Public Service Loan Forgiveness: A Complete Guide
Public Service Loan Forgiveness has been a very popular topic over the last few years. The student loan problem in the United States is getting worse, not better. The $1.2 trillion student loan weight now affects more than 43 million Americans. Recent graduates, and even older Americans, are struggling to pay off their student loan debt while maintaining financial stability. If you have $30,000 in student loan debt, you know the pain of high interest rates and monthly student loan payments. Many borrowers are looking for ways to better manage their student loan debt. Unfortunately, there is too much media fluff and the facts seem to get lost in fiery headlines. Student loan forgiveness has become a fiery topic and sorting out the facts behind student loan forgiveness isn’t easy.
At LendEDU we work to help all student loan borrowers better manage their debt. We’ve put together this comprehensive Public Service Loan Forgiveness guide to help you learn about the forgiveness programs available.
What is Student Loan Forgiveness?
Before we dig into specific student loan forgiveness programs we wanted to define “Student Loan Forgiveness” in the simplest way possible. Now let's take our old school dictionary out from under our desks. At the heart of it, Wikipedia defines a “student loan” as a type of loan designed to help students pay for university tuition, books, and living expenses. In general, student loans differ from other types of consumer loans in that the interest rate and costs offered may be substantially lower and the repayment schedule of a student loan may be deferred while the student is still in school.
Then, as defined by Merriam Webster, to “forgive” in the financial world is to stop requiring payment of money that is owed.
Student loan forgiveness allows student loan borrowers to stop paying their student loan debt. During student loan forgiveness, your lender will stop requiring payment on the money that is owed on your student loan account. If you qualify, forgiveness is an excellent way to reduce your personal debt balance, free up extra money, and even improve your credit. Student loan forgiveness is a real opportunity for the millions of student loan borrowers!
Public Service Loan Forgiveness Facts
The most discussed and popular forgiveness program is the Public Service Loan Forgiveness Program offered by the Department of Education. The Public Service Loan Forgiveness Program is abbreviated PSLF. If you’ve heard of forgiveness, you’ve probably heard of the PSLF program.
As it sounds, PSLF is a student loan forgiveness option for individuals working in the public sector. the PSLF program was introduced by President Obama as a way to help public sector employee struggling with student loan debt. Moreover, the program was designed to reward long service in public sector jobs. Since the program is offered by the Department of Education, only federal student loans are eligible for forgiveness under PSLF. Under the PSLF program, American taxpayers foot the cost of the forgiven student loans. The program is controversial in that not everyone with qualify and the exact costs of the program are unknown for American taxpayers.
How Do I Qualify?
Qualifying to get your student loans forgiven under the PSLF program isn’t easy. In fact, you must work in a public service job for 10 years. And, during that time you must make 120 qualifying loan payments on your federal student loan debt. A qualifying payment is any payment which meets both principal and interest charges and is received by your student loan servicer on-time.
Luckily, the Department of Education’s definition of public service is pretty loose. Qualifying employment in a public service job is defined as any employment with a federal, state, or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC).
You must work at least full-time at the public service job to qualify for forgiveness. To see if your job qualifies you should contact your human resources department. Some common public service jobs are teachers, military service men and women, government workers, nurses, and public health services workers. If you currently are a member of a labor union, you are not qualified to receive Public Service Loan Forgiveness benefits.
Lastly, only federal student loans are eligible to be forgiven under the PSLF program.
How Do I Apply?
You can apply for Public Service Loan Forgiveness online at the Department of Education’s website starting in 2017. Since the PSLF program was established by President Obama in 2007, there will be no qualified applicants until 2017. According to the Department of Education’s website, the application is in the works and will be available prior to October 2017. October 2017 is the date when the initial batch of public service employees will be eligible to get their student loans forgiven.
At this point in time, you should be able to complete the entire application online for free. Until then, you are free to submit the Employment Certification Form to see if you are meeting the eligibility requirements.
The Employment Certification Form was created to avoid problems down the road. You are not required to submit the form, but the Department of Education recommends that you submit the form annually or after changing public service job. By knowing your eligibility ahead of time, you can avoid heartbreak down the road. After you submit the form, your student loan servicer will review and respond to your certification request. Your servicer will determine how many qualifying payments you’ve made and how many payments you must make in the future.
The Costs of Applying for Forgiveness
There are no fees to apply for federal student loan forgiveness. There are no application fees that have been announced since the program was created by President Obama in 2007.
You should never pay to apply for federal student loan forgiveness or consolidation. In fact, if you see a company trying to charge you to participate in any of the Department of Education’s programs you should look the other way!
There is plenty of help available if you need it. Your student loan servicer will be happy to help you navigate the paperwork and application process. Student loan servicers work directly with the Department of Education to help you manage your loans. Take advantage of the customer support they offer.
Taxes and PSLF
At LendEDU we get a lot of questions asking about the tax consequences of student loan forgiveness. Nobody wants to get stuck with a hefty tax bill, so the Department of Education decided to accommodate public service employees through the PSLF program. Under the federal forgiveness program the Internal Revenue Service will not consider forgiven student loan debt as income. As a result, there will be no tax consequences to worry about come 2017.
We recommend that you consult a tax professional before acting on any of the advice or recommendations seen on our website. At LendEDU we are student loan borrowers, not CPAs!
Avoiding Federal Student Loan Forgiveness Scams
Don’t fall into a student loan forgiveness scam! If you see an ad for federal student loan consolidation, forgiveness, or any other program you need to stop and look the other direction. These ads are being paid for by scammers looking to charge you for a free service that you can access without their help!
A lot of student loan borrowers have asked us about the feasibility of getting private student loans forgiven. In short, private student loan forgiveness is not an option for the vast majority of student loan borrowers.
Private student loans are different from federal students loans in many ways. Most importantly, private student loans are not offered by the Department of Education. Therefore, private student loans are not eligible to be forgiven under any of the federal programs available. We will continue to keep a lookout for new legislation and commentary talking about private student loan forgiveness.
The only way to get private student loans forgiven is to work with the private student loan lender and servicer who originally offered the loans. It is possible that you can work out a deal with your private lender. However, most lenders will be reluctant to work with you.
Alternatives to PSLF
Now that we know the truth behind student loan forgiveness, we know that not everyone will qualify to get their student loan debt forgiven.
Don’t worry, there are other options available to help you to better manage your student loan debt. You should look into refinancing and consolidation through a private student loan lender. There are a number of student loan refinancing companies who can refinance federal and private student loans at rates below 2%. To qualify for student loan consolidation with a private lender you must pass a credit check and meet specific income requirements. Each lender has different requirements and options available. You should compare all of your options before refinancing or consolidating.
To learn more about student loan refinancing and consolidation please check out our guide!
You could also consider forbearance if you are unable to pay your student loans. Both private and federal student loans can be put into forbearance. In other words, you can temporarily pause the repayment of your student loan debt through forbearance. Note, interest will usually accumulate during periods of forbearance.
We hope you’ve enjoyed our PSLF student loan forgiveness guide. If you have any questions about PSLF or forgiveness in general please let us know!