Millions of student loan borrowers look to the Public Student Loan Forgiveness (PSLF) program to get relief from their college debt. Created in 2007, PSLF forgives student loans for qualifying public servants after 10 years of payments.
What’s more, recipients don’t have to pay taxes on the forgiven balance like they do with the Department of Education’s income-driven repayment plans.
However, if you’re working toward student loan forgiveness, make sure you avoid these following seven mistakes. Otherwise, you might be on the hook for your full balance.
1. Working for an unqualified employer
The PSLF program is very specific about which employers are participating:
- Government organizations at any level (federal, state, local, and tribal).
- 501(c)(3) not-for-profit organizations.
- Other not-for-profit organizations whose primary purpose is to provide certain types of public service.
- AmeriCorps and the Peace Corps (full-time volunteers only).
The following employers are specifically excluded from the program:
- Labor unions.
- Partisan political organizations.
- For-profit organizations, including for-profit government contractors.
- Not-for-profit organizations that neither carry 501(c)(3) status nor offer a qualifying public service.
[Table with qualifying public services here: https://docs.google.com/document/d/1pQNAsL0dOWUFxdnkmjRjR47guTMiMR1W-49uksnaxWg/edit]
If you have any doubts about whether an employer qualifies for the PSLF program, contact FedLoan Servicing at 1-855-265-4038.
To stay on top of this, Jon Sycamore, CFP®, recommended certifying your employer every year. He says, “It’s not technically required by the Department of Education, but you don’t want to give them any reason not to approve your application.”
He adds, “Send in a certification form every year that shows you’ve been working full-time (minimum of 30 hours/week) at a [qualifying] employer.”
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2. Working too few hours
Not only do you have to work for a qualifying employer, but you must also be considered a full-time employee for the duration of the 10-year qualifying period.
The Department of Education considers you a full-time employee if you work at least 30 hours or your employer’s definition of full-time, whichever is greater. Keep this in mind if you consider going part-time, even for a short period, in the future. That decision could reset the 10-year clock.
Also, make sure that your employer keeps track of your full-time status over the years, especially if you switch to another qualifying employer.
3. Misreading the payment requirements
To qualify for PSLF, you must make 120 qualifying monthly payments on your loans. To qualify, a payment must be made under the following criteria:
- After October 1, 2007.
- Under a qualifying repayment plan.
- For the full amount due as shown on your bill.
- No later than 15 days after the due date.
- While you’re working for a qualifying employer.
Payments made while you’re in school or during a grace period, deferment, or forbearance are not considered qualifying payments.
That said, payments don’t need to be consecutive. So, if some of your payments don’t meet the above criteria, it doesn’t reset the clock. Also, you only get credit for one payment per month, so making multiple payments each month won’t get you there faster.
4. Having the wrong type of loan
Not all student loans are eligible for forgiveness; only those that are in the federal Direct Loan Program qualify. That excludes roughly 44% of federal student loan borrowers, according to data from the Department of Education.
But don’t fret if your federal loans aren’t in the Direct Loan Program. You can consolidate one or more loans with a Direct Consolidation Loan to make yours eligible. Just keep in mind that payments you made before consolidating won’t count toward the 10-year requirement.
“It’s easy to do,” says Sycamore, “so it should be one of the first things you do upon graduating.”
Private student loans aren’t eligible for the PSLF program and cannot be consolidated into a Direct Consolidation Loan. There are some private student loan forgiveness programs, but they are rare.
5. Consolidating your federal student loans
Consolidating your student loans can help you simplify your monthly payments. But if your loans are already in the Direct Loan Program, doing this will reset the clock on the 10-year payments requirement. That’s because the original loan no longer exists, and you can’t transfer your on-time payment record to the new loan.
6. Not getting on an income-driven repayment plan
When you graduate from college, your student loans will be put on the Standard Repayment Plan, which lasts 10 years.
Since the PSLF program requires 10 years worth of qualifying monthly payments, you won’t have a balance left to forgive if you stay on the Standard Repayment Plan.
Instead, check out one of the four income-driven repayment plans available to lower your monthly payment and extend your term to 20 to 25 years. This will ensure that you’ll get the maximum possible amount forgiven.
7. Falling for student loan forgiveness scams
Getting student loan forgiveness can be such an exciting thought that some people are willing to jump at any opportunity to get it. The problem is that many of them are scams.
“There are a lot out there because so many people are desperate to get rid of their loans. I’ve personally received texts saying that my loans were flagged for cancellation.”
“There are a lot out there because so many people are desperate to get rid of their loans,” says Sycamore. He adds, “I’ve personally received texts saying that my loans were flagged for cancellation.”
Unless you’re working directly with FedLoan Servicing and the PSLF program, be wary about promises of student loan forgiveness. There are several companies out there that offer to reduce your student loan balance or eliminate it entirely.
They might call their programs something like “Obama student loan forgiveness” or “Trump student loan forgiveness” to make it sound official. But in the end, they’ll just charge you high fees and then vanish.
The PSLF program is available at no cost to you, so if a company is offering forgiveness in exchange for a fee, walk away.
“The old adage, ‘if it sounds too good to be true, it probably is’ is very applicable regarding student loans”
“The old adage, ‘if it sounds too good to be true, it probably is’ is very applicable regarding student loans,” adds Sycamore.
Consider all your options
Student loan forgiveness is a great way for people to get rid of their student loans, but it’s not for everyone. Working in a public service job typically doesn’t pay as well as if you were to take a comparable job with a private company.
In some cases, you might forego more in increased annual salaries than you would save by getting your loan balances forgiven.
If you’re looking for other ways to get rid of your student debt more quickly, consider refinancing them to lower your interest rate and shorten your repayment period.
Whatever you decide, thoroughly research all your options to make sure you’re getting the best deal possible.