Is the PSLF the Government's Biggest Bait and Switch?

Student loan debt is a crippling burden for much of a generation of college graduates. It puts them behind the curve when it comes to building their financial security through retirement savings and home ownership. Some found a grain of hope in the Public Service Loan Foregiveness program (PSLF). But this program may be the biggest bait and switch the government has ever perpetrated on it’s citizens.

The PSLF was created in 2007. The promise was simple. Take a job in the public sector or with a non-profit, and if you made your required student loan payments on time, in ten years your remaining loan balance would be completely forgiven. The first opportunity to receive the long awaited loan forgiveness came in 2017. However, all but about 280 of the first 28,000 applicants were denied. All tolled, more than 80,000 individuals have been denied since. The travesty is outlined in a New York Times article.

The program is overly complex. Only certain employers are eligible. Many individuals don’t have the right type of loan. Others didn’t select the right kind of repayment plan. Some have been denied due to processing errors. About a quarter of the applications processed by the single loan servicer dealing with them had errors.

Regardless of the issue, thousands are facing a future with debt they had expected to go away. Unfortunately, the only true test of whether you’ve done everything right comes when you apply for forgiveness, ten years after you begin making payments.

If you have been counting on the PSLF to provide some relief for your student debt, you must ensure you have met, and continue to meet, all the requirements as soon as possible. You can’t apply for forgiveness until the ten years have passed, but you can build your case along the way. You can find the requirements on the Federal Student Aid website. The following are the important highlights.

  • Make sure your employer is a qualifying employer. Verify this annually, even if you don’t change employers, when you file your employment certification form.
  • Ensure your loans are qualifying loans. Only William D. Ford Federal Direct Loans qualify. If you have Federal Family Education Loans or Federal Perkins loans, they do not qualify. You can consolidate these loans into a Direct Loan, but none of your prior payments will be counted toward the PSLF, even if some of your loans were for Direct Loans included in the consolidation.
  • You must be on a qualifying repayment plan. All income driven plans are eligible.
  • You must make 120 qualifying payments. A qualifying payment is made under an income driven repayment plan, for the full amount shown on the bill, no later than fifteen days following the due date and while employed full time by a qualifying employer. The payments do not have to be consecutive.

In response to the large number of rejections under the PSLF, congress passed a temporary relief bill in 2018 that expanded the number of repayment plans that qualified. If your repayment plan was a graduated repayment plan, extended repayment plan, consolidated repayment plan or a graduated consolidated repayment plan, and your payment was at least as much as it would have been under an income based plan, your payments may be eligible under this temporary extension. Applicants aren’t having much better luck with this though. Only about 4 percent of the available funds have been used.

The PSLF held out hope of debt relief for thousands of teachers, healthcare workers, law enforcement professionals and other public servants. But the program’s complexity and execution have made it largely a failure. If you are counting on your loans being forgiven through the PSLF, it is possible, but you have to stay on top of it. The only friends you have in this process are your own diligence and good record keeping.


Photo by Nathan Dumlao on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

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