The nearly $1.6 trillion in student debt owed by U.S. families continues to be the largest source of (nonmortgage) debt, as noted by the Federal Reserve's recent Survey of Consumer Finances. For that reason, the Public Service Loan Forgiveness (PSLF) Program should come as welcome relief for many families impacted by COVID-19.
The PSLF Program, established by the U.S. Department of Education's Office of Federal Student Aid, forgives up to 100% of your Federal Direct Loans after making 120 qualifying monthly payments counted as eligible PSLF payments under a qualifying repayment plan. Prepayments and lump-sum payments are also now accepted.
But PSLF is not perfect. Out of 179,371 borrowers who applied to have their debts erased, only 3,469 have been discharged, according to the September 2020 PSLF Report by the U.S. Department of Education. And if you're looking to qualify for PSLF right now, you may run into a pandemic roadblock.
What are the requirements for Public Service Loan Forgiveness?
To qualify for PSLF, you must —
- Repay your loans under an income-driven repayment plan.
- Have Direct Loans or consolidate your federal student loans into a Direct Loan.
- Make 120 qualifying payments.
- Be employed and work full-time for a not-for-profit organization or U.S. federal, state, local government organization.
Qualifying employers and organizations include:
- Federal, State, Local Government
- Non-Profits, 501(c)(3)
- Many Non-Profits in Public Service Organizations (but not all)
Use an online tool like Credible to get prequalified student loan refinancing rates without affecting your credit score.
Qualifying and Repayment Plan requirements: You must make payments on your federal student loans under an income-driven repayment (IDR) plan, and you can’t make qualifying payments if your loans are in forbearance, you’re still in school, or during the grace period.
Loan requirements: Only federal Direct student loans that are not in default are eligible for PSLF. Federal Perkins Loans and loans in the Federal Family Education Loan (FFEL) program are not eligible unless you consolidate them into Direct Loans. PSLF doesn't apply to private student loans.
Does the CARES Act help if you lose full-time status?
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, interest rates are 0% on direct student loans owned by the U.S. Department of Education, and loan payments are paused until the end of January 2021. President-elect Joe Biden has not yet committed to any specific actions he’ll take on student loans. However, he is expected to continue the freeze on payments and keep interest rates at 0%.
If you lose your full-time employment status, keep in mind that your 120 qualifying payments don’t have to be consecutive. If you’re out of work or employed by a nonqualifying employer for a period of time, you won’t lose credit for the qualifying payments you made before that time. Learn more about student loan repayment and compare up to 10 lenders for free at Credible.
Options for paying student loans if you’re no longer eligible for PSLF
If you no longer qualify for PSLF, there are some other options to consider. Here are at least five ways you can still get some relief without PSLF.
- Apply for an IDR plan
- Refinance into private loans
- Continue making payments amid CARES Act forbearance
- Consolidate loans
- Temporary Expanded Public Service Loan Forgiveness program
1. Apply for an IDR plan
If you’ve lost your full-time employment status and your financial situation has changed due to COVID-19, you can log in and file an application for an income-driven repayment plan, which can potentially lower your monthly payments.
2. Refinance into private loans
You can potentially save money by refinancing your federal student loans into private student loans. But there’s a downside. You permanently lose access to several federal benefits, including forbearance options, forgiveness programs, and income-based repayment plans.
Visit Credible to get personalized student loan refinancing rates without affecting your credit score to see if refinancing is the better option for you.
3. Continue making payments amid CARES Act forbearance
If you haven’t experienced any long-term financial hardship due to COVID, you may opt to continue making your student loan payments. With the current 0% interest rate granted by the CARES Act, you can save money in interest while also reducing your principal balance.
4. Consolidate loans
Consolidating student loans into one monthly payment might save you money, but if you’ve made qualifying payments toward PSLF, you can lose credit for those payments if you opt to consolidate your loans.
However, if your goal is to lower your interest rate or to combine multiple private loans, you'll need to look into refinancing instead. Visit Credible to get personalized student loan refinancing rates without affecting your credit score to see if refinancing is the better option for you.
5. Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program
The Consolidated Appropriations Act, 2018 offers additional ways you may qualify for loan forgiveness, but only if some or all of the loan payments you made on your Federal Direct Loan Program were under a nonqualifying repayment plan for PSLF. The TEPSLF program has limited funding and is temporary.
PSLF isn’t the best option for everyone. The program requires a commitment of ten years working in public service before your loans can be forgiven. That’s a big commitment if you’re not certain of your career path. To compare student loan refinancing rates from multiple lenders at once without affecting your credit score, use an online tool like Credible.
If a private non-profit employer (not tax-exempt under Section 501(c)(3) of the Internal Revenue Code) provides specific public services, it may also qualify. These services include:
- Early childhood education
- Public interest law services
- Military service
- Emergency management
- A school library or other school-based services
- Public education, public health services, or public libraries
- Public safety services and law enforcement
- Public service for the elderly
- Public service for individuals with disabilities
These organizations are not considered qualifying employment by PSLF:
- Labor unions
- For-profit organizations
- Partisan political organizations
- Non-profit organizations that are not exempt under Section 501(c)(3) or do not provide a public service