By Dr. James M. Dahle, WCI Founder
On Oct. 6, 2021, the Department of Education announced some new rules regarding Public Service Loan Forgiveness (PSLF). The government is calling it a “limited waiver.” However, they come with a deadline. These rules will admittedly only apply to a small percentage of white coat investors. But if this applies to you, it's a big deal.
Changes to PSLF Program–FFEL Loan Payments Now Count
The main change to the PSLF Program has to do with Federal Family Education Loan (FFEL) program borrowers. These loans are not considered “Direct Loans,” and so they have never qualified for PSLF. Remember the PSLF requirements:
- Qualifying loans (direct only)
- Qualifying employer (501(c)(3))
- Full-time work
- 120 on-time monthly payments
What FFEL borrowers have done in the past is consolidate their FFEL loans into a direct loan. Then, any payments they make from that time forward count toward the 120 payments for PSLF.
New PSLF Payment Requirements
So what is the change?
Now, any payments you made in the past via the FFEL program count toward your 120 payments IF AND ONLY IF YOU CONSOLIDATE BY HALLOWEEN 2022! Cool beans, right? This means FFEL borrowers will be eligible for PSLF earlier—sometimes years earlier—than they otherwise would be. Especially if they never got the memo that they needed to consolidate into a direct loan.
This change also applies to Federal Perkins Loans, Graduate Plus Loans made to students, and any other federal loan that is not a direct loan. However, Parent Plus loans did not qualify before, and they do not qualify now.
Unfortunately, if you have already received PSLF, there is no credit for FFEL loans that are already gone. Sorry.
Payment Under Any Repayment Plan Count Toward Loan Forgiveness
There might also be a few people who were not enrolled in either an Income Driven Repayment (IDR) plan like ICR, IBR, PAYE, and REPAYE or the standard 10-year repayment plan. Previously, these were the only payment plans eligible for PSLF. However, now payments made under any plan can count toward your 120 payments. They don't even have to be on time. Or even full payments. Loan type doesn't matter, repayment program doesn't matter, timing doesn't matter, full payment doesn't matter. So any payments you have made that previously didn't count may now count, and you might be a lot closer to 120 than you think. These payments are supposed to automatically be recounted, but if I were you, I'd keep an eye on it.
If these new payments put you over 120 payments, you will get PSLF and all your extra payments will be refunded to you. Tax-free. Yay! You might have to fill out a few extra PSLF forms certifying your employment if you haven't already, but that's it. Otherwise, it should happen automatically.
Special Benefits for Military Members to Enroll in PSLF
While not too many military docs have a big student loan problem, some do. There's a provision for them, too. Every month you were on active duty counts as one of your 120 payments, even if you were in forbearance or deferment. While I like our military folks as much as anyone, this change irks me a bit as it rewards people who did the wrong thing (enrolled in forbearance and did not make payments) over people who did the right thing (enrolled in IDR and made payments). Such is life with the federal government and its bureaucracy sometimes.
What About IDR Forgiveness?
What if you are one of the (in my view) very unfortunate people going for fully taxable IDR forgiveness after 20 (PAYE) to 25 (REPAYE) years? Do these changes help you? Unfortunately no. To get IDR forgiveness, you have to be making payments in an IDR Program, and FFEL payments are not in an IDR program.
What If I Already Privately Refinanced?
Those of you who decided to privately refinance your ineligible loans are probably out of luck since they are no longer federal. Definitely a bummer for those of you who borrowed FFEL loans and worked for years at a 501(c)(3) or nonprofit out of training.
Why Is This PSLF Program Change Happening?
Naturally, one might wonder why this is happening, why this is happening now, and why there is a deadline. Reminds me of a very old beer commercial with the slogan, “Why ask why? Try Bud Dry!” But if you can't help it, here's why:
The Department of Education found an obscure passage in the Heroes Act of 2003 that allows it to waive certain federal student loan rules during periods of national emergency. The COVID pandemic apparently qualifies as a national emergency. That national emergency is currently scheduled to end (you can schedule these things to end?) on Halloween 2022.
What Should You Do About PSLF Changes?
If you are in this situation (or think you might be), there are a few things you should do.
- Find out what kind of loans you actually have. Log in to StudentAid.gov and scroll down to the Loan Breakdown section. Look at the names of the loans. Direct loans start with “Direct,” FFEL loans start with “FFEL,” and Perkins Loans start with “Perkins.” Even if you have consolidated your loans, you should still be able to see the original loans there.
- Consolidate your loans. (Remember consolidation is very different from student loan refinancing.)
- Apply for PSLF using the standard PSLF form.
What If I Need Some Help with Student Loans?
If you are not sure what to do about your student loans, we recommend you spend an hour and a few hundred dollars with Andrew Paulson of StudentLoanAdvice.com, a White Coat Investor company started to help people just like you. Andrew is a student loan expert who can help walk you through the ins and outs of your student loan situation. Even if you have received advice in the past, you may need another session (and new advice) because of these new changes. Andrew estimates that 10%-15% of his past clients have had FFEL loans. If you are still within the six-month period of purchase, additional questions by email are part of the package you purchased from StudentLoanAdvice.com, so there would be no additional charge for them.
What If PSLF Still Doesn't Make Sense for You?
The main PSLF requirement still exists. You still have to work for a non-profit, 501(c)(3) employer full-time. If you don't and you're not in such a terrible student loan situation that IDR Forgiveness actually makes sense for you, then you should refinance your student loans, live like a resident, and get them paid off ASAP. Here are the best deals from lenders trusted by thousands of white coat investors. If you go through our links (and clear cookies first if you have gone to these sites through any other links), you'll get hundreds of dollars of cash back, and we'll throw in our Flagship online course, Fire Your Financial Advisor (an $800 value) for free.
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What do you think? Do these rules change anything for you? How much more will you get forgiven? What do you think of the changes? Comment below!