Reports about how hard it is to qualify for Public Service Loan Forgiveness (PSLF) are all over the place. Some think that after ten years of government or non-profit work, loans will easily disappear. Others indicate that 99% of the people who apply for Public Service Loan Forgiveness are denied and that PSLF is nearly impossible.
The reality is somewhere in the middle.
Public Service employees should be able to qualify for loan forgiveness after ten years. While there is some red tape to navigate, and some issues may have to be corrected, it is possible to qualify for loan forgiveness.
How difficult is it to get a Public Service Discharge?
There are three basic requirements for Public Service Student Loan Forgiveness.
- Eligible Loans – Borrowers must have federal direct loans to have them forgiven. Some loans through the federal government are not federal direct loans but can be consolidated into a federal direct loan and become eligible.
- Eligible Repayment Plan – Not all federal repayment plans will qualify for PSLF. The most common PSLF eligible plans are Income-Based Repayment, Pay As You Earn, and Revised Pay As You Earn.
- Eligible Employer – Not all employers qualify as public service. Borrowers who are employed directly by the government or a 501(c)(3) should be able to demonstrate their eligibility.
Once borrowers complete 120 payments that meet the above requirements, they qualify to have their federal student loans forgiven.
Borrowers who plan on pursuing PSLF are encouraged to submit an employer certification form every year. Not only does this form help a borrower certify that they are working for an eligible employer, but it also triggers a check to make sure they are on the right repayment plan and have eligible loans.
The best tool for tracking progress is the Department of Education PSLF Help Tool. This tool allows borrowers to check employer eligibility and identify the proper forms to complete. Borrowers should use the help tool yearly.
Based upon the basic requirements, it might not appear to be very hard to qualify for PSLF… so what’s up with the high rejection rate?
Unpacking the 99% Rejection Rate
There are several different reasons that borrowers have been rejected, many of which are easily avoidable.
Incomplete Applications – A staggering percent of the rejections have come from applicants who submitted incomplete forms. A full 28% of the first batch of applications were rejected for “missing or incomplete information.”
Optimistic Applicants – Undoubtedly, there are applicants who don’t expect to have their loans discharged, but are applying anyway. There is some logic to this approach, given the many mistakes that happen with loan servicing. These borrowers may be hoping their loans disappear, but aware they don’t qualify.
Wrong Form – The form for student loan forgiveness and the employer certification form are very similar. Borrowers seeking PSLF are typically advised to complete an employer certification form every year. This helps track borrower progress towards the required 120 payments. Borrowers may have mistakenly applied in an attempt to track their progress rather than getting credit for the entire ten years. Recently, the Department of Education Created the PSLF Help Tool to assist borrowers in completing the proper paperwork.
Not Enough Payments – PSLF went into effect at the end of 2007. The borrowers getting approved now must have been the right repayment plan from the beginning and not had any gaps in public service employment. Because of issues processing income-driven repayment plans, it isn’t unusual for borrowers to miss a couple of months of payments that might otherwise be certified. As a result, many of the “rejected applicants” may be borrowers with nearly 120 payments, but not quite enough.
Wrong Repayment Plan – This is an issue that is harder to resolve. Many of the rejected applications for PSLF will be because the borrower was enrolled in a repayment plan that is not eligible. The most common ineligible repayment plans will be the graduated and extended repayment plans. The good news for these borrowers is that there is a temporary legislative fix to help. More information on the fix is available here.
Ineligible Loans – This will be the backbreaker for many borrowers. If a loan is not eligible for PSLF, it can usually be fixed via Federal Direct Student Loan Consolidation. However, that borrower will have to start from the beginning on their way to 120 payments. As time passes, this will become less of an issue as only a small percentage of the loans issued in 2007 were federal direct loans, but more recent loans almost all fall into the federal direct category.
Why is it hard, but not impossible, to qualify for PSLF?
Borrowers applying PSLF stand to have many thousands of dollars, potentially over $100,000 forgiven tax-free. With so much money at issue, the government has every incentive to deny as many applicants as possible.
That being said, PSLF is a term of the borrower agreement on federal student loans and federal law.
Don’t expect the government to make it easy, but don’t think it is impossible to get done either.
Next Steps to Pursue After a PSLF Application Rejection