What Is Public Service Loan Forgiveness?
Whether you are looking to plan your career as a social worker or work in a local government, public service jobs can be beneficial to the community.
To encourage more people to join non-profitable and government positions, the federal government introduced programs such as Public Service Loan Forgiveness. Under this, people who make 120 student loan payments while working in public service careers can collect a portion of their student loans tax-free for themselves.
PSLF has given great relief to the borrowers from this program. As of April 2021, PSLF had forgiven an average loan balance of $82,804, although to date only a small fraction of applicants have been approved.
Public Service Loan Forgiveness (PSLF) is one such federal loan forgiveness program. Which has been established as part of the Accessible Act of 2007 to reduce college costs. Under PSLF, eligible borrowers who have worked long hours for non-profit organizations or federal, state, local or tribal governments can receive loan forgiveness after making 120 qualifying monthly payments.
After you meet your requirement payments, your balance on your Federal Direct student loans will be forgiven forever.
If you are trying for loan forgiveness through PSLF, here is all you need to know about this program and how to apply to get your loans forgiven
How Does Public Service Loan Forgiveness Work?
Since the PSLF program requires you to make 120 monthly payments before you can get loan forgiveness, it will take you at least 10 years to complete this process. There is no other way to speed it up, and for that, you can’t even pay extra to speed up loan forgiveness.
Qualified monthly payments are payments made while employed full-time to an eligible employer under an approved repayment plan. You can only make eligible monthly payments when you need to make payments, so if you make payments during your loan grace period, loan deferment, or while in school, those payments won’t count toward the 120 required payments.
For Public Service Loan Forgiveness to be beneficial, you must change payment plans. Under a standard repayment plan, you will repay your loans within 10 years, and no remaining loan balance will be forgiven. Instead, you can sign up for an income-driven repayment (IDR) plan, which bases your monthly payments on your income and family size. Your payments under an IDR plan can be reduced significantly depending on your situation.
Unlike some forms of loan forgiveness or discharge, loan balances forgiven with the help of PSLF are not considered income by the Internal Revenue Service. You will not have to pay federal income tax on the forgiven balance of your student loans.
What Types of Employment Are Eligible for Public Service Loan Forgiveness?
When it comes to PSLF, it’s not your role to pardon; Your employer’s position is the determining factor. Whether you are a lawyer, security guard, accountant, or marketer, you can still qualify for PSLF as long as your employer is a qualified non-profit organization or government agency. If you are a full-time soldier with AmeriCorps or the Peace Corps, your tenure also counts as eligible employment.
Trade unions, partisan political organizations, and for-profit organizations are not eligible employers for PSLF.
Are Student Loans Eligible for Public Service Loan Forgiveness?
Not all federal student loan borrowers qualify for PSLF. Only loans you get through the Direct Loan program qualify.
Only direct loans are eligible for PSLF. Consolidating your unqualified federal student loans into a direct consolidation loan can make your loans eligible as long as you meet all other program requirements. Make sure to choose an income-based repayment plan when you apply for a direct consolidation loan.
direct subsidized loan
direct unsubsidized loan
Direct Plus Loan
direct consolidation loan
Federal Family Education Loan (FFEL) program loans and other loans are not eligible for PSLF. However, they may be eligible if you consolidate them with a direct consolidation loan.
What If I’ve Already Made Payments Using the Wrong Loan Type or Repayment Plan?
Let’s say you’re already making payments on your student loans, but you have ineligible loans or are enrolled in the wrong repayment plan. Do those types of payments also count in the PSLF program?
There is no direct answer to this yet. However, the Department of Education has announced temporary changes that allow borrowers to qualify for PSLF as many of these payments.
Any payments made over the time you were working for a PSLF-eligible employer count towards the 120 payments required to receive a waiver.
Some borrowers are required to submit the PSLF form by October 31, 2022, to know whether all their payments have been counted. Borrowers with ineligible loans are also required to consolidate their loans by the same date. You can find full details of the steps you need to take at the Federal Student Aid official site. From where you can follow it.
Few Important Steps to Qualify for Public Service Loan Forgiveness
The requirements of PSLF are very strict and confusing, due to which many students are often denied loan waivers. As of April 2021, only 5% of applicants were approved. Follow these steps one by one to avoid any problems and ensure that you meet all the PSLF criteria:
- Work for a Qualifying Employer
- Confirm Your Loan and Employment Eligibility
- Apply for an Income-driven Repayment Plan
- Certify Your Employment Annually
- Track Your Payments
- Submit Your Application for PSLF
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