The Public Service Loan Forgiveness Program is notoriously difficult to qualify for, with a 98 percent rejection rate for applicants. That is, until the Biden administration temporarily updates the rules on how student loan borrowers working in the public sector can qualify for debt relief.
Last fall, the Department of Education implemented several changes to the program — collectively known as the “Limited PSLF Waiver” — to help more borrowers by correcting long-standing issues surrounding complex program rules, bad advice from loan servicers and others A person is entitled to forgiveness. challenge.
Simply put, the waiver expands the payments deemed eligible for forgiveness through the program. But borrowers must fill out paperwork to calculate their previously ineligible payments.
When the new rules were announced, only about 16,000 borrowers had received cancellations through the PSLF within four years. That number ballooned to about 175,000 borrowers in the first seven months of the limited forgiveness, equivalent to $10 billion in debt cancellations.
However, if – if – that’s a big assumption – they know about the waiver and act before it expires on October 31, more than half a million public sector workers could benefit.
How does the PSLF waiver work?
Typically, for borrowers to forgive their student loan balances under Public Service Loan Forgiveness (PSLF), they must work full-time for an eligible employer in the public service industry, such as a nonprofit or government organization. At the same time, they need to have qualifying loans and pay off their student loans through an income-driven repayment plan. After 120 qualifying payments (which do not have to be consecutive), the borrower may apply for cancellation of their debt.
Strict rules about loan types have often rattled borrowers, and at worst, some have reported paying for years while working in qualifying jobs, thinking they were approaching forgiveness, only to discover they were the wrong type of loan or repayment plan.
Temporary changes to the PSLF program are designed to address this issue by allowing borrowers to obtain credit without qualifying payment plans, including those with older Federal Family Education Loan (FFEL), Perkins and other federal student loans People. However, in order to receive credit for these payments, borrowers will need to consolidate their debt into a direct consolidation loan by the October 31 deadline.
Borrowers who did not make payments during the pandemic-era grace period (now set to expire on Jan. 1) will receive credit as if they continued to make payments. But these borrowers will need to submit a PSLF form certifying their hours worked during the moratorium. Borrowers can also combine multiple sources of part-time employment to qualify.
After the waiver expires, traditional PSLF rules apply again – meaning borrowers will need to have a qualifying loan and participate in a qualifying repayment plan in order to receive any credit forgiveness. As long as your payments are counted before October 31st, a temporary, looser rule will apply, which will result in more payments being counted.
Will Biden Extend PSLF Waiver?
Last month, President Joe Biden extended the moratorium on federal student loan payments and accrued interest for the seventh time. He noted that this is the last extension and borrowers should plan to resume payments in January. Many wondered if he would provide a similar extension to the PSLF exemption.
It’s possible, though unlikely. According to financial planner and certified student Tricia Kollath, the government used the powers given to the education minister to change the rules regarding the PSLF during the national emergency (the same rationale cited in its recent announcement of almost universal loan relief). ) Loan Professionals.
“With the extension of the COVID-19 national emergency until February 2023, the government does appear to have the authority to extend the exemption,” Kollath said. “However, since borrowers have a full year to make the necessary changes to qualify, I wouldn’t count on getting an extension.”
She noted that several state attorneys general sent a formal letter to the administration asking for further changes to the program, including an extension of immunity. Still, borrower advocates warn that the deadline is approaching, but government officials have not announced an extension, instead emphasizing the need to apply before the existing deadline.
Will the latest student loan forgiveness affect PSLF?
One of the reasons advocates want to extend PSLF forgiveness is that there will be a number of major changes to the student loan program in the coming months, including Biden’s plan to forgive more than 40 million borrowers. Kollath said the program would not specifically affect PSLF waivers, but would affect borrowers working with PSLF, depending on their balances.
For borrowers on income-driven repayment plans, payments are capped as a percentage of income, not based on balance size. Borrowers working with PSLF whose cancellation amount is less than $10,000 (or $20,000 for Pell Grant recipients) will have their remaining student loans fully cancelled. Those with relatively low remaining balances after receiving cancellations of up to $20,000 may end up paying off their loans before the 120 payments required by PSLF, meaning their debt will be wiped out sooner than expected.
“The people it won’t help are those with high student loan balances going to PSLF,” Kollath said. “These borrowers will end up with a substantial amount of money forgiveness once the eligible payments are made, so it doesn’t matter if $10,000 or $20,000 is canceled right now.”
In fact, she added, it could actually hurt some people in the short term if they live in a state that taxes student loan relief.
How to qualify for PSLF under a limited exemption
Anyone with federal student loans and working in public service should determine if they qualify for PSLF under limited forgiveness by taking the following steps:
1. Check your loan
You can log into your studentaid.gov account to find out what types of loans you have.
2. Determine if you need to merge
If you have a Direct Loan, you can skip to the next step. But if not, you’ll need to fill out a form to consolidate your loan into a new, eligible loan. Loans must be consolidated or in the process of consolidating before the forgiveness expires on October 31, 2022. The consolidation process typically takes 30 to 45 days, so it’s important to start as soon as possible.
3. Submit Employment Verification Form (ECF)
This can be done by using the PSLF help tool in your studentaid.gov account and then sending the form to your employer for signature. You will need to complete a separate form for each eligible employer that has worked for you since 2007, even if you are not working full time or paying.
“We don’t know what changes will be made to the program in the future, so it’s best to certify the work history now so it’s on file,” Kollath said.
Also, make sure you have correct information for all employers, such as an Employer Identification Number (EIN) and your hire and termination dates, to avoid rejection of your form. If you are merging, please submit these forms after the merge is complete (but before October 31st). If the merge is still in progress near the end of October, Kollath says you should go ahead and submit the ECF.
4. Make sure you have an eligible repayment plan
After the limited exemption expires, the old PSLF rules will apply. You’ll need to make sure you’re on an eligible payment plan so future payments can be calculated correctly. There are four PSLF-eligible income-based repayment plans:
- Income Based Repayment (IBR)
- Income Contingent Repayment (ICR)
- Pay As You Earn (PAYE)
- Modified Pay-As-You-Go (REPAYE)
Keep in mind that the standard repayment plan does qualify for the PSLF, but Kollahth points out that there is not much benefit to keeping the plan long-term, as the plan is designed to repay the loan after 10 years anyway. (Please note that this program is not the same as the Standard Repayment Program for Consolidation Loans that are not eligible for PSLF.)
5. Follow up on your form
Double check that these requests are being processed.
“If you don’t receive any emails or communications about your request, there may be a problem,” Kollath said. If you don’t hear anything after a few weeks, be sure to contact your loan servicer.
If you need help with this process, it is best to go to studentaid.gov for information on PSLF programs and waivers. You can also call your loan servicer for more information.
Finally, keep in mind that refinancing student loans requires loans from the federal system entirely. “Private loans are not eligible for PSLF or any form of federal forgiveness, so if you are eligible for PSLF, don’t refinance,” Kollath said.
More from money:
Public Service Loan Forgiveness: 5 Steps to Cancelling Your Student Loan Under Temporary Forgiveness
How to Apply for Biden’s Student Loan Forgiveness Program
Why student loan forgiveness can hurt your credit score