In 2017, eligible federal student loan borrowers will be able to apply for Public Service Loan Forgiveness (PSLF) for the first time. Unfortunately, 33% of the borrowers who have submitted their applications have had them denied.
Why? Well, simply put, many borrowers lack all the information about PSLF. They overlook some application box or eligibility criteria, pushing their forgiveness date further into the future—or making them ineligible for this program altogether.
Let's make sure that won't happen to you. Here are the five most important things borrowers must understand about PSLF to make sure they're on the right path to forgiveness.
1. Loan And Employment Eligibility
Only loans made through the federal Direct Loan program (DL) are eligible for PSLF. That's it.
You can consolidate Federal Family Education Loan Program (FFELP) loans, Perkins loans, and some Title VII health professions loans loan into DL to make them eligible for PSLF. But payments you've made on these loans won't count toward the number needed for forgiveness. Private, state, and institutional loans are not eligible for PSLF—nor can they become eligible.
When it comes to the "public service" part of PSLF, your job doesn’t make you eligible for this program—your employer does. You must work full time for a nonprofit or public service employer, but it doesn't matter what you do for that organization. The Consumer Finance Protection Bureau estimates that 25% of the workforce works for PSLF-eligible employers.
The exceptions are labor unions, political parties, and if your position includes worship services, religious instruction, or proselytizing. These employers/positions are ineligible for PSLF.
2. Which Payments Qualify
To qualify for PSLF, you must make 120 eligible payments on your loans—but not all payments count as eligible payments. You must make these payments under certain repayment plans.
Only income-driven repayment plans (IBR, ICR, PAYE, and REPAYE), the standard 10-year plan, and payments equal to or greater than the standard 10-year plan are considered eligible payments. In addition, payments must be separate and on time (within 15 days of the due date). No payments made prior to October 1, 2007 are eligible as well.
Only payments on current eligible loans count toward the required 120 payments. So, if you consolidate your student loans, you restart the eligible payments clock for those loans. If your loans are already eligible, think twice before consolidating them.
3. Ways To Complete Service Time
Any eligible payments you make while working for an eligible organization will count toward your necessary 120 payments. But you don't need to make these eligible payments consecutively.
You can leave the nonprofit arena for a time and return and have all those payments count. It will just take longer than 10 years for you to reach the 120 eligible payments required for forgiveness.
Making larger payments will not accelerate your forgiveness time schedule. Lump-sum payments only count as more than one payment if the payment is due to an AmeriCorps Segal Education Award, Peace Corps transition payment, or payment from a Department of Defense student loan repayment program. In these instances, the number of eligible payments will be determined by dividing the payment made by the scheduled monthly payment amount, with a maximum of 12 payments.
4. How To Document Your Employment
The PSLF Employment Certification (EC) tracks the number of eligible payments you have made. It is not required to apply for PSLF, but it is recommended that you complete it at least yearly. This is because it is your responsibility to prove your eligibility.
Your employer(s) needs to confirm that you worked full time when you made your eligible payments. Employers are not required to retain employment records for more than a few years. You don't want to make 120 payments only to find that you can't prove your earliest payments were eligible.
Once you complete the PSLF EC, submit it to FedLoan Servicing. This federal loan servicer processes all PSLF applications. If FedLoan Servicing determines that you have eligible Direct loans and that your employment qualifies, your loans will be transferred to them (if they're not your current servicer).
FedLoan Servicing will send you a confirmation of the number of eligible payments you have made so far. If you haven't made any eligible payments, you will be instructed to apply for an income-driven repayment plan to begin making eligible payments.
Then, you'll want to repeat the PSLF EC process annually until you reach 120 eligible payments.
5. Common Mistakes To Avoid
Missing or incorrect information on the PSLF EC has led to the denial of 47% of the 1.06 million forms submitted. The remaining submissions were denied due to not having eligible loans or not working for an eligible employer.
Here are the most common, avoidable mistakes made while completing the form that cause denials:
- Leaving a blank end date for your employment dates instead of selecting that you are still employed.
- Not checking box 15 certifying the accuracy of the information on the form.
Missing required fields such as the federal employer identification number (EIN).