There’s no quick and easy way to get your student loans wiped off the record, but in 2007, the government introduced the Public Service Loan Forgiveness Program (PSLF). If you’re a recent college graduate or a graduate student, and you’re buried in student loan debt, you might have heard of the program or even considered it as a way to help you pay off your student loans faster.
The basic idea is that if you work for 10 years in public service (aka for the government), the remainder of your student loan debt after 120 payments on that loan will be forgiven. It sounds simple enough, but there are several caveats that determine whether you qualify and whether it’s really a financially sound decision for you in the end.
So before you start planning your career path for the next 10 years to meet the requirements of the program, here are a few questions to ask yourself.
Do I Qualify for the Public Service Loan Forgiveness Program?
To qualify for the Public Service Loan Forgiveness Program, you have to make 120 qualifying payments on your direct student loan from the Department of Education. They credit only one payment a month, so that’s 10 years of making payments on your loan. Qualifying payments constitute those made after October 1, 2007 that are on time and in the full amount required under your repayment plan. Your payments also only qualify when they are made during eligible employment (when you are working in public service).
But the payments do not have to be consecutive, so that means if you work two years in public service, then take a couple years off to work somewhere in the private sector, the 24 qualifying payments you made when you were employed in public service still count toward the 120 qualifying payments. If you choose to return to public service, your qualifying payments continue to accrue on top of the 24 qualifying payments you made when you were in public service prior to your private sector employment.
If you’ve just graduated and you’re considering the program, keep in mind that it matters what type of loan you have since direct loans from the federal government are the only ones that qualify for this program. If you just started repayment on loans, you might want to consolidate all your loans (if you have a Perkins or Federal Family Education Loan) into a direct loan if you want all of them to be included in loan forgiveness. But if you’ve already been paying on your direct loans and other types of loans for years, it might not be worth consolidating, as payments made before consolidation will not count toward your 120 qualifying payments on your direct loan. Consolidating would simply extend the length of time and amount you’re paying in the end.
Also, it is important to remember that if your loan was in default at any point, it does not qualify, and you’ll have to go through loan rehabilitation before your loan can qualify.
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Is the Public Service Loan Forgiveness Program Worth It?
There are several factors to consider if you’re deciding whether the Public Service Loan Forgiveness Program is really “worth it” for you.
First off, if you are considering the PSLF program, then you need to make sure you’re on an income-tied repayment plan (income based, income contingent, or pay as you earn). If you do a standard repayment plan, then after 10 years, your entire loan would have already been paid off since a standard repayment plan is typically 10 years.
Now as for whether the program is “worth it,” it really depends on your priorities for your career and your financial goals. If it’s strictly about your finances and the numbers, then you need to carefully calculate your salary potential in a private sector vs. public service position. Eligible public service employment often means lower pay, so the amount of your loan that is eventually forgiven might be less than the amount of money you might make in a private sector position with a higher salary for 10 years.
If you have always wanted to work for the federal, state, or local government or for organizations that provide qualifying public services, then PSLF might be an easy choice. After all, the program was meant to encourage people to choose public service careers and not be deterred by the overwhelming and increasing cost of college and professional school. If you’re passionate about working full-time for the AmeriCorps or PeaceCorps after medical school, then PSLF might help you put your mind at ease about making the financial sacrifice with your large college and medical student loans.
How Do I Apply for the Program?
Once you’ve made 120 qualifying payments, you can apply for loan forgiveness through the Department of Education. If you’re working in public service and considering applying for PSLF once you make all the qualifying payments, then you might want to consider sending in your employment certification form annually so there is a record for every year of your public service. Since you might be changing jobs within those 10 years or more of making loan payments, this paper record will help you demonstrate your 10 years of eligible employment when the time comes to apply for PSLF. You can access the form here.
You have to be working in public service when you apply for and receive loan forgiveness. So before you map out your long-term career plans and make sure they fit the requirements for PSLF, remember that you’ll have to be working in public service/eligible employment when you fill out the paperwork to request and receive your loan forgiveness.
Last Thoughts and Things to Consider
The PSLF Program wasn’t introduced until 2007, so no one has actually gone through the application process and received loan forgiveness. It’s not clear how easy or quick the process will be for those applying for PSLF.
Some even fear that the program will be cut before anyone can actually benefit from the program. That seems unlikely, though just earlier this year, House Republicans proposed cutting the program, and even Obama’s budget proposal included a $57,500 cap for PSLF. Even if changes were made, they probably would only take affect on those taking out loans after July 2016.
As October 2017 nears, the Public Service Loan Forgiveness Program application process will become clearer, but until then, you can read more about the requirements here and register for ReadyforZero to monitor not just your student loan debt, but also your credit card accounts and payments.