Debt reduction program available to professionals working in the public sector

Last week President Biden announced his plan to forgive student loan debt for certain borrowers. While all the details are not yet clear, a low number of higher-income professionals (such as physicians and attorneys) are likely to qualify based on income limitations. However, the Public Service Loan Forgiveness (PSLF) program could potentially benefit some of our clients and there is an important deadline coming on October 31, 2022..

What is the Public Service Loan Forgiveness program?

Launched in 2007, the PSLF program encourages professionals with high debt loads to work in the public sector where wages are often lower than the private sector. The program has been rife with issues since the inception. The acceptance rate of applications has been extremely low with borrowers denied forgiveness for small technicalities, such as type of loan or repayment plan. 

To simplify the system and fix the problems, in October 2021 the Department of Education announced an overhaul to PSLF. Part of the overhaul is a “limited PSLF waiver” which retroactively modifies certain requirements, allowing more borrowers to qualify for forgiveness.

Per the United States Education Department website, to qualify for Public Service Loan Forgiveness (PSLF), borrowers must meet the following requirements:

• Be employed by a U.S. Federal, state, local, or tribal government organization, or a not-for-profit organization (no change under PSLF waiver)
• Work full-time for that agency or organization (no change under PSLF waiver)
• Have Direct Loans (or consolidate other Federal student loans into a Direct Loan) (PSLF waiver counts all payments made by a borrower regardless of federal loan program – must consolidate into a Direct Loan by deadline)
• Repay loans under an income-driven repayment plan (PSLF waiver counts all payments prior to October 2021 on any repayment plan)
• Make 120 qualifying monthly payments (PSLF waiver counts all payments prior to October 2021 regardless of whether made in full or on time)

Under the new limited waiver, any period of repayment prior to October 2021 will count as a qualifying payment, regardless of loan program, repayment plan, or whether you made the payment in full or on time. But there is no change to the qualifying employment requirement.

This change will apply to borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those who consolidate into the Direct Loan Program by Oct. 31, 2022. 

For borrowers who have already consolidated their FFEL loans to Direct Loans prior to the announcement of the overhaul, and have previously applied for and been rejected for PSLF, we recommend visiting the PSLF Help Tool for next steps and to generate the necessary form for forgiveness. All qualifying employment must have been certified to be approved for PSLF and this website can walk you through the process.

If you met all other PSLF program requirements but were paying on PSLF-ineligible FFEL (or Perkins) loan, you need to consolidate your loans into a Direct Consolidation loan before 10/31/2022. Once the consolidation is complete, you can visit the PSLF Help Tool for next steps in applying for PSLF.

For borrowers who have already applied for PSLF, the Education Department will automatically adjust PSLF qualifying payment counts to include those made on or before 10/31/2021, even if they were made under the wrong repayment plan. Note that payments made under an ineligible plan after October 2021 will not be eligible for this waiver. If you are not currently under an eligible repayment plan, prior payments may still receive favorable PSLF treatment, but you will need to change repayment plans for future payments to count as well.

For full details, the government has website devoted to the PSLF Limited Waiver.  Even with the overhaul and the limited waiver, PSLF can still be a complicated system to navigate. If you’ve received information from your loan servicer or think you may qualify for PSLF, reach out to us and we can help navigate the next steps. 

As always, we are here for you. Please email or call if you want to set up a Zoom videoconference meeting or talk by phone.

Mary McCraw, CFP®

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