qualifications.
The following employers qualify for the PSLF program:
- Government jobs at all levels.
- Nonprofit agencies which qualify for Section 501 (c) (3).
- Nonprofits not qualifying for the Section 501(c)(3), but meet the requirements by offering a public service.
- Peace Corp and AmeriCorps service.
The definition of government agency employment includes organizations at all levels from local to federal, including tribal positions. Examples of government agencies include public school systems or law enforcement. Contractors working for the government do not qualify for the benefit. With the government outsourcing a significant number of jobs, this caveat creates gray areas involving the definition of qualified employment among government workers.
Nonprofit organizations also have exceptions, which include employment with a labor union, partisan political organizations, and religious employment which involves proselyting.
Do Your Payments Qualify?
You qualify for loan forgiveness after making 120 qualified payments while working for a qualified employer. The program began on October 1, 2007 and no payments made before that time count towards the 120-minimum payment requirement. You must also enroll in a qualified repayment plan.
The key requirements for qualified payments include the following:
- You may only make one payment per month. Doubling up or making advanced payments do not count as extra payments.
- You must have a required payment to count. Payments made while in school, during the six-month grace period, and during any deferments or forbearance do not count. Advance payments could lead to no payment due, meaning a payment made will not count. To avoid this, ensure any overpayments credit towards the principal balance instead of the next payment due.
- There are limited times when you can make a lump sum payment. One exception is when the military makes an annual payment on your behalf. The other is when you receive a transition bonus at the end of your service in the peace corps. In these cases, you may make up to 12 months’ worth of payments in one lump sum.
- A full payment of the amount due must arrive within 15 days of the due date.
- Borrowers are NOT required to make consecutive payments to qualify.
Does Your Payment Plan Qualify?
To achieve loan forgiveness, you must enroll in an income driven payment plan, which could include any of the following:
- Pay as You Earn (PAYE).
- Revised Pay as You Earn (REPAYE).
- Income-Contingent Repayment (ICR).
- Income Based-Repayment (IBR).
- Other income based repayment plan.
While the standard 10-year repayment plan does qualify, if you remain under this program, there will not be a balance left at the end of 10 years.
When enrolling in an income based repayment plan, the payment will never rise above the standard 10-year repayment. Meaning when you transfer to an income driven plan, you will never have a higher payment, regardless of any increases in income over the decade of payments. To qualify for forgiveness, you must make the majority of your payments while in an income driven plan. If you choose to consolidate loans, you will lose any qualified payments, which can impact which loans you choose to consolidate.
Is Public Service Loan Forgiveness Right for You?
Taking public service jobs paying less than private sector employment may cost more than the forgiveness benefit. Borrowers who gain the most, have lower paying jobs, with higher loan balances. To estimate the amount of forgiveness you could receive use an online calculator.
How Do You Verify you're Qualified?
The Department of Education (DOE), which oversees the loan forgiveness program, provides an Employment Certification Form you can complete each year to track qualified payments and employment. The DOE recommends completing the form annually or after a change in employment.
It is not required each year, but before forgiveness occurs, you must prove you made 120 qualified payments. After submitting your first form, the DOE will transfer the account to FedLoan Servicing, if that is not currently the servicer on your loan, to enable the DOE to track progress payment progression.
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