Beginning on October 1, 2007, former students could begin making qualified payments towards the ten-year Public Service Loan Forgiveness (PSLF) requirement. The program granted a discharge of any remaining loan balances after 120 qualified payments while employed by a qualified employer. In October 2017 the ten-year mark for anyone meeting all the requirements, the Department of Education (DOE) will again begin accepting applications for loan forgiveness under the PSLF program.
Like any government benefit, there are many details and forms with which to complybefore the DOE dischargesany loans for borrowers. Also making the news is the potential elimination of the program by the current legislature, creating a lot of ambiguity among borrowers.Here is what you need to know:
Which loans qualify?
Only Direct loans will qualify for loan forgiveness. Student loans disbursed before July 1, could be either Direct or FFEL (Federal Family Education Loans). The FFEL loans do not qualify for forgiveness unless you later consolidate the loans into a Direct Consolidation Loan. If so, qualified payments begin from the date of the consolidation. If you consolidate Direct loans after making qualified payments, you lose credit for those payments through the consolidation, and the payment clock starts over. To prevent this, you can complete a partial consolidation of only the FFEL disbursements.
• Loans cannot have a default status.
• Perkins Loans have a different process to qualify for Public Service Discharge. You can find details of those requirements from the school issuing the loan.
What Are Qualified Payments?
A qualified payment is one received on or after October 1, 2007in a qualified repayment plan program.PSLF only allows one payment per month. Payments cannot be more than 15 days beyond the due date and must be for the full amount, while employed with a qualified employer. Only required payments count towards the 120 minimums.For example, any payments made while in school, during the six-month grace period or in times of deferment do not count towards the required payments. The income based plans could lead to small or zero payments under the plan, which do count toward the 120. It is not necessary to make consecutive payments, and you do not lose credit for payments made, even when there are gaps in employment or qualifying service.
The program does not allow advance payments. When paying any amount over the minimum, ensure overages apply to the principle, not future payments or you could lose credit for those prepaid amounts because there will not be an amount due.
There are limited exceptions to the advanced payment rule. For example, some military service members enroll in a program that makes student loan payments once a year, for the entire year. In this case, the lump sum payment will count as 12 payments. Another exception is when completing service with the Peace Corp, you receive a transition bonus, which you can apply for student loans for a maximum of 12 payments.
What Employment Qualifies Under the Program?
Qualified employers include all government organizations, from tribal employment to federal jobs. Work could include employment with a local school system, with the state police, or in an administrative office of a federal court, to name a few.Employment qualification depends on the employer, not the specific duties or job title. Non-profit agencies also qualify, provided they meet the requirements for tax exempt status under Section 501 (c) (3) IRS rules. Some nonprofits, which do not fall under section 501 (c) (3) tax code can qualify under the public service program if they provide a qualifying public service. Serving in the Peace Corp or AmeriCorps also meets the requirements.Exceptions to the non-profit rules include working for a labor union or partisan political organization.
Only full-time employment counts, which typically means working 30 hours or more per week. Working two part-time jobs at qualified employers, and totaling more than 30 hours per week, could also meet the requirements.
Contract workers serving government agencies and religious non-profit jobs involving proselyting, teaching religious studies, or ministry workdoes not qualify.
Verifying Qualified Payments
To keep track of your progress towards loan forgiveness, you can requalify each year and with any change of employment. Completing the Department of Education’s (DOE) Employment Certification Form, will confirm your work for a qualifying employer and made qualifying payments. When completing the initial form, the DOE will transfer the loan to the Fed Loan Servicing allowing the DOE to track a decade’s worth of qualified payments.
You may complete the Employment Certification Form and submit forms at any time, each year or together, depending on how long you have worked for the employer. Filing an annual application will give you time to provide additional information on disqualified payments or assist with career decisions if the employer does not qualify.
After making the 120th payment, the process of loan forgiveness is not automatic: You must apply for the discharge by submitting a Public Service Loan Forgiveness Application, available in September 2017.
With the first wave of qualified applicants crossing the finish line in October 2017, the DOE expects a flood of applications.An estimated 25% of the workforce maintains employment in qualifying organizations. Currently,more than half a million borrowers have submitted at least one Employer Certification to establish their intent to seek loan forgiveness through the program.