Public Service Loan Forgiveness

There are over 33 million people employed in the government and non-profit sectors (that’s over 20% of US Employees). Any of these people who have student loans may be able to benefit from public service loan forgiveness.

Sadly, As of Summer 2015, only 336,000 were enrolled in Public Service Loan Forgiveness–That’s only 1%!

The PSLF program is intended to encourage individuals to enter and continue to work full-time in public service jobs. Under this program, you may qualify for forgiveness of the remaining balance due on your Direct Loan(s) after you have made 120 qualifying payments on those loans while employed full-time by certain public service employers.

Any nondefaulted Direct Loan is eligible for loan forgiveness. The Direct Loan Program includes the following loans:
• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans—for parents and graduate or professional students
• Direct Consolidation Loans

Parents who received a Direct PLUS loan may qualify for PSLF if the parent borrower—not the student—is employed by a public service organization.

Loans made under other federal student loan programs may become eligible for PSLF if they are consolidated into a Direct
Consolidation Loan. Only payments made on Direct Loans will count toward the required 120 qualifying payments.

Private loans are not eligible for Direct Loan Consolidation or PSLF. To consolidate your federal student loans into a Direct Loan, apply at https://studentloans.gov

The following loans may be consolidated into a Direct Consolidation Loan:

• Federal Family Education Loan (FFEL) Program loans, which include the following:
 Subsidized Federal Stafford Loans
 Unsubsidized Federal Stafford Loans
 Federal PLUS Loans—for parents and
graduate or professional students
 Federal Consolidation Loans
(excluding joint spousal consolidation loans)
 Federal Perkins Loans
• Certain Health Professions and Nursing Loans

Next, enroll in a qualifying repayment plan. The 120 required payments must be made under one or more of the following Direct Loan Program
repayment plans:

• Revised Pay As You Earn Repayment Plan
(REPAYE Plan)
• Pay As You Earn Repayment Plan (PAYE Plan)
• Income-Based Repayment Plan (IBR Plan)
• Income-Contingent Repayment Plan (ICR Plan)
• 10-year Standard Repayment Plan
• Any other Direct Loan Program repayment plan; but only payments that are at least equal to the
monthly payment amount that would have been required under the 10-year Standard Repayment
Plan may be counted toward the required 120 payments

Under income-based repayment:

• Payments are calculated based on your income, not on how much you owe. This can provide borrowers relief from large payments they cannot make.
• The new monthly payment amount will be 10 percent of your discretionary income (if borrowed after July 1st 2014) and 15% if you took out loans prior to this date.

Borrower Eligibility Requirements under PSLF:
• You must not be in default on the loans for which you are requesting forgiveness.
• You must be employed full-time by a public service organization when 1) making each of the required 120 qualifying loan payments 2) at the time you apply for loan forgiveness; and 3) at the time the remaining balance on your eligible loans is forgiven.

Make 120 qualifying payments on your Direct Loans (Only one per month for 10 years; payments do not need to be consecutive) while enrolled in a qualifying repayment plan. A qualifying monthly payment is a payment that you make:

• after October 1, 2007

• under a qualifying repayment plan

• for the full amount due as shown on your bill

• no later than 15 days after your due date

• while you are employed full-time by a qualifying employer.

What types of public service jobs

Untitled Slide

• A government organization
• A not-for-profit, tax exempt organization under 501(c)(3)
• Emergency management, military, public safety, law enforcement, public interest law, early childhood education, public services for people with disabilities / elderly, public health, public education, other school-based services

Full time employment for PSLF is at
least an annual average of 30 hours per week. For purposes of the full-time requirement, your qualifying
employment at a not-for-profit organization does not include time spent participating in religious instruction,
worship services, or any form of proselytizing.

If you are a teacher or other public service organization employee who works under contract for at least eight out of 12 months, you meet the full-time standard if you work an average of at least 30 hours per week during the contractual period and receive credit by your employer for a full year’s worth of employment.

If you are employed in more than one qualifying part-time job at the same time, you may meet the full-time employment requirement if you work a combined average of at least 30 hours per week with your employers.

To keep track of your eligibility,

*You are encouraged to submit a new form annually or at least whenever you change jobs to work for a new, qualifying employer OR you may submit all forms at the end of 120 qualifying payments.

Mail / fax the form to:

FedLoan Servicing
Attn: Loan Forgiveness
P.O. Box 69184
Harrisburg, PA 17106-9184

Fax: (717) 720-1628

After you have made all 120 payments you will need to submit the Public Service Loan Forgiveness Application. The application is currently being developed and will become available prior to October 2017.

*Note that loan amounts forgiven under the PSLF Program are not considered income by the Internal Revenue Service. Therefore, you will not have to pay federal income tax on the amount of your Direct Loans that is forgiven after you have made the 120 qualifying payments.

Example:
Borrower is earning $40,000/yr with a family size of 4. The loan balance is $48,000, with an interest rate of 6.875%. The borrower could qualify for an income-based payment of $52/mo. After making 120 qualifying payments, borrower would have paid $6,240 in student loan payments, and the balance of $48,000 – $6,240 = $41,760 would be forgiven. This does not include interest that would also be forgiven and assumes that the person income and family size will not change for ten years.

Sources:

• Federal Student Aid. "Public Service Loan Forgiveness." Federal Student Aid. U.S. Department of Education, 10 Mar. 2016. Web. 22 Sept. 2016.
• "Public Service Loan Forgiveness." Student Debt Relief. Student Debt Relief, 17 Sept. 2016. Web. 22 Sept. 2016.