The U.S. Department of Education has announced some changes to make the Public Service Loan Forgiveness program easier to navigate and to extend forgiveness to student loan borrowers who previously did not qualify.
Under PSLF, federal student loan borrowers can receive loan forgiveness in exchange for 10 years of work in a public service field. That may sound simple, but meeting the detailed requirements has proven more complicated than many realized. To qualify for PSLF, borrowers must have the right type of loan, be enrolled in a qualifying repayment plan and make 120 qualifying on-time payments while working full time at a qualifying public service organization.
On Oct. 6, the Education Department announced a time-limited waiver that may provide an opportunity for borrowers who made prior payments that previously did not count toward PSLF to get credit for those payments. Any prior payments made while working for a qualifying employer will count as a qualifying payment, regardless of loan type, repayment plan or whether the payments were made on time or in full.
The waiver will run through Oct. 31, 2022, but the announcement didn't say when exactly the waiver period will begin. Borrowers may receive credit for payments made only after Oct. 1, 2007, when the PSLF program started.
Also, the waiver will apply only to loans taken out by students, which means Parent PLUS loans do not qualify.
During the waiver period, the Education Department will count prior payments on additional loan types toward PSLF. This may help borrowers who have or had loans in the Federal Family Education Loan Program, also known as FFELP, or who have Perkins loans, two categories of student loans that typically are not eligible for loan forgiveness under PSLF.
Importantly, the PSLF waiver will apply only to borrowers with direct loans, borrowers who have already consolidated into the direct loan program and borrowers who submit a consolidation application by Oct. 31, 2022. For FFELP and Perkins loan borrowers to receive this benefit, they will still have the additional step of consolidating their loans in the direct loan program.
Borrowers should be aware that they could lose certain borrower benefits of FFELP and Perkins loans if they consolidate and then discover they are still ineligible for PSLF. For example, FFELP borrowers who consolidate into a direct loan and are denied PSLF may lose interest rate deductions, have unpaid interest capitalized and lose all progress made toward receiving forgiveness at the conclusion of any income-driven repayment plan in which they were enrolled.
If you think this may apply to you, you can verify your loan types in your student loan aid summary, which you can view at StudentAid.gov, where you can also identify your loan servicer. If you have either FFELP or Perkins loans and you are interested in taking advantage of this waiver, reach out to your loan servicer to discuss consolidation and PSLF and determine whether consolidation makes sense in your specific situation.
Repayment Plan and Payment Errors
The Education Department also announced that during the waiver period, it will count prior payments made in the wrong repayment plan and certain other late or incomplete payments toward PSLF. Due to strict enforcement of requirements, some borrowers have been rejected for loan forgiveness over payments that were off by a few pennies or were a couple of days late.
During the waiver period, some of these types of payments will count toward PSLF, but the Education Department did not say exactly how late any late payments could be or how short any insufficient payments may be to qualify. It's also unclear how borrowers will know if their late or incomplete payments qualify. More guidance from the Education Department is needed to fully understand how this will work.
According to the announcement, borrowers who have already applied for PSLF may automatically receive credit and those who have not should apply now. The announcement did not indicate when borrowers should expect to see automatic credits or how they will know if they are eligible. More guidance is needed about how this will work, as well, so you should contact your student loan servicer before taking any action -- especially if you need to consolidate your loans.
Other PSLF Changes
To help military service members, the Education Department will allow months spent on active duty to count toward PSLF, even if the service member's loans were on a deferment or forbearance rather than in active repayment. In addition, next year the Education Department will begin automatically giving military members and federal employees credit for PSLF.
The Education Department says it will also review all denied PSLF applications and PSLF processing practices to identify and address any errors, and simplify the PSLF application process. The PSLF help tool will be updated to allow borrowers to apply through the tool, not just assess eligibility and monitor progress.
Exercise Caution and Avoid Scams
The Education Department said it will roll out the changes in coming months but did not indicate exactly when and how they will be implemented.
Borrowers should be aware that scammers will likely try to take advantage of those who may have heard about the announcement and expect to receive automatic loan forgiveness or additional PSLF credits. It's common for scammers to use real policy announcements to con borrowers into disclosing private account information or paying for services that would otherwise be free.
Borrowers also should be hypervigilant about communicating only with your loan servicer or the Education Department about your federal student loans, and exercise caution before taking any action. Do not share your FSA ID number with anyone, and verify any information you receive in the mail or via email with your loan servicer.