Public Service Loan Forgiveness Guide

Excerpted from an i2verify blog by Scott Forman

The Public Service Loan Forgiveness Program, or PSLF, is an extraordinary program from Federal Student Aid, or FSA, an Office of the U.S. Department of Education.

PSLF forgives the remaining balance on employee Federal Direct Student Loans after the completion of 120 qualifying on-time, monthly payments. Qualifying payments must be completed under a qualifying repayment plan while working full-time for a qualifying employer.

The goal of this program is to enable non-profit employers to attract, hire, and retain high-quality professionals while holding out the promise of reduced student debt for their employees. Many graduates struggle with student loan repayments for ten to thirty years after graduation, depending on their repayment plan. For many, it affects their ability to lead an independent financial life, obtain a mortgage or automobile loan, and even save for their own children’s education. Knowing that there is the possibility of having a portion of those loans forgiven can be a powerful incentive for devoting employment time to worthwhile non-profit organizations.

Despite the good intentions of the program, the technicalities of qualifying for loan forgiveness can be a burden for employers and employees alike. Following PSLF guidelines is essential to avoid endangering loan forgiveness, which will likely result in a frustrated and unhappy employee. Following the PSLF guidelines is a challenging hurdle. In fact, according to the latest released data from the Department of Education, 99% of borrowers have been rejected for loan forgiveness.

Some employees nearing the completion of their ten-year timeframe for loan forgiveness are shocked to discover that payments they labored so hard to make have not counted toward loan forgiveness. Certification problems are so common that the Consumer Financial Protection Bureau released a report on this issue. The report notes the widespread failure of the student loan industry to inform borrowers about loan forgiveness requirements and rights.

There is a solution to manage PSLF eligibility challenges while also reducing the administrative burdens associated with employment verification. i2Verify understands the importance and time-consuming requirements of the program and has created this guide to help you better work within the guidelines of the PSLF program so more employees can benefit.

What Is the Public Service Loan Forgiveness Program?

The PSLF program is a government-based program signed into law in 2007 by President George W. Bush as a way to encourage graduating college students and professionals to choose full-time work in public service in exchange for partial loan forgiveness on some of their federal student loans.

How Does the PSLF Program Work?

The PSLF forgives the remaining balance on specific federal student loans after eligible employees complete 120 qualifying monthly, on-time payments under a qualifying repayment plan while working full-time for a qualifying employer.

How Do Employees Qualify for the PSLF Program?

There are several requirements to meet to qualify for the program:

1. Qualifying Employer: First and foremost, employees must be employed by one of the following types of organizations:

• Government organization (federal, state, local, or tribal)
• Not-for-profit organization that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code
• Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if their primary purpose is to provide certain types of qualifying public services
• Serving as a full-time AmeriCorps or Peace Corps volunteer

2. Qualifying Hours: To qualify for PSLF, employees must work full-time for qualifying employers. Employers have different definitions for the number of hours that must be worked to be considered full-time. Employees must work for the number of hours required by their employer to be regarded as full time or at least 30 hours per week, whichever is greater. It is also possible for forgiveness applicants to work part-time for two qualifying employers, as long as they work more than 30 hours per week in total.

3. Qualifying Student Loans: Only non-defaulted federal student loans received under the William D. Ford Federal Direct Loan Program qualify for possible forgiveness. Direct loans include direct subsidized and unsubsidized loans, direct PLUS loans, and direct consolidation loans. Borrowers with other loan types besides Direct Loans may still become eligible for PSLF if they consolidate them into a Direct Consolidation Loan; however, private student loans cannot be consolidated into this plan. Borrowers should be aware that qualifying payments made before consolidation may not be counted towards their new eligibility, but it is possible to leave certain loans outside of the consolidation process.

4. Qualifying Monthly Payments: PSLF eligibility requires that qualifying payments be completed within the following criteria:

• Made after October 1, 2007
• Made under a qualifying, income-based repayment plan
• Made for the full amount due as shown on the borrower’s bill
• Paid no later than 15 days after the due date
• Paid while the borrower is employed full-time by a qualifying employer

The 120 qualifying monthly payments do not need to be consecutive. A period of employment with a non-qualifying employer, for example, will not cause the employee to lose credit for prior qualifying payments, but loan payments still need to be made during the time of non-qualifying employment. The qualifying monthly payments, however, can only be made during periods when the loans are not in deferral due to an in-school status or other reason, the grace period after graduation, or a forbearance.

5. Qualifying Repayment Plans: Eligibility for PSLF requires that employees enter into an income-driven repayment plan for their federal student loans. These are plans where the monthly payment is based on the employee’s monthly income. Employees that are using a non-income driven repayment plan are advised to analyze whether it makes sense to switch to an income-driven repayment plan to be considered for PSLF eligibility.

Frequently Asked Questions About PSLF

How Does an Employee Apply for PSLF?

Because employees must make 120 qualifying monthly payments, it will be at least ten years after making the first qualifying payment before they can apply for PSLF. It is strongly advised, however, that employees working towards loan forgiveness should complete and submit an Employment Certification for Public Service Loan Forgiveness Form every year or when they change employers, to ensure continuing eligibility.

FSA uses the information provided to let applicants know if they are indeed making qualifying PSLF payments, and how many have been counted toward their 120-payment goal, so they can determine if they are on the right track as early as possible. Employees can also find out how many qualifying payments they have made by logging into their account at FedLoan Servicing and viewing their loan details, or by looking at their most recent billing statement.

Although it is not required to complete this form every year, it is a good idea to do so. Annually, completing this task makes life easier when employees apply for loan forgiveness. At that time, they will be required to submit an Employment Certification form for each employer where they worked while making the required 120 qualifying monthly payments, which could be a paperwork nightmare.

What Do Employees Do After Making 120 Qualifying Payments?

Once employees complete 120 qualifying monthly payments, they need to submit the Public Service Application For Forgiveness to receive loan forgiveness. At the time of the application submittal, and when the remaining balance is forgiven, employees must still be working for a qualifying employer.

How Do Employees Determine Their Loan Type?

Review loan types by logging into the My Federal Student Aid site. As a general rule, loan types that have the word “Direct” in the name are most likely eligible for the PSLF program, but employees should verify this information directly with their loan provider.

How Do Employers Certify Employment?

Employment can be certified by an official who has access to employment or service records and is authorized by the employer to certify employment or service as an AmeriCorps or Peace Corps volunteer. This will often be someone in the Human Resources (HR) department, though in some cases a direct supervisor or another individual may be authorized to certify employment.

For many employers, this can cause an additional paperwork nightmare, depending on the number of employees seeking to have employment certified. It takes valuable administrative personnel time and risk of employment certification denial if HR provides incomplete information on current or former employees. One solution to this issue is to outsource the completion of PSLF forms to an employment verification company such as i2Verify. i2Verify enables employees to generate pre-populated, automated loan forgiveness forms, on-demand, from their employee portal, so employees always know where they stand.

i2Verify helps employers and employees with all their employment and income verification needs. Included with our secure, state-of-the-art system is assistance with the completion of many time-consuming forms, including Public Service Loan Forgiveness, supporting documentation for H-1B petitions/extensions and employer-based custom forms.