Written by: Corey Janoff
Many readers of this blog have heard of or are actively pursuing Public Service Loan Forgiveness (PSLF). I imagine many of you are concerned about PSLF and the likelihood of getting your student loans forgiven under the program. For those who are unfamiliar with PSLF, it is a program that was implemented in 2007 that enables people with federal student loans to potentially have their loans forgiven if they satisfy certain requirements.
The short version is if you have federal Direct student loans and you make payments on a qualifying income-driven payment plan while working for a qualifying non-profit or government entity, after 120 qualifying payments you can potentially have your loan balance forgiven. For many people who work in the public sector, this is very attractive.
For physicians working at hospitals, most hospitals are considered non-profit entities. Most physicians will complete 3-7 years of training at a hospital before they get into their first “real” job and earn a larger income. If you make payments based on income while in training, those payments will be relatively small. That only leaves a few years of larger payments at the attending income level before possible loan forgiveness. With the average student loan debt for physicians completing medical residency/fellowship upwards of $200,000, the idea of spending a few more years working at a hospital and potentially getting a portion of those loans forgiven is worth considering.
How to Qualify for PSLF
Thanks to all the different types of loans and possible employers, it can be confusing at first, but the rules are pretty straightforward.
1. You must have Federal Direct student loans. Private loans don’t qualify. Perkins loans don’t qualify. The Department of Education makes it pretty easy in that the loans have the word “Direct” in the title of the loan if they are Direct loans. If you don’t have Direct loans, keep reading; we will address that momentarily.
2. You must be on a qualifying income-driven payment plan. Depending on the type of loans and when the loans were originated, different payment plans may apply. The common ones are Income Based Repayment (IBR), Pay as you Earn (PAYE), and Revised Pay as you Earn (RePAYE). They all calculate the amount you are obligated to pay based on your income.
3. You must work full time for a qualifying employer and certify your employment. In general, full time is defined by the greater of 30+ hours per week, or whatever your employer defines as full-time. There is a PSLF Employment Certification form that your employer(s) needs to sign to verify your employment, which you will submit to FedLoan Servicing. You need to submit one for each employer you work at while making qualifying payments. We advise submitting it annually. Once your first certification has been submitted, FedLoan Servicing will take over your loan servicing and you will be officially enrolled in the program and be able to track your progress.
4. You must make 120 qualifying monthly payments while working at a qualifying employer. The payments do not need to be consecutive. Only one payment per month can count. Therefore, at a minimum, it will take ten years before anyone is eligible to have their remaining loan balance forgiven.
There are a few other nuances, but those are the main components. This all seems pretty straightforward, so why is there so much concern about PSLF?
Concerned About PSLF Loan Forgiveness?
Any government program or benefit is naturally met with skepticism, because the government could change the program at any time if legislators approve a change. There is no way around that. However, that concern was only exacerbated by the headlines that came out in 2018 about applicants being denied loan forgiveness.
I imagine many of you read the initial headlines that 99% of PSLF applicants who applied for forgiveness were rejected. Before continuing, I encourage you to stop reading this blog for a moment and read this article on Forbes, written by Robert Farrington in January 2019. It does a great job of addressing the many concerns people have about PSLF and the likelihood of getting their student loans forgiven.
When the program first started in October 2007, very few of the student loans issued by the Department of Education up to that point were qualifying loans under the PSLF program. Most of the PSLF eligible loans weren’t issued until 2010 or later. As a result, very few borrows would be eligible to have their loans forgiven in 2017 or 2018. Farrington addresses this in his article. He points to the Federal Student Aid data that estimates only 1,724 borrowers are on track to have enough qualifying payments to have loans forgiven between 2019-2021.
Those numbers gradually increase as time goes on and more borrowers with eligible loans reach the 10-year payment mark. Between 2021-2023, 10,428 borrowers will become eligible. 45,235 borrowers will become eligible between 2023-2025. 147,686 borrowers will become eligible between 2025-2027. And 413,922 borrowers will become eligible between 2027-2029. As we can see, we are still in the early stages of PSLF.
Because most loans issued before 2010 were not eligible for forgiveness under PSLF, most of the people who applied for forgiveness in 2017-2018 were not eligible to have their loans forgiven! FedLoan indicated that 32% of applicants didn’t have the correct type of loans, 21% did not work for eligible employers, and 47% had missing or incorrect information on their application. Almost half of the applicants didn’t even fill out the forms properly! Pay attention to details when filling out paperwork for the federal government.
As time goes on, we should begin to see more people become eligible for loan forgiveness under the PSLF program.
What if I Don’t have Direct Loans?
If you do not have Direct loans, don’t worry. It is possible to convert/consolidate non-Direct loans into Direct loans. If you are unsure what type of loans you have, log into your loan servicing website and check the title of each loan. You could also check www.nslds.ed.gov for a centralized location to view your loans.
You can consolidate most federal loans into Direct loans by completing a Direct Consolidation Loan at www.studentloans.gov. Please be aware, if you currently have a mix of Direct and non-direct federal loans, consolidating them together will restart the 120-payment clock on PSLF eligibility. In that scenario, it is advisable to do a Direct Consolidation of your non-direct loans, but keep them separate from your Direct Loans that you have already been making payments on. As a result, you will end up with two sets of Direct loans that have staggered forgiveness eligibility dates.
Having the equivalent of a small country’s GDP in student loan debt can be stressful. Reading headlines about the government rejecting 99% of PSLF applicants can only add to one’s anxiety. Take a deep breath. Read up on the program rules and make sure you are satisfying all of the required criteria in order to qualify for forgiveness under PSLF. As time goes on, more people should become eligible for student loan forgiveness and benefit greatly from the program.