How Student Loan Borrowers Can Requalify for Public Service Loan Forgiveness
The congressional spending bill signed by President Donald Trump last month contained a nice surprise -- relief for student loan borrowers who work in public service.
Public service workers, such as teachers, social workers and public defenders, provide important benefits to society and frequently must take on a lot of college debt for lower-paying jobs.
The new $1.3 trillion federal spending plan allocates $350 million to the Department of Education to offer forgiveness to borrowers who met the requirements of Public Service Loan Forgiveness but were enrolled in ineligible repayment plans.
To be eligible for PSLF, a federal student loan borrower must work full time in the public or nonprofit sector for 10 years and make 120 on-time monthly payments in a qualifying repayment plan. After 10 years of qualifying payments, the federal government forgives the remaining loan balance.
Borrowers pursuing PSLF are encouraged, but not required, to submit an employment certification form annually to their loan servicer; this helps borrowers to keep track of payments and months of service.
[Get six true answers about public service student loan forgiveness.]
The origins of the PSLF program date back to 2007. But last fall -- the 10th anniversary of the program -- was the first time borrowers could apply officially for PSLF.
PSLF wasn't heavily promoted by the federal government or its loan servicers over the last 10 years or communicated to borrowers. Only recently, as the 10th anniversary approached, PSLF gained broader media coverage. The new spending plan sets aside funding specifically to help the Department of Education tell borrowers about PSLF and how to enroll.
As more borrowers heard about the program, the number of submitted employment certification forms increased.
The first wave of PSLF-eligible borrowers filed official applications last fall, and some received a nasty shock: They made payments in a plan that didn't qualify for PSLF.
Essentially, all the on-time payments they made while working full time for a public service or nonprofit employer didn't count. They could switch to a PSLF-qualifying plan, but the counter would restart back at zero, meaning they would have to make 120 more payments before being eligible for forgiveness.
This happened because of a technicality. PSLF works in conjunction with income-driven repayment plans. IDR allows borrowers to make monthly loan payments that are 10 to 15 percent of their discretionary income.
By lowering the monthly payment, IDR plans typically extend the repayment period beyond the standard 10 years. Borrowers in IDR plans are eligible for forgiveness after 20 to 25 years, but those who work full time for a public service or nonprofit employer can have their loans forgiven after 10 years with PSLF.
[Read how to prepare wisely for Public Service Loan Forgiveness.]
However, borrowers who repaid their student loans using graduated or extended plans weren't eligible for PSLF. A lot of borrowers didn't know this due to the lack of communication surrounding PSLF in prior years. As a result, many found out the hard way that they didn't qualify.
Obviously, it's not fair to deny PSLF to borrowers who would have qualified if they had been enrolled in an eligible repayment plan because of a technicality. These borrowers made qualifying payments; the difference is the name of their repayment plan. So the fix in the federal spending bill is welcomed, since it extends forgiveness eligibility to borrowers in this situation.
[Learn about three surprising student loan repayment facts.]
But there are a couple of limitations.
First, the funding earmarked for the expanded forgiveness is limited to $350 million, and it will be offered on a one-time-only, first-come, first-served basis. But many higher education experts say this amount won't be nearly enough.
Second, not every borrower who has been paying in a graduated or an extended payment plan will be eligible.
The Department of Education -- or the servicers working on its behalf -- will compare the borrower's current monthly payment, as well as the payment from one year ago, with the payment amount he or she would have made under a qualifying IDR plan. Only those borrowers who have been paying more than they would have under IDR will be eligible for the new expanded forgiveness.
Borrowers who are interested in taking advantage of this new provision should take these two steps.
-- Contact your servicer to find out more information: Since the legislation just became law, a lot of details still need to be worked out on how the new application process will work. Since the additional funds are available on a first-come, first-served basis, the Student Loan Ranger recommends contacting your servicer immediately to see what actions you need to take.
-- Fill out the employment certification form: The form isn't required to get forgiveness, but it's a good idea to take advantage of it to help you determine if you're on track for PSLF and meet all the requirements. After all, filling out one piece of paperwork each year outweighs receiving the ugly news that the student loan forgiveness you've been dreaming about is just that -- a dream.
Allesandra Lanza is the director of corporate public relations for American Student Assistance. She has nearly 20 years of experience in the student loan industry, and has answered students' questions about their federal loans; conducted on-campus loan counseling sessions for students as they enter and exit school; and written about loan repayment, debt management, budgeting and more. Lanza received a B.S. in journalism from Boston University.
