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Public Service Loan Forgiveness or PSLF is the well-known holy grail of loan forgiveness programs. Unlike most other loan forgiveness programs, PSLF offers tax-free loan forgiveness. Also, Public Service Loan Forgiveness has no cap on the loan amount forgiven.
Any borrower who has a chance of working at a nonprofit should definitely be considering the program, even if you earn more than you borrowed for college. Yes, we’ve all seen the multitude of articles professing the dismal success rate and the subpar loan servicing which has backed the program. But with recent changes to the program, there’s significant momentum pushing up the success rate, and it should be on more people’s radar.
In this post we’ll discuss how the program works, its inception, success, and some speculation/projection for the future.
Public Service Loan Forgiveness Program
The PSLF program was created as part of the College Cost Reduction and Access Act of 2007 to provide tax-free loan forgiveness to indebted professionals who work as public servants. It was formed to benefit nurses, teachers, military, law enforcement, government workers, and others employed at nonprofits.
PSLF can help encourage borrowers to pursue careers in lower-paying jobs than they would otherwise by entering the private sector.
What Is Public Service Loan Forgiveness?
Public Service Loan Forgiveness is a student loan forgiveness program that provides tax-free loan forgiveness.
PSLF has four requirements:
- Qualifying Federal Student Loans—Direct Stafford (unsubsidized and subsidized), direct plus graduate and direct consolidation loans
- Qualifying Repayment Plan—IBR, PAYE, REPAYE, ICR, or the standard 10-year repayment plan
- 120 on-time, qualifying monthly payments—not required to be continuous
- Full-time employment at a qualifying employer such as a nonprofit or 501(c)(3)
How to Apply for Public Service Loan Forgiveness
The only mechanism in place to apply for public service loan forgiveness is the employment certification form (ECF). This form needs to be filled out for each qualifying employer to receive credit for PSLF.
Although you could wait until you reach 10 years of qualified employment, we recommend that borrowers complete the ECF form annually. The ECF form is used to obtain credit for past payments made and to apply for loan forgiveness once you’ve reached 10 years of payments. We recommend you keep track of the ECF forms and corresponding payment documentation.
Expect the servicer to come back with some mistakes. But if you’re certifying regularly, it'll be much easier to fix their mistake from two months ago rather than going back eight years and two jobs prior, fighting them on payments made to a now-defunct servicer.
Please note: borrowers must still be employed by a non-profit of 501(c)(3) at the time of forgiveness.
Changes to Public Service Loan Forgiveness
Public service loan forgiveness has had a couple of changes over the years. The first change or adjustment was the addition of the employment certification form in 2012. In the first couple of years, borrowers had little to no understanding of the program, and if you didn’t have a buddy who followed student loan law closely, then you would’ve heard from your financial aid officer that the program was not to be relied on.
Temporary Expanded PSLF (TEPSLF) was added in 2018 by the Consolidated Appropriations Act of 2018. This occurred as the first group of borrowers became eligible for PSLF in 2017 and about 99% of applicants were denied. TEPSLF has slightly different requirements than PSLF and has a limited amount of money backing it. So, the program is first-come first-serve. Also in 2018, Federal Student Aid released the PSLF help tool to assess your employer’s eligibility for PSLF.
The most recent change is the PSLF limited waiver released in October 2021. The limited waiver has huge ramifications for borrowers, but it's most helpful to those with FFEL loans. If you have FFEL loans and have worked as a public servant, you should look into it. All you have to do is consolidate your FFEL loans into direct loans and submit a PSLF certification form. However, we recommend you review WCI’s interpretation of the PSLF limited waiver. Also, this is a time-limited waiver that is set to expire in October 2022.
Is Public Service Loan Forgiveness Legit?
Yes, PSLF is legit, and many white coats have been receiving it. WCI has a podcast dedicated to financial milestones called Milestones to Millionaire, and host Dr. Jim Dahle has interviewed a number of people who have actually received PSLF. Not all have had the smoothest process in obtaining PSLF, but the financial benefits have outweighed the additional paperwork and headache.
There is a significant portion of StudentLoanAdvice.com’s clients who are also on track to obtain PSLF. The value add of pursuing PSLF over refinancing or taxable loan forgiveness is real, and it can be life-changing in some circumstances.
PSLF Success Rate
Ahh, the number we’ve all been waiting for . . . here is a report from the Department of Education (ED) over the years. We’ve taken TEPSLF and PSLF and combined them together in the reporting below.
The numbers prior to September 2019 have said only about 2% of applicants had received PSLF. Reporting began to improve in 2019. Here are a couple of figures:
Until September 2021, only 16,119 public servants had received PSLF with a rather low success rate still at 4%. It is important to realize that the applications figure above are totals dating back to loan forgiveness inception from October 2017. For instance, there weren't 16,119 borrowers that had their loans forgiven from Sept 2020-2021; there were 10,619.
But as of December 15, 2021, there has been an additional 38,000 borrowers who have now received PSLF. The data is yet to be released on how many applicants have applied in the last three months. If we throw a hypothetical 100,000 applicants over the last three months, from December 2021 to February 2022 (when this article was published), we’d see quite a significant jump in the success rate.
The reason for the jump in applications approved is the recent PSLF waiver which mainly benefits those with FFEL loans. We expect this number to continue to increase during 2022 but still be lagging, as FedLoan will be shifting its 9 million borrowers to multiple loan servicers. All those who are on track to PSLF will be switched to MOHELA in 2022.
Now more than ever is the BEST TIME to consider PSLF, given the positive momentum of borrowers getting their loans forgiven tax-free.
The Future of PSLF
Our crystal ball is cloudy on the future of PSLF, but we do believe that the success rate will continue to increase—and not just be a one-off bump with the recent release of the PSLF waiver.
In our consultations, many clients express their concern about changes to PSLF in the future.
- “What if the loan forgiveness becomes taxable?”
- “What if they cap the loan forgiveness amount?”
- “What if they phase out high earners?”
Each of you signed a master promissory note (MPN) to take out your federal student loans. If the federal government follows its normal process to change federal student loans, those currently in the program would be grandfathered into the old one. Essentially, if you have a federal loan now, you can pursue the program.
You’re not alone if you’ve pondered deeply whether to do PSLF. At Student Loan Advice, we’ve met with hundreds of borrowers like you who are facing similar challenges. We can help you weigh the pros and cons of the different options and which would result in the optimal outcome for defeating your debt and moving you closer to financial freedom. Contact our experienced team at studentloanadvice.com today!
Did you successfully get PSLF? What was your experience like? Do you think the new changes will help the success rate of those applying? Comment below!