Do you want your federal student loans to be forgiven? Have you been working for the government or a non-profit? If your answer to both is yes, here’s some good news for you.
In October 2021, the U.S Department of Education announced an overhaul to the Public Service Loan Forgiveness program. Now, for a limited period of time, borrowers may receive credit for past payments made on loans that would otherwise not qualify for PSLF.
Michael Mitchell, a professional musician and social worker, was able to have his roughly $170,000 of student loans wiped away by the federal government, tax-free. This could be you. The overhauled loan forgiveness plan will hopefully restore the promise of PSLF and help relieve the debt burden for many in the public service sector.
What is Public Service Loan Forgiveness?
The Public Service Loan Forgiveness program or PSLF provides student loan relief for those serving in the public sector. The promise of PSLF is this: If you work in the government or non-profit sector for a total of 10 years, then the balance of your federal student loan debt will be forgiven. In addition, the program allows eligible borrowers to lower their monthly payments, depending on their income
However, since the Public Service Loan Forgiveness was instituted in 2007, only very few people have qualified. That’s because the program installed several hoops. For example, not all student loan types were qualified. In addition, you needed to enroll in a special repayment plan to be qualified. This latest overhaul will make it easier for more than 500,000 borrowers to qualify for the Public Service Loan Forgiveness program.
What are the changes to the PSLF requirements?
1. F.F.E.L & Perkins loan payments will now count towards PSLF.
Previously, if you had a Federal Family Education Loan (F.F.E.L) or Perkins loan or non-Direct Loans, and you were making payments on those loans, they wouldn’t count towards PSLF. You needed to consolidate your loans into a Direct Consolidation Loan first. Once it’s consolidated, only then will your payment count towards the Public Service Loan Forgiveness.
Under the overhauled PSLF program, if you have an F.F.E.L or Perkins loan and you’ve been making payments for say 8 years now towards those loans, those past 8 years of payments will now count towards PSLF! Two more years to loan forgiveness! (You just need to move it to a Direct Consolidation Loan and apply for PSLF.)
2. Past payments under any plan will count.
Previously, after you’ve consolidated into a Direct Loan, there were more hoops for you. You needed to enroll in an Income-Driven Plan (like Pay As You Earn or REPAYE) for your student loan payments to count towards PSLF. Under the new waiver, past payments under any plan will count! So if you were making payments for your Direct Loan, but were in the wrong repayment plan, those payments will now count towards PSLF!
3. Late payments will now count.
Previously, late payments did not count towards Public Service Loan Forgiveness.
What PSLF requirements remain unchanged?
- You still need to be employed full-time, for your payments to be counted as a qualifying payment. 30 hours per week is considered full-time (if you had 2 part-time jobs of 15 hours per week, that counts as full-time).
- You still need to make 120 qualifying payments. They only loosened the definition of qualifying payments but not the number of payments that need to be made.
- Parent PLUS loans and private student loans are still not eligible. Only federal student loans.
How can you take advantage of the new PSLF loan forgiveness rules?
- If you have FFEL, Perkins or non-direct federal student loans, you’ll need to call your student loan provider (like Navient, NelNet, Great Lakes). Ask them to consolidate your loans into a Direct Consolidation Loan. You’ll need to do this by October 31, 2022. According to my sources, this can take about 70 days so it’s best to do it as soon as possible. If you’re planning to apply for PSLF loan forgiveness, your loan will likely be transferred to FedLoan Servicing.
- If you had previous payments that did not count (wrong payment plan or had a late payment), you can ask them to count it as a qualifying payment. You can do that by submitting a PSLF form.
- If you’ve made 120 qualifying payments, you can apply for loan forgiveness by submitting the PSLF form. Hopefully, at some point, you’ll wake up, check your loan balance, and it’ll say $0!
Below, we answer some frequently asked questions about the Public Service Loan Forgiveness overhaul.
How do I apply for the PSLF Waiver?
To apply for this waiver you will need to submit a PSLF certification form by October 31, 2022.
If I have a F.F.E.L. loan (Federal Family Education Loans), what should I do?
First, make sure that your employer is eligible by going to the PSLF Help tool. Secondly, submit a consolidation application. This is an application to convert your old loan to a new one of the right type. Previously, payments towards F.F.E.L loans did not count towards PSLF. With the new waiver, it can. This must be done before October 31, 2022.
Does this change apply to a F.F.E.L. Parent PLUS loan?
No. These temporary changes only apply to people who borrowed for their own education. It does not apply if you borrowed money for a child or grandchild.
What if I end up with a credit for more than 120 payments?
You should get a refund automatically as long as you haven’t already received full forgiveness. If you have already received full forgiveness then you won’t be given any refund.
A financial advisor can help you take advantage of the Public Service Loan Forgiveness overhaul.
My close friend just shared with me that he just realized he never followed the correct steps towards public service loan forgiveness. He had an F.F.E.L loan. He didn’t know that he needed to roll it over to a direct consolidation loan, to qualify for PSLF. If he had rolled it over, his student loans of tens of thousands would have been forgiven by this time.
At District Capital Management, we work with our clients to implement three strategies on how to maximize the value of their Public Service Loan Forgiveness. If you’re looking for an unbiased expert to help you maximize PSLF or to help you navigate the new PSLF overhaul rules, schedule a free discovery call with one of our financial planners today.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.
