Imagine receiving a letter from your loan servicer confirming that your work for a public service organization has placed you on track to qualify for student loan forgiveness, meaning that the remaining balance of your loans will be forgiven after 10 years of payments. The prospect of erasing tens or perhaps even hundreds of thousands of dollars in debt in exchange for having chosen a lower-paying job than you otherwise might have more than seems worth it, you think. Then imagine being told that the letter wasn’t valid, your service doesn’t count and you’re going to be on the hook for many more years of burdensome student loan payments.
Student Loan Forgiveness Lawsuit
In December four attorneys found themselves in just this situation. They had previously been assured by FedLoan, the U.S. Department of Education’s loan servicer for the Public Service Loan Forgiveness (PSLF) program, that they were working in jobs that qualified them for loan forgiveness. Later they were told that their jobs did not qualify and none of their previous loan payments count toward the program’s requirements. They responded by joining with the American Bar Association to sue the department to have their eligibility restored.
The PSLF program was enacted in 2007 “to encourage individuals to enter and continue to work full-time in public service jobs,” according to the Department of Education’s website. People who have made major life decisions about how much to borrow, whether and where to attend college or graduate school, what type of repayment program to choose and where to work after graduation are now facing serious uncertainty. How will the outcome of the current lawsuit and the lack of clarity about the program’s requirements affect their future? Will their loans actually be forgiven? Can they afford to have children or buy a house? Can they sustain working in public service? Can they even look forward to the possibility of retirement?
Not only might loan balances not be forgiven after 10 years; borrowers might have entered income-based repayment plans, as required by the program, that caused their loan balance to increase over time. They might also be in programs that will still forgive remaining debt after 20 or 25 years but will not do it tax free, unlike the PSLF program. (For more, see Who is eligible for student loan forgiveness? and Student Loan Forgiveness: How Does It Work?)
Official Requirements for Public Service Loan Forgiveness
The Department of Education considers the following organizations to be public service organizations for the purposes of the PSLF program:
- The Peace Corps
- Any government organization, agency, or entity, be it federal, state, local, or tribal
- A public child or family service agency
- A tribal college or university
- A 501(c)(3) nonprofit tax-exempt organization (though any time spent on religious instruction, worship services or any form of proselytizing does not count toward the full-time work requirement)
- A private nonprofit that provides emergency management, military service, public safety, law enforcement, public interest law services, early childhood education, services for individuals with disabilities and the elderly, public health, public education, public library services and school library or other school-based services
You can have any type of job with a qualifying employer. What qualifies your loans for forgiveness is not your role within the organization but the type of organization for which you work.
The department also names the types of organizations that do not qualify:
- Labor unions
- Partisan political organizations
- For-profit organizations
- Nonprofit organizations that are not tax exempt under Section 501(c)(3) of the Internal Revenue Code and that do not provide a qualifying service
- Companies that are contractors for a qualifying PSLF employer; the borrower’s direct employer must be a qualifying PSLF employer.
The biggest area of confusion is for people, such as those in the lawsuit, who do not work for a government organization or a 501(c)(3) but for another type of charitable organization that is less clearly defined by the PSLF program’s rules.
Borrowers have received incorrect information from employers and student loan servicers alike regarding their eligibility for the PSLF program. The Consumer Financial Protection Bureau estimates that about 25% of workers nationwide might qualify for loan forgiveness, but only half a million borrowers have requested and received employment certification from FedLoan – and that certification might be meaningless.
It’s difficult to guess what will happen to borrowers seeking loan forgiveness for at least four reasons:
- The first borrowers won’t be eligible for it until October 2017.
- There is a pending lawsuit indicating that existing certifications may be invalid.
- The program’s rules are complex.
- The government has not clarified areas of uncertainty.
Improving Your Prospects for Public Service Loan Forgiveness
Until we know more, what should you do if you’re wondering whether your work and loan payments count toward PSLF requirements?
First, become thoroughly familiar with the program’s requirements. The Department of Education’s website has several pages describing them, and we’ve summarized them here.
Non-defaulted Federal Direct Loan Program loans – which include direct subsidized loans, direct unsubsidized loans, direct PLUS loans, and direct consolidation loans – may qualify for forgiveness of the remaining balance due after 120 qualifying payments during full-time employment (defined as an average of at least 30 hours per week or your employer’s definition of full time, whichever is greater) with certain public service employers (as described in the previous section).
You can also meet the full-time work requirement by working at more than one qualifying part-time job and accumulating a combined average of 30 hours per week. Volunteer work for a qualifying PSLF entity does not count.
You must be working for a qualifying employer not only while you make each of the 120 required payments, but also at the time you apply for loan forgiveness and at the time when the eligible balance is forgiven. The payments do not have to be made consecutively, but payments made before the program’s inception on Oct. 1, 2007, do not count.
For parent PLUS loans, the parent who borrowed the money – not the student – must be the one employed by a public service organization in order to qualify for loan forgiveness.
Certain loans that are not direct loans may become eligible for forgiveness if they are folded into a direct consolidation loan. The loans that can be consolidated with a direct consolidation loan are subsidized and unsubsidized federal Stafford loans, federal PLUS loans for parents and graduate or professional students, federal consolidation loans (except for joint spousal consolidation loans), federal Perkins loans and certain health professions and nursing loans.
Only the payments on the consolidated loan count toward the 120 required payments. If you have already accumulated qualifying payments on some loans, you should not consolidate those loans if you want to keep the qualifying payments you’ve earned.
You must make the 120 required payments while enrolled in one of these 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 (Note: This is not the same as the standard repayment plan, which has a term of up to 30 years and is not a qualifying plan.)
- Any other plan with payments that are at least equal to the monthly amount you would be required to pay under the 10-year standard repayment plan
Including the latter two options seems nonsensical at first, because under either of these options you would have no loan balance left to forgive after 10 years. The government has included these two in its list of eligible plans so that borrowers can receive credit for any payments made under these plans before switching to an income-based plan. The Department of Education says that borrowers who want to participate in PSFL should switch to an income-driven repayment plan (IDRP) as soon as possible. That being said, even if you participate in an IDRP, you may not have a balance left to forgive after 10 years, depending on your income level and its effect on your monthly payments.
Monthly payments must meet additional criteria to qualify toward the 120 payments. They must be made after Oct. 1, 2007 (when the program was implemented), for the full amount due as shown on your bill, no later than 15 days after your due date and while you are employed full time by a qualifying employer.The good news is that if your required monthly payment is $0 because your income is so low, you will receive payment credit for those months as long as you are employed full time by a qualifying employer. Payments made during a period of unemployment do not count, but you may be able to defer your payments or get them reduced during that time.
Payments made during periods when you are not required to make a payment – while you are in school, in a grace period, in deferment, in forbearance or in default – also do not qualify. While you can cure a default and get back on track with the program so that future payments count, payments made to cure a default do not count. You won’t get additional credit for payments in excess of the required monthly payment either, unless you ask your servicer to apply the excess to future monthly payments.
Next Steps for PSLF Hopefuls
If you believe you qualify under the rules described above, the next step is to complete the Employment Certification for Public Service Loan Forgiveness form, obtain your employer’s certification of employment and submit the form to the PSLF servicer, FedLoan Servicing, also known as the Pennsylvania Higher Education Assistance Agency (PHEAA). There is no requirement to periodically submit this form to confirm eligibility, but submitting one completed form for each qualifying employer is a requirement of applying for loan forgiveness. The department encourages borrowers to submit the form annually or whenever they change jobs, so they can track their progress toward meeting PSLF eligibility requirements.
The Department of Education says that after you submit an employment certification form, it will review it for completeness and to determine if your employment qualifies. The department may ask for additional information or documents about your employment. After completing its review, the department will then notify you whether your employment qualifies or not. If it does, your federal student loans will be transferred to the PHEAA if this company does not already service your loans. If the department determines that your employment qualifies, it will also inform you of how many qualifying payments you have made and how many qualifying payments you have remaining.
If you qualify – and don’t be surprised if a reply is not forthcoming until the lawsuit is over – keep doing what you’re doing but stay on top of the news to check for further developments that might affect your status. If you do not qualify, there is currently no appeals process, and your best option may be to change to an employer who will unquestionably qualify for the program, such as a government agency or 501(c)(3) organization. Another option is to find a higher-paying private-sector job and reevaluate your student loan repayment strategy. You could also try following in the footsteps of the four attorneys and filing a lawsuit.
If you aren’t happy with the uncertainty of the current situation and question the program’s future under a new administration that has recently learned it may not be able to afford to forgive as many student loans as it promised, it’s time to seriously rethink. You might decide to overhaul your career plans and other major life decisions that are strongly tied to your finances, as painful as that might be. But you may not want to make any changes until the government decides what it’s going to do. (For more, see Should I continue to pursue a career in the public sector or change to the private sector with potential for more money?)
You are not likely to have worked for the wrong employer if you have been employed by the government or a 501(c)(3). However, if you’re in a situation similar to those in the lawsuit, you have cause for concern. You also have cause for concern if you haven’t been enrolled in the correct repayment plan, in which case all you can do is to change course going forward, as the program has no provisions for retroactive corrections.
The Bottom Line
As borrowers don’t have enough information, and probably won’t for many months, the most you can do is to take the above steps. As for future changes to the program, it’s hard to say whether they will affect those already following current guidelines (whatever those guidelines turn out to be, once the courts clarify them). Current participants could be grandfathered in – but they could also be dropped altogether.
A Q&A document about the PSLF program states, “We cannot make any guarantees about the future availability of PSLF. The PSLF Program was created by Congress, and Congress could change or end the PSLF Program.” There are no promises that the program will still be around by the time you reach 120 qualifying payments, especially as Secretary of Education Betsy DeVos has not stated her position on it.
Those who haven’t yet entered the PSLF program might be wise to consider whether they would choose a public service career regardless of whether their loans will one day be forgiven, as it’s unclear if they will be.