What is the Public Service Loan Forgiveness Program?

College is expensive and the price only keeps rising. This means graduates are constantly having to borrow more money which means higher student loan debt balances. One option is the Public Service Loan Forgiveness program. With this program, your federal student loans might be forgiven within 10 years of graduation.

History of Public Service Loan Forgiveness

The Public Service Loan Forgiveness (PSLF) program was started in 2007. Government employees and 501(c)3 non-profit workers can have their undergraduate and graduate federal loans forgiven after 10 years of on-time payments. Most federal loan forgiveness programs require 20 or 25 years of payments to have your loans forgiven.

As a combination of the “Great Recession” and rapidly increasing college tuition rates, participation in the PSLF program has accelerated in the past few years.

Through 2016, there were approximately 431,853 federal borrowers enrolled in the Public Service Loan Forgiveness program. In 2012, the number of enrollees was approximately 25,863. That’s a 94% increase in only four years!

Borrowers enrolled in the PSLF program have their monthly payments capped at 10% of their adjusted monthly income. After 10 years (120 monthly payments), their remaining balance is forgiven.

Qualifying for Public Service Loan Forgiveness

To qualify for the Public Service Loan Forgiveness program, you must first be able to qualify for an income-based repayment plan that limits your monthly federal loan payment to 10% of your monthly income and will need more than 10 years to pay back your loans.

If you meet the income requirements, you must also meet the following employment requirements:

  • Government Organizations (federal, state, local, or tribal)
  • 501(c)(3) non-profit organization
  • Other qualifying types of public service (i.e. AmeriCorps, PeaceCorps)

You do not qualify for PSLF if you work for a labor union, partisan political organization, for-profit organization, or non-profits that don’t meet tax-exempt 501(c)(3) criteria.

For those ten years, you must be employed full-time with one of the organizations listed above. If you are a PeaceCorps or AmeriCorps (or similar service) volunteer, your time counts as credit for PSLF.  Additionally to any stipends or additional financial assistance you received.

Switching employers?  The good news is that those 120 monthly payments don’t have to be consecutive. If that is the case, you will have made more than 10 years (120 months) of payments to meet the eligibility criteria.

Also, you don’t have to enroll in PSLF as soon as you qualify for an income-driven repayment plan. You can wait until you make 120 eligible payments and then apply for loan forgiveness using PSLF. The Department of Education will retroactively honor all your payments if you met the employment and income requirements.

 Current Financial Statistics for PSLF

Of the 431,853 borrowers in 2016, the median loan balance was $60,000 and 30% of the enrollees had balances above $100,000. Obviously, the Public Student Loan Forgiveness option is a popular option for graduates with high student debt balances, as the average student loan balance is only $28,000. The average student loan balance for graduate students is $57,600.

Related Article: 5 Tips to Eliminating $107,000 in Student Loan Debt

Enrollment in the PSLF program is continuing to increase so a hard figure hasn’t been released on how many loans have been forgiven so far from this program. Plus, it might be somewhat hard to gauge as enrollment in all federal income-driven repayment plans, has 5.3 million borrowers in June 2016. That was a 35% increase from 2015 and 110% increase from June 2014. In two years, enrollment has doubled for income-based student loan payments.

Advantages of Public Service Loan Forgiveness

The largest advantage of the PSLF program is the financial incentive to work a low-income job that requires expensive graduate schooling. Many students might not have pursued work with a non-profit, volunteering with a government agency such as the Peace Corps or AmeriCorps, or working for a local government agency with small salaries if they would have been making student loan payments for an additional decade of life.

As the cost of college increases, many of today’s college graduates are looking for careers with higher starting salaries to afford their student loan payments. PSLF helps address the needs of employment sectors that historically don’t pay much money.

Disadvantages of Public Service Loan Forgiveness

One primary disadvantage of PSLF is that you must work at an eligible government agency or non-profit for 10 years to qualify for employment. There might not be enough jobs in particular career fields forcing prospective PSLF enrollees to find private sector jobs and repay their entire loan balance. Other PSLF enrollees might only stick with a qualified employer for 10 years until their loans are forgiven and then pursue their true ambitions.

A second disadvantage of Public Service Loan Forgiveness is that taxpayers are responsible for paying these high loan balances. There are many differing viewpoints on the cheapest long-term option.  Is it better to forgive student loans or raise the salaries of these government positions.

The Future of Public Service Loan Forgiveness

Both the Obama and Trump administrations have shown concern about the size of the Public Service Loan Forgiveness Option. President Obama’s proposal to cap maximum reimbursement at $57,000 for all borrowers was never enacted. The 2018 Trump budget proposes ending enrollment in the PSLF for all federal loans disbursed after July 1, 2018. Current college students can still borrow PSLF eligible loans to finish their current course of study beyond July 2018.

For now, any federal loan that has been disbursed since 2007 is eligible for the PSLF program. You only need to meet the income and employment criteria. If so, any balance after 120 payments will automatically be forgiven..

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