Is Public Service Loan Forgiveness a Scam?
If you’re familiar with the Public Service Loan Forgiveness program, you’ve probably heard that most people who enter this program don’t get their loans forgiven. In fact, I recently read a stat that 98% of applications for Public Service Loan Forgiveness from November 9, 2020 to April 30, 2021 were rejected. Only two out of every hundred applicants were approved.
The Public Service Loan Forgiveness program, otherwise known as PSLF for short, gets a lot of flack and a lot of heat for this reason. Is Public Service Loan Forgiveness a scam? In this post, we’re breaking down what this program is, how it actually works, and our personal thoughts.
If you’re more of the video type, check out the YouTube video above!
What even is Public Service Loan Forgiveness?
First things first. PSLF is a program that the federal government has that allows for a portion of a federal student loan borrower’s loan balance to be forgiven.
What do you need to do to qualify for this program?
There are five requirements.
To qualify for PSLF, you must:
be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization
work full-time for that agency or organization
Let’s break down these requirements a little further.
You must work for a qualifying employer.
Qualifying employment for the PSLF Program isn’t about the specific job that you do for your employer. Instead, it’s about who your employer is. So, you have to work for either a federal, state, local or tribal government, including the military, or a non profit 501c3 organization. Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program. Labor unions, partisan political organizations, and for-profit organizations, including for-profit government contractors do not count.
If you’re working for a non-profit, I want to reiterate that they need to have 501c3 status with the IRS. That’s really important. One question you might have is what if I set up my own 501c3 organization. Does that count? Yes, it does.
There are a few exceptions to this rule, though. If you work for a not-for-profit organization that is not a 501c3, it might still be considered a qualifying employer for PSLF if it provides certain types of qualifying public services including Emergency management, public safety, public health, public library services, and a few others. The takeaway here is to make sure that you are working for a qualified employer if you are pursuing public service loan forgiveness.
You must work full time for the qualifying employer.
What do they consider full time? You are considered to be working full time if you meet your employer’s definition of full-time OR work at least 30 hours per week, whichever is greater.
If you are employed in more than one qualifying part-time job at the same time, you will be considered full-time if you work a combined average of at least 30 hours per week with your employers.
You must have Direct Loans.
Not every federal student loan counts. Federal Family Education Loans (FFEL) and Perkins loans do not count. So what can you do if you have loans that aren’t Direct Loans? You can consolidate your loans so that they then become eligible for Public Service Loan Forgiveness. Consolidation basically means that you are taking those loans and combining them together. The good news is that you don’t need to consolidate all of your loans together; you can pick and choose. So, you can work around this rule by consolidating just the loans that may not otherwise be eligible.
You must make payments under an income-driven repayment plan.
There are many different federal student loan repayment plans to choose from, and we made a YouTube video explaining all of the plans. However, to qualify for PSLF, you need to be on an income-driven plan. The Standard Repayment Plan, Graduated Repayment Plans, Extended Repayment Plans, and Alternative Repayment Plans do not count.
You must make 120 qualifying monthly payments.
What are qualifying payments? A qualifying monthly payment is a payment that you make under a qualifying repayment plan, for the full amount due as shown on your bill, no later than 15 days after your due date and while you are employed full-time by a qualifying employer.
You can make qualifying monthly payments only during periods when you’re required to make a payment. Payments made while your loans are in an in-school status, grace period, deferment, or forbearance do not count. One notable exception is the forbearance that we were all in from March 2020 through January 2022. In fact, even if you haven’t been making payments at all during this time, the Department of Education is counting it as if you did. If you want to make qualifying payments, but you’re in a deferment or forbearance, contact your federal student loan servicer to waive the deferment or forbearance.
Another thing to note is that your 120 qualifying monthly payments don’t need to be consecutive. For example, if you work for a qualifying employer and then go into the private sector for a little while and then go back to working for a qualifying employer again, you will not lose credit for the prior payments you made.
The best way to ensure that you are making on-time, complete payments is to sign up for automatic debit with your loan servicer.
Because you have to make 120 qualifying monthly payments, it will take at least 10 years before you can qualify for PSLF. When you’ve met all of these requirements and it’s time to get your loans forgiven, you have to put in an application. You must be working for a qualifying employer both at the time you submit the form for forgiveness and at the time the remaining balance on your loan is forgiven. It’s going to take some time for the application to be processed, so be patient, but if you’ve followed all of the rules, you should be okay.
If you’re interested in pursuing public service loan forgiveness, the Department of Education has created a tool called the PSLF Help Tool. This tool will help you determine whether you work for a qualifying employer, suggests actions you can take to become eligible for PSLF, and guides you through the PSLF form and submission process.
What are our thoughts on the PSLF program?
We don’t have anything against it! Among other things, we view this program as a way to:
help close the racial wealth gap, as minority students typically have higher loan balances and default rates as their loan repayment journey progresses
incentivize those who wish to serve their country, local government, or work in the non-profit sector
let people legally utilize the repayment options available to them.
Don’t hate the player; hate the game!
We dive deep into tackling debt repayment and so much more in our program, MONEY 180™, so if you’re interested in learning more about that, go on and check it out!