What You Need To Know About The Public Service Loan Forgiveness Program

What You Need to Know

Have you heard of the Public Service Loan Forgiveness Program? Millions of borrowers may be missing out on the potential benefits of this without even knowing it! The College Cost Reduction and Access Act of 2007 created this program to reward those working in public service by forgiving their remaining student debt after 10 years.

The program could impact as many as 1 in 4 student loan borrowers, but lack of awareness of the program’s existence, along with strict requirements and a complicated application process, are resulting in underwhelming participation.

This is a shame, because as student loan default continues to skyrocket programs like this could ease the pressure for a subset of qualifiers. If you’re new to the program, or wondering if you could qualify, here’s what you need to know:

What are the terms of the program?

The most important qualification is that you are working in a public service job. The Act defines this to include a wide variety of positions, including those at the federal, state, or local government level, as well as non-profit organizations. This means military personnel, most teachers, etc. all qualify for the program. If you want to know whether you qualify you can find more information here. The other requirement is that you must be enrolled under a qualifying repayment plan, including the Income-based repayment (IBR) or Income-Contingent Repayment Plan (ICR).

What should you know about the program?

The program was created as a way to benefit those serving the public and to create an incentive for those who might prefer to work in public service while giving up a higher-paying job in the private sector. Since the program was created in 2007, the first person to have their loans forgiven under the program won’t be until 2017.

Who benefits from Public Service Loan Forgiveness?

As mentioned above, the umbrella of “Public Service” positions is actually broader than you might think. Firefighters, police officers, social workers, etc., can all qualify for the program if they work for local government. In addition, the program is intended to help the public by giving an incentive for highly qualified people to seek jobs that serve the public.

What kind of benefit can you expect to see at the end?

After 10 years of being in the program and making your scheduled payments, your remaining loan balances will be forgiven. An additional benefit is that unlike other student loan forgiveness plans, the sum forgiven under the Public Service Loan Forgiveness Program is not considered taxable income. Private student loans as well as any unconsolidated Perkins loans aren’t covered by the program, and therefore aren’t eligible.

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Where can you apply for the program?

If you qualify for the program, you can submit your qualifying work time by filling out the Employment Certification Form For The Public Service Loan Forgiveness form and sending it the US department of Education. After meeting all requirements, you will still need to apply for forgiveness by filing a separate form. For more information, read our related post on How to Apply for the Public Service Loan Forgiveness Program.

Will your entire debt be wiped out under this program?

It’s possible, but not probable. There are exceptions as to what loans are eligible. If you have federal student loans and work in a public service job, you will most likely benefit. Whether or not your entire debt is wiped out depends on what other types of loans you have.

Is it worth the effort?

Absolutely. While it may take some work to apply for the program, the hassle is worth the end result: less debt after 10 years.

If you have any experience with the Public Service Loan Forgiveness Program, or are currently a participating borrower, we’d love to hear your thoughts or advice in the comment section below!

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  • Meghan

    Actually, the IRS said that the discharged debt under PSLF would be NOT be considered as taxable income. To date, I do not believe that any states have decided how to treat the PSLF program.

    Forgiveness/discharges due to the following non PSLF events are considered taxable: closed schools, false certification, unpaid refunds, death, disability, forgiveness after the standard 25 term of IBR/ICR periods.

    A borrower needs to 1. consolidate any federal loans in to the Dept. of Ed., 2. choose IBR, 3. understand that there must be 120 separate monthly payments (i.e. do not pay ahead or make payments that cover multiple months), and 4. work in “public service”. It doesn’t hurt to do the employment verification every now and then so you don’t find out you didn’t qualify until payment 120.

    • Claire Murdough

      Hi Rachel,

      Thank you so much for the comment!! I went ahead and amended the oversight. We definitely want to represent such a great benefit to the program.

      Also, GREAT additional advice and actions. You’re right – it never hurts to check-in periodically when pursuing such a long term program.

      Thanks again!