What Is Public Service Loan Forgiveness?
Public Service Loan Forgiveness (PSLF) is an income-based repayment program that allows individuals who meet certain criteria to eventually eliminate their student loans.
Who Qualifies for PSLF?
To qualify for PSLF, you must:
- Have federal direct loans. Unfortunately, if you only have private loans or other types of federal loans (e.g., Federal Family Education Loans), you’re not eligible to participate.
- Work full-time (30+ hours per week) at a qualifying employer, i.e., a government agency or qualifying nonprofit. See below for details.
- Enroll in an income-based repayment plan and make 120 qualifying payments.
If you become ineligible for a period of time (e.g. if you choose to work at a non-qualifying employer or work fewer than 30 hours per week), you are not disqualified from later participation in PSLF, and you will not lose credit for any qualifying payments already made.
The Department of Education has some helpful tools to make sure you are on the right track to qualify for the program.
Not all jobs in the nonprofit or government sector are eligible. Employers that do not qualify you for PSLF include:
- Labor unions
- Partisan political organizations
- For-profit government contractors
In addition, any work hours spent proselytizing or performing other religious activities do not count towards the full-time work requirement.
There are many terms and conditions, so it’s important to thoroughly review the PSLF website and to submit an Employment Certification Form every year or each time you change jobs to make sure you remain eligible.
Issues to Keep in Mind
Many loans are ineligible. If your loans are private or otherwise not federal direct loans (e.g. Perkins Loans) you do not qualify.
Qualifying is rare. Fewer than 1% of applicants have actually had their debt forgiven in recent years, due to issues like changes in employment status, career changes, issues with refinancing or consolidation, and ineligible nonprofit employment.
There’s no way to speed up the process. You can’t make larger monthly payments for earlier eligibility, meaning the process of qualifying for loan forgiveness will take at least 10 years.
It’s vulnerable to political shifts. This program may be changed by Congress at any time, meaning its future isn’t guaranteed.
Is PSLF Right for Me?
If you’re set on a career in the government or nonprofits, or if you choose a field in which many of the best career opportunities fall in those sectors (like social work, education, law enforcement, and urban planning), this program may be a good fit.
If you’ve chosen a field in which private sector incomes may be substantially higher than in the public/nonprofit sectors (like law, medicine, and finance), PSLF may not be a good option, as the gap in potential incomes between sectors may be greater than the money saved through loan forgiveness.
Forgiven loans count as taxable income for the year the loans are forgiven, so make sure you can pay the taxes.
Beyond financial outcomes, it’s important to consider other factors, like employer and location flexibility or career opportunities.
Once you’ve put some thought into your career trajectory and employment options in both the private and public sectors, an experienced financial planner can help you decide if PSLF is right for you.
For many people who work in the public sector and/or nonprofits, PSLF can provide student loan relief—but its stringent requirements mean it’s not a good fit for the majority of individuals with student loans.