Public Service Loan Forgiveness (PSLF) is a loan forgiveness program funded by the Department of Education. The program, founded in 2007, has undergone some changes, especially in the last few years.
The PSLF requirements can feel convoluted as a result. What is the PSLF program? Am I eligible? How does PSLF work? Is PSLF worth it? At Your Money Line, we’re here to help employees navigate an ever-evolving space.
What is PSLF?
One of the most common questions in this space is simply - “what is PLSF?”
PSLF is a program that attempts to forgive the student loan debt of borrowers who work for the government and nonprofit organizations. Borrowers make payments on their student loans based on their income instead of on a specific timeline. Finally, the forgiven debt isn’t taxable to the borrower.
History and Evolution of PSLF
The Public Service Loan Forgiveness (PSLF) program was created in 2007 by the U.S. Department of Education. Its goal was to encourage graduates to work in public service by offering loan forgiveness after 120 qualifying payments.
The program was intended to reduce financial barriers for employees in government and nonprofit sectors, making public service careers more accessible.
One of the biggest structural aspects of PSLF was its focus on federal loans, specifically the William D. Ford Federal Direct Loan Program. This program replaced older loans, such as those from the Federal Family Education Loan (FFEL) program, which did not initially qualify for forgiveness unless consolidated into Direct Loans. This shift caused confusion early on, as many borrowers didn’t realize their FFEL loans weren’t eligible.
Over the years, key changes addressed program issues like high rejection rates. Improvements made the eligibility process clearer, with accessible income-driven repayment plans and better employer certification procedures.
Recent legislative reforms have further transformed PSLF, particularly during the COVID-19 pandemic, when federal loan payments were paused. The Biden administration also introduced temporary waivers to make more borrowers eligible, while the SAVE plan provided additional relief.
Ongoing court challenges have impacted future forgiveness plans, but these changes have made PSLF more accessible for public servants aiming for financial relief.
How Does PSLF Work?
PSLF requires a borrower to meet stringent requirements to qualify:
1. Work for a qualifying employer
2. Work full-time for said employer
3. Make your student loan payment on time and in full
4. Make your monthly payment on one of the income-driven repayment plans
A PSLF hopeful needs to make 120 qualifying payments that each meet the aforementioned criteria. Ideally, you should complete the employment certification form annually to ensure you are meeting the program requirements. Finally, after you make 120 payments, you can apply to have your remaining balance forgiven.
Who Benefits Most from PSLF?
The Public Service Loan Forgiveness (PSLF) program is especially beneficial to professionals working in education, healthcare, government, and the military. Teachers, nurses, public defenders, and social workers often have higher student loan balances and work for qualifying employers, making them ideal candidates for PSLF.
Demographically, PSLF participants are typically middle-income earners in their 20s to 40s, often carrying substantial student loan debt. Many have advanced degrees, making income-driven repayment plans essential for managing their loans.
At Carmel Clay Schools, we worked alongside their staff to help secure over $1 million in student loan forgiveness through the Public Service Loan Forgiveness (PSLF) program.
By providing personalized guidance, we made the PSLF process easier for educators and staff.
With our support, employees like Nick Carter and Fred Napier are now on the path to significant loan forgiveness, which has greatly reduced their financial stress. This initiative is a key part of Carmel Clay’s commitment to overall wellness for their team.
Is PSLF Worth It?
The strict requirements coupled with the time commitment could have you wondering, “is PSLF worth it?” In the bulk of our cases, the benefits of PSLF far outweigh the time commitment and (understandable) headache. If you’re working for a qualifying employer, you have the opportunity to make payments based on your income, which can provide cash flow relief monthly. This monthly relief is then combined with the potential to have your obligation eliminated as if you were making a “standard payment.” Finally, one of the greatest benefits of PSLF is that the forgiven debt isn’t taxable. With some debt relief, the forgiven debt is treated as income to the recipient. The PSLF program, for those who meet the income criteria, is one of the greatest opportunities for borrowers.
Qualifying for Public Service Loan Forgiveness: PSLF Requirements
The core requirements of the PSLF program are seemingly straightforward. It’s the application of these PSLF requirements that quickly becomes overwhelming.
Employment
To qualify for PSLF, you must work for either a governmental organization or a non-profit as defined by section 501(c)3 of the tax code. This requirement is one of the most overlooked in the PSLF program. Some employers are initially overlooked because we don’t always associate them with government employment. One of our most common PSLF candidates is a K-12 teacher. Our team of Financial Guides is here to help teachers navigate PSLF and other forgiveness programs like Teacher Loan Forgiveness.
Qualifying loans
Regarding the loans eligible for PSLF, only one type qualifies - direct loans. One of the program's provisions is that you must have loans part of the “Willam D Ford Federal Direct Loan Program.” There are opportunities for you to include other loans if you consolidate your loans (like FFEL loans). If you’re unsure if your loans qualify, you can use the PSLF Help Tool to determine if you can or should consolidate.
Qualifying payments
A qualifying payment for PSLF is one that meets all of the aforementioned criteria for the month. Each payment is assessed independently from any other payments. For each month subject to review, did you:
- Make your payment in full
- Make your payment on time
- Did you work full-time for a qualifying employer?
- Was your payment made on an Income-Driven Repayment Plan?
- There are four different Income-Driven Repayment plans
- Income Based Repayment
- REPAYE
- PAYE
- Income Contingent Repayment
Only the servicer (MOHELA) can certify your payment count. If MOHELA determines all of these to be true, that payment will be counted toward your required 120 payments. It’s also worth noting that if your required monthly payment under an IDR is $0, this counts as a qualifying payment. Essentially, did you pay what was asked? Be advised that MOHELA can only update your payment counts as you certify your employment. If you haven’t provided your employment information recently, don’t be surprised if your payment count is lower than you might expect.
Application
The PSLF application looks more intimidating than it is, I promise. First of all, over half the form consists of instructions and definitions. You only need to complete the first two pages. The first section is all about you, and you can answer these questions in your sleep. Section three can be completed by your HR department as the questions ask about the tax status of your employer and verification of your employment history. Finally, the last section is to be signed by a qualifying official. When complete, proofread, just to be safe, and then submit the form via the instructions in section seven.
When you break down the form into bite-sized pieces, it’s not nearly as intimidating. Once you submit your application, you’ll wait to hear from MOHELA concerning your updated payment count. Be advised, if you are working with a different servicer, your loans will be transferred to MOHELA.
How Long PSLF Application Process Takes
The PSLF application process can vary in length. The program, in its entirety, will take you at least ten years to complete. However, there is variation in how long it takes to process a PSLF application. For example, in 2022, borrowers had a few opportunities to earn additional qualifying payments. This influx of forms created a backlog causing borrowers to wait several months to receive updated payment counts.
What to Watch Out for When Applying for PSLF
One of the biggest things to watch out for when applying for PSLF is that your employment certification form is complete and accurate. With extended processing time, you do not want your form to be rejected because you failed to check a box, mistyped your social security number, or failed to follow the proper format for dating the form.
A second common pitfall is not reapplying for your income-driven repayment plan. Outside the limited waiver, payments must be made under an income-driven repayment plan. Failure to recertify your income and household size could result in making ineligible payments. Be sure you reapply for your IDR annually.
Common Misconceptions About PSLF
Many borrowers assume that only certain public service jobs qualify for PSLF. However, it's not the job title but whether the employer is a government, nonprofit organization, or for profit organization that matters. Make sure your employer qualifies under PSLF rules, regardless of your role.
Furthermore, only federal student loans under the Direct Loan Program are eligible for PSLF. Loans like Federal Family Education Loans (FFEL) don’t qualify unless you consolidate them into a Direct Loan.
Some common missteps in the application process include:
- Submitting an incomplete employment certification form. This can be avoided by double-checking all fields and ensuring the form is signed by the correct employer.
- Forgetting to reapply for income-driven repayment (IDR). Ensure to set a reminder to reapply annually for your payments to remain eligible.
- Not consolidating non-eligible loans. This can be avoided by reviewing your loan types and consolidating any non-Direct loans to qualify for PSLF.
The Financial Impact of PSLF on Borrowers
The financial impact of PSLF on borrowers can be substantial. On average, borrowers have over $90,000 in student loan debt forgiven. This not only saves tens of thousands of dollars but also moves the needle on a borrower’s net worth by nearly six figures, providing a significant boost to long-term financial stability.
Once forgiven, it frees up the monthly payments that can be redirected toward savings, investments, or other financial goals.
Compared to other forgiveness programs, PSLF offers greater financial benefits, particularly because the forgiven debt is non-taxable. This adds another layer of savings, making the program even more valuable for those in public service roles.
PSLF can also positively affect credit scores. Regular on-time payments contribute to building credit, while reducing debt through forgiveness improves a borrower’s debt-to-income ratio, which boosts creditworthiness.
However, it’s essential to meet all program requirements to avoid missed or ineligible payments, which can negatively affect credit.
Other Types of Student Loan Forgiveness if You Don’t Qualify for PSLF
There are other types of student loan forgiveness programs. If you don’t qualify for PSLF, all hope is not lost.
Temporary Expanded Public Service Loan Forgiveness (TEPSLF)
The program helps borrowers make payments on the wrong repayment plan (recall you need to make payments on an IDR to qualify for PSLF). Borrowers who meet the other criteria can apply for TEPSLF, make a year’s worth of payments on the correct repayment plan, and then reapply for loan forgiveness. Be advised that this program will only exist until the identified funds are exhausted.
Perkins Loans Forgiveness
Perkins loans are no longer being disbursed, but loan holders can find opportunities for forgiveness. The requirements can be career specific, but there are opportunities for some educators, military service members, Peace Corps Volunteers - and more.
Teacher Loan Forgiveness
Highly qualified teachers can earn forgiveness. The amount of forgiveness depends on the subject taught and where you teach. Be advised that PSLF hopefuls cannot work toward PSLF and Teacher Loan Forgiveness concurrently after the limited waiver closes.
Impact of the Limited PSLF Waiver
The financial impact of PSLF on borrowers can be substantial. Over time, borrowers can save tens of thousands of dollars by having their remaining student loan balance forgiven after making 120 qualifying payments. This debt relief significantly improves long-term financial stability and can free up income for savings, investments, or other financial goals.
When compared to other student loan forgiveness programs, PSLF tends to offer greater savings for borrowers in public service roles. Unlike some forgiveness programs, the forgiven debt under PSLF is not taxed, further increasing its financial benefit.
PSLF can also have a positive impact on credit scores. Regular on-time payments help build credit, and loan forgiveness can lower debt-to-income ratios, which boosts creditworthiness.
However, missing payments or making ineligible payments could negatively affect a borrower's credit, thus it's important to follow PSLF requirements closely.
Navigating PSLF: Tips and Best Practices
Staying organized is crucial when applying for PSLF. Keep a record of all your employment certifications and any communication related to your student loans.
Save everything as you go—certifications, payment receipts, and forms—to ensure nothing gets missed. It’s a good idea to update and file your employment certification form annually to stay on track.
Another helpful tool is the PSLF Help Tool. This tool can assist in determining if your employer qualifies and help you keep track of your progress. Using it effectively simplifies your application process and ensures your documents are correct before submission.
PSLF and Tax Implications
A key advantage of PSLF is that the forgiven debt is non-taxable, meaning borrowers won’t face a tax bill when their loans are canceled. This is different from many other types of debt forgiveness, which are often taxable. Many people are unaware that canceled debt can be counted as taxable income, which can result in a significant tax burden.
Looking forward, there are concerns that future tax changes could impact loan forgiveness. In 2025, the waiver on taxing IDR forgiveness is set to expire, potentially making other forgiveness programs more costly if the provision isn’t extended.
Conclusion
Trying to navigate the PSLF program without a trusted resource can feel impossible for your employees. Between the core PSLF requirements, the limited waiver, and other forgiveness programs - borrowers feel intimidated, confused, and alone. Your Money Line is here to help your employees navigate this space as an unbiased and trusted resource. You can request a demo or contact us for more details.
