PSLF: What Is It and How Does It Work?

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. 

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. 

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. 

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. 

What’s the Limited PSLF Waiver?

The PSLF limited waiver is a temporary expansion to the established rules of the PSLF Program. Borrowers have until October 31, 2022, to take advantage of these expanded provisions. 

One of the most common examples is a borrower who was making payments on the wrong repayment plan. In this case, the borrower can apply to have their payments counted toward their 120 payment requirement (assuming they meet the other requirements too). 

Another common example of the benefits of the waiver involves borrowers with the wrong loan type. A borrower holding a Federal Family Education Loan can consolidate their loans and apply to have their payment count reevaluated.

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 intimated, 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.