What Is Public Service Loan Forgiveness?

What Is Public Service Loan Forgiveness? article image.

Choosing a career in public service offers many rewards, including job security, a sense of pride and the knowledge that your work makes a difference to others. Working in public service may also allow you to have a portion of your student loans forgiven through the Public Service Loan Forgiveness (PSLF) program.

This federal program forgives the remaining balance on a borrower's federal student loans when they meet certain criteria. Determining eligibility is a bit complex, but if you qualify, the rewards are well worth the effort. Here's how to figure out if you are eligible and what you need to do to apply.

How Does Public Service Loan Forgiveness Work?

The PSLF program is designed to ease the debt burden of college graduates who take public sector jobs, such as teaching or social work, that typically pay less than similar jobs in the private sector. The program was created by an act of Congress in 2007 to encourage more students to enter public service careers.

Before you get too excited at the prospect of wiping out all your student debt, however, it's important to know the PSLF does not forgive your entire student loan. It forgives any balance remaining on your federal direct loans once you've made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. (As you can see, there are a lot of qualifications to meet.) Still, as of June 2020, the average loan amount forgiven under the program was $61,592—not exactly pocket change. If you have a federal student loan, it's worth learning more about how PSLF works.

Who Is Eligible for Public Service Loan Forgiveness?

To be eligible for public service loan forgiveness, you must meet the following criteria:

You need to have the correct type of loan

Only loans made under the Federal Direct Loan Program qualify for PSLF. Loans from private lenders, the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan Program don't qualify unless you consolidate them into a direct consolidation loan.

You need to work full time for an employer that qualifies you for PSLF

"Full-time" work means you meet your employer's definition of full-time employment or work an average of 30 hours or more per week. Having multiple qualifying part-time jobs can count as full-time employment as long as your total average hours worked add up to 30 or more hours per week.

Employers that qualify for PSLF include U.S. federal, state, local or tribal government organizations at any level. This includes:

  • The military
  • Public schools, colleges and universities
  • Entities such as public transportation, water or housing authorities
  • Public child and family service agencies

Being a full-time AmeriCorps or Peace Corps volunteer is also considered qualifying employment for PSLF.

The job title you hold doesn't matter; the key is simply whether you're employed by a qualifying employer. For example, if you work full time for a public school, you don't have to be a teacher to qualify for PSLF; you're eligible regardless of your position.

Employees of nonprofit organizations that are tax-exempt under Section 501(c)(3) of the IRS code are also qualified for PSLF. So do workers at some nonprofit organizations that are not tax-exempt under section 501(c)(3) but provide a qualifying service. These services include emergency management, public safety, law enforcement, public health, public interest law, early childhood education, public libraries, school libraries or school-based services and public services for elderly people and those with disabilities.

For-profit organization employees don't qualify for PSLF. Neither do those who work for labor unions, partisan political organizations or as government contractors—you must work directly for the government to be eligible.

Keep as many employment records as you can about your work for a qualifying employer, including W-2 forms, hire documents and pay stubs. When you apply for PSLF, you'll need to complete an Employment Certification Form and possibly submit additional documents to prove that you were a full-time employee of a qualifying employer, so the more documentation you have, the better.

If you plan to apply for PSLF eventually, it's a good idea to submit a Public Service Loan Forgiveness: Employment Certification Form (ECF) every year. At minimum, you should do so whenever you change employers. This will save time when you ultimately apply for PSLF. Whenever you submit the ECF, you'll be notified of how many qualifying payments you've made, so completing the form annually is a good way to ensure you're on track toward your 120-payment goal.

You need to make 10 years of on-time student loan payments under a qualifying repayment plan

10 years of payments: You have to make 120 on-time payments over 10 years before you are eligible to receive PSLF. There's no way to speed up this process; you can't hasten it by making additional payments or larger payments. Payments made while you're in school, during the six-month grace period after you leave school, or during loan deferment or forbearance don't count. (You can ask your loan servicer to waive the deferment or forbearance if you want to make payments that qualify.)

The 120 payments don't have to be made consecutively, but only payments made while you're employed full time by a qualifying employer count toward the total. Suppose you work as a public school teacher for three years and then take a job at a private school. Student loan payments made while you're working for the private school won't count toward the 120 payments needed; however, you won't lose credit for payments you made while teaching at the public school. Just keep in mind that if you bounce back and forth from qualified to non-qualified employers, it will take longer than 10 years to qualify for PSLF and, depending on your loan amount, you might not have any balance left to forgive by the time you've made 120 qualified payments.

Peace Corps and AmeriCorps volunteers, and those whose loans are being paid by the U.S. Department of Defense, may be able to make one lump-sum payment that can count for as many as 12 qualifying payments.

If you consolidate your loans, any previous payments you made on the loans won't count toward the 120 payments. Only qualifying payments made on your new direct consolidation loan will count.

On-time payments: For payments to count, they must be made no later than 15 days after your due date. If your loan is in default, you can make payments to rehabilitate it, but those payments won't qualify for PSLF.

Qualifying repayment plans: You won't qualify for PSLF if you're using the Standard Repayment Plan for Direct Consolidation Loans, Graduated Repayment Plan, Extended Repayment Plan or Alternative Repayment Plan. To qualify, you need to use one of the income-driven repayment (IDR) plans. These plans base your monthly payment amount on your income.

Payments made under the 10-year Standard Repayment Plan count toward your 120 payments, but to receive loan forgiveness, you'd need to switch from the Standard plan to an IDR plan. Why? Under a 10-year Standard Repayment Plan, your loan will be fully paid off at the end of 10 years, so there won't be any loan balance left to forgive.

How to Apply for Public Service Loan Forgiveness

Once you've met all the criteria listed above, you're ready to apply for public service loan forgiveness. You'll need to complete and submit the Public Service Loan Forgiveness: Application for Forgiveness form. Your employer must complete the Employment Certification section of the application. If you had multiple qualifying employers over the 10-year period and haven't been submitting Employment Certification Forms annually, you'll need to submit a form for each employer at this point.

Mail or fax the application and Employment Certification Forms to FedLoan Servicing, the federal loan servicer for the PSLF Program. If FedLoan Servicing is already your loan servicer, you can apply and upload your documents on their website.

Once FedLoan Servicing has all the documents they need to process your application, they'll notify you. You don't have to keep making loan payments while your loan forgiveness application is being processed, although you can do so if you want. Once your application is approved, the remaining balance of your eligible Direct Loans—including all outstanding interest and principal—will be forgiven, and you'll get a refund for any extra payments you made.

One important note: You must be working for a qualifying employer when you submit your PSLF application and when your loan balance is forgiven. If you're considering changing jobs to a non-qualifying employer, don't do so until you're sure the loan forgiveness process is complete.

What to Do if You're Denied Public Service Loan Forgiveness

If FedLoan Servicing determines you're not eligible for loan forgiveness, you'll get a notification explaining why your application was denied, and you'll have to resume making loan payments. As of June 2020, over half of applicants to the program were rejected because they hadn't made 120 qualifying payments. If that's your situation, you may be eligible for temporary loan forgiveness while you continue making qualified payments to reach the 120 mark.

If your PSLF application is denied, there are a few alternatives:

Find the right repayment method. Lowering your monthly payments can reduce the bite your student loans take out of your budget. The federal government offers four income-driven repayment plans that can shrink your monthly payments to as little as 10% of your discretionary income. Although stretching your loan term to 20 or 25 years means you'll pay more in interest over the life of the loan, you may want to explore this option if you're struggling to make your payments. Consult your loan servicer to see if you qualify for income-based repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) or Income-Contingent Repayment (ICR) plans and determine which plan will work best for you.

Investigate other student loan forgiveness programs. Each of the four income-driven repayment plans above offers loan forgiveness after 20 to 25 years. Unlike with PSLF, the amount forgiven will be treated as income in the year it's forgiven and will be taxed.

Consider refinancing your loans. Refinancing your federal student loans at a lower interest rate can reduce both your monthly payments and the total interest you'll pay. Refinancing is done through a private lender, which pays off your student loans and issues you a new loan for that amount. You can refinance one loan or consolidate multiple loans into one and make it easier to keep track of your payments. Keep in mind that when you refinance your federal loan with a private lender, you'll lose access to federal loan protections such as deferment, loan forgiveness and income-driven repayment plans.

You'll generally need a FICO® Score of 670 or above, a low debt-to-income ratio and a steady income to refinance student loans. Before you apply for a loan, get a copy of your credit report and check your credit score to see where you stand. If your score isn't quite where you want it to be, improving it before you apply for a loan can help improve your odds of qualifying.

Look into consolidating your loans. If you have several federal student loans, you might benefit from consolidating your loans. Consolidation combines several federal student loans into one federal student loan with one monthly payment. This won't reduce your interest rate—your new loan will have a fixed interest rate that's a weighted average of the rates for your previous loans, rounded up to the next one-eighth of 1%. In addition, any outstanding interest gets added to your balance, so you'll accrue interest on a larger loan amount. Some income-driven repayment plans require consolidating your loans. You might also want to consolidate loans to simplify your payments and avoid missing due dates.

Student Loans and Your Credit

No matter what type of repayment plan you have, try to always make your student loan payments on time; doing so helps build your credit score. If you meet certain criteria, however, paying your student loans has the added bonus of helping you qualify for public service loan forgiveness. Even if your application for PSLF is denied, options such as adjusting your repayment plan, refinancing your loans, or consolidating your loans can make it easier to stay current on your loan payments—a key factor in maintaining a strong credit score.