By Andrew Paulson, CSLP, Lead Student Loan Consultant and Co-Founder of our partner site StudentLoanAdvice.com

In 2022, President Biden issued an executive order that makes permanent changes to the Public Service Loan Forgiveness program (PSLF). This flew under the radar while legal battles ensued over the flagship student loan forgiveness plan that was recently blocked by the Supreme Court.

PSLF has been around since 2007, and for the first decade or so, very few borrowers had success receiving student loan forgiveness. In recent years, we’ve seen more and more borrowers have success with the program. Borrowers who’ve qualified for PSLF have now swelled to more than 600,000. This is due to the IDR and PSLF waivers that granted credit to borrowers who were not previously considered eligible (whether for incorrect repayment plans or deferment/forbearance) and because of the increase in overall applicants. PSLF is no longer an absolute shot in the dark, and it should merit strong consideration for those who borrow mini-mortgages to graduate from college. Like it or not, PSLF works, and it's usually the most cost-effective option to pay down your loans if you qualify.

Effective July 1, 2023, key changes have been made that each borrower needs to consider if you are currently on track for PSLF or if you will be in the future.

Before we dive into the new rules for PSLF, we want to remind you of the previous ones.

  • Make 120 on-time qualifying monthly payments
  • Work full-time at a nonprofit or 501(c)(3) or at least 30 hours per week at multiple qualifying employers
  • Have direct federal student loans
  • Make payments in a qualifying repayment program—IBR, PAYE, REPAYE, ICR or a standard 10-year repayment plan
  • Complete PSLF Certification Form

 

#1 PSLF Certification Form Is All Electronic

To qualify for the PSLF program, there is an actual certification form that is filled out by you and signed by your employer. Previously, this was completed by you using dark ink, and it required a wet signature from your employer verifying your employment. Lastly, you faxed it to the PSLF servicer (FedLoan at the time; now MOHELA) for processing. The submission process was clunky with all the paperwork and signatures, and it could take 3-6 months (and sometimes longer) to process your form.

Now, this process can all be done 100% electronically using the PSLF help tool. The tool allows you to generate the application form through a portal that has a database of almost every nonprofit/501(c)(3) out there. To certify your employer(s), input your Employment Identification Number (EIN) and the dates you worked.

Next, the application will ask how you would like to obtain your employer's signature. You can do it “old school” by obtaining a wet signature, or you can simply send your employer an e-signature. Utilize the e-sign feature to speed up the application process. It will save you a lot of time and headaches. Give your employer a heads-up that they’ll receive an email from DocuSign on behalf of the Department of Education. After your employer signs, the form will automatically go to MOHELA for processing.

More information here:

The (Nearly) Perfect PSLF Situation for a Physician

 

#2 Qualifying Employment Hours Simplified

As mentioned earlier, you had to be working full-time or working at multiple qualifying employers (nonprofit or 501(c)(3)) for a minimum of 30 hours per week to reach the PSLF employment qualification. This put many borrowers in a tough position because they were working more than 30 hours per week at one employer but were not considered a full-time equivalent. In this situation, they wouldn’t have qualified for PSLF. Borrowers had to pick up another qualifying job or convert their employment to full-time to qualify.

This requirement is now changing to a flat 30 hours per week required at a nonprofit or 501(c)(3) to qualify. Borrowers no longer need to be full-time to qualify. In addition, those who work as adjunct professors can now qualify for PSLF. For each credit hour taught by an adjunct or contingent faculty, the borrower would receive 3.35 hours of work. So, you’d need to teach at least 9 credit hours to qualify.

 

#3 California and Texas PSLF Loophole 

Included in the changes for qualifying employment is a specific situation that pertains to those who are employed in California and Texas. Generally, you need to be directly employed by a nonprofit or a 501(c)(3) to qualify. This means you need to receive a W-2 from your employer. You wouldn't qualify as an independent contractor (1099) or through a contractor that staffs the nonprofit or 501(c)(3). We commonly see this with physicians and other providers who have privileges at a nonprofit hospital but who are paid by a contractor.

California and Texas have a specific state law that prohibits many nonprofit hospitals from directly employing physicians. Physicians are commonly working at nonprofit hospitals but are actually hired by a contractor that is a private organization and that staffs physicians at nonprofit hospitals. This would not qualify you for PSLF.

But now, when you work in California and Texas in this specific arrangement and your direct employment at a nonprofit hospital is barred by state law, you can begin to qualify for PSLF. Here's a deeper dive into who qualifies and what to consider.

More information here:

Is Public Service Loan Forgiveness Worth It for Doctors?

 

#4 Certain Deferments and Forbearances Will Count

Deferment and forbearance never used to count for PSLF. IDR and PSLF waivers temporarily granted borrowers credit for certain periods of time in deferments and forbearances. Going forward, here are a couple of deferments and forbearances that WILL count as credit toward PSLF.

  • Administrative or mandatory administrative forbearance—these are generally those pesky months when you are switching repayment plans or certifying income and your servicer has to put your account on hold
  • Post-active duty
  • Cancer treatment deferment
  • Military service deferment
  • Post-active duty student deferment
  • Economic hardship deferment, which includes service in the Peace Corps—we sometimes see physicians in training eligible to qualify for this
  • AmeriCorps and National Guard service forbearance
  • US Department of Defense Student Loan Repayment Program forbearance

The majority of the changes are related to those in military service.

PSLF changes

 

#5 Qualifying Payments in a Lump Sum 

Previously, your servicer required you to make an on-time monthly payment at the required monthly payment amount. If you were to make an overpayment, part of that month’s payment would go to the following month. And if it was enough to cover the next month's payment, the servicer would go berserk and put your payment into paid ahead status. Paid ahead status was treated as forbearance, and it would halt your PSLF credit temporarily . . . lots and lots of headaches for a borrower trying to get a jump on their payments.

New regulations will allow borrowers to receive PSLF credit on late payments, installments, or in a lump sum. This resolves the paid ahead status and widespread issue for those who receive some type of loan repayment assistance program from your employer or a supporting entity like NIH, VA, NHSC, etc. However, just because you make a lump sum payment, it does not shorten your track to PSLF. You still need to work a minimum of 120 months at a qualifying employer to reach the forgiveness milestone—even if you double your payment for a month.

 

#6 Consolidation No Longer Erases Previous Repayment History

Typically, when you consolidated your federal student debt, all your previous repayment history was erased. That means if you consolidated after a couple years of payments, you would have to start your 10 years all over again. Way too many borrowers have done this, and they are stuck paying their loans longer than they should.

Now, instead of resetting your payment history when you consolidate, a weighted average of your existing PSLF count will be applied to the consolidation loan at the beginning. Here's an example.

In this particular situation, instead of having to make 120 payments post-dental school, this dentist would only need to make 116 because the undergraduate loans count toward the 120 payment count. It does increase the length for the undergrad loans to reach forgiveness, but it probably doesn't matter much because most will borrow more for a professional degree, like dental school, than undergrad.

Please note: if you consolidate loans with differing payment counts before January 1, 2024, you would be eligible to take the loan with the highest payment count. It will revert to the weighted average rule moving forward after January 2024.

More information here:

Paying Off Spouse’s Student Loans Together

 

#7 Hold Borrower Harmless Option

There generally comes a time when many borrowers will have a hard time making monthly payments and they'll have to temporarily halt payments. The hold borrower harmless option would help borrowers whose income drops to continue to qualify for PSLF. If a borrower has to enter deferment or forbearance because of a hardship and they could have stayed (or enrolled) into an income-driven plan with a required monthly payment of $0, they would still be eligible to receive credit for PSLF. Very little context or scenarios have been given for this new regulation. We will continue to update you as more information becomes available.

 

All of these changes should help move borrowers toward reaching their forgiveness milestone. More and more borrowers will enroll into PSLF as it now captures a wider range of borrowers. If you make less than what you owe in federal student loans, PSLF should strongly be considered. It is less of a consideration for those who make the same as you owe or more. However, we’ve still seen cases where PSLF can drop the overall cost of your loans either way.

If you need help navigating PSLF, the application process, the back and forth with your servicer, or putting the final touches on your application before you qualify, don’t hesitate to contact us at StudentLoanAdvice.com. We’ve helped many borrowers succeed and reach PSLF. Don’t go it alone when there’s the potential to save yourself hundreds of thousands of dollars.

What do you think about these PSLF changes? Do these changes impact your eligibility for Public Service Loan Forgiveness? Are you closer to having your loans discharged now? Comment below!