The PSLF program was created in 2007 to encourage borrowers to enter into public service careers. By easing the burden of federal loan repayment, the government sought to attract students to fields they may not otherwise find financially viable. Essentially, students must work full-time at an eligible non-profit employer while making 120 payments on their Federal Direct Loans through a valid repayment plan. After making their 120 payments, borrowers then apply for forgiveness through their servicer. Any PSLF that is granted is not considered taxable income.
Remember, these are qualifications that must be met, in order to apply for PSLF on Direct Loans:
1. Make 120 payments…
2. Through an eligible repayment plan (IBR, PAYE, Standard)…
3. While working full-time (minimum of 30 hours) at an eligible government or non-profit 501(c)(3) organization.
- Which repayment plans qualify for PSLF?
Eligible repayment plans include Pay As You Earn, Income-Based Repayment, Income-Contingent Repayment, Standard Repayment, and any other plan where your monthly payment is higher than your Standard Repayment would be.
- Which loans are eligible for PSLF?
Only Federal Direct Loans are eligible for forgiveness through this program. This includes Direct Subsidized, Direct Unsubsidized, Direct PLUS, and Direct Consolidation Loans (only consolidation loans that do not include Parent PLUS are eligible). FFELP or Perkins loans are NOT eligible for PSLF. If you have any FFELP or Perkins loans, you may consolidate them into a Direct Consolidation Loan. The resulting consolidation loan would then potentially be eligible for forgiveness. Private and Institutional Loans are never eligible for PSLF.
- Do payments I've made earlier count towards PSLF?
Payments made as far back as October 1st, 2007 may count towards your 120 payment total, as long as you met the eligibility criteria at the time. Keep in mind that each loan tracks payments separately, so all loans may not be eligible for PSLF at the same time. Also, consolidating a loan essentially resets the counter to zero, so any previously made payments would not count towards the 120 total.
- Can I make more payments to speed things up?
Borrowers must make on-time required monthly payments according to their repayment schedule. Borrowers are free to make over-payments, or payments more often, but doing so will not qualify for additional credits towards the 120. As a side note, even required payments as low as zero may qualify, if that is your determined payment through Pay As You Earn or IBR.
- Do payments have to be consecutive?
The 120 payments do not have to be consecutive. Example: A student may take time off after making 50 qualifying payments towards PSLF. They will be expected to keep making required payments during that period, but these payments would not count towards PSLF since the non-profit employer criteria is not being met. If the student later went back to work for an eligible employer, payments would pick up where they left off at payment 51.
- How can the government afford this? Is there a chance it will go away before I finish my payments?
Nothing is 100% guaranteed. The program could certainly be modified or eliminated in the future but it would require an Act of Congress to do so. While this is always possible, it does not make it necessarily likely to occur. Our hope is that if the program were to be cancelled in the future, borrowers in the pipeline would be allowed to finish their payments and obtain forgiveness. Students may actually make significant contributions towards their own loan balance over the ten years it takes to make 120 payments and reduce the overall expense to the taxpayers.
- Is Public Service Loan Forgiveness the right option for me?
Predicting your future situation is very difficult. Borrowers may benefit financially from this program if they continue to meet all eligibility requirements. However, students that choose to work in the private sector may end up earning higher salaries, thus offsetting the benefit of PSLF. Our general feeling is that students must choose a career path that appeals to them personally and not decide based on the possibility of potential forgiveness. If you do decide to work for a non-profit, keep this program in mind for the future as it may provide some financial relief.
- What are some repayment strategies to make PSLF work for me?
If you think you might eventually be eligible for PSLF, you may want to make minimum payments in order to have the largest loan amounts be forgiven. Forbearance is not an eligible repayment status and therefore would not count towards the 120 payments. Pay As You Earn will most likely be the cheapest repayment plan for borrowers who qualify, with IBR as a close second. You can stay on either plan throughout your repayment but you must reapply annually. Your payments will be determined based on your income and they will never be larger than what your initial Standard Repayment amount would have been.
Borrowers with longer residencies, highest debt and lower incomes will likely benefit most from PSLF assuming they meet the qualifications. While teaching hospitals are generally considered eligible based on their 501(c)(3) status, it is very important that borrowers confirm who will be issuing their paycheck. We strongly encourage borrowers to ask this question while interviewing for positions. Many hospitals have physician groups that issue paychecks and are not necessarily non-profits so even though the physician is technically employed at an eligible hospital, eligibility is based on who issues the paycheck.
Should you believe you’ll be eligible for PSLF and decide to make only minimum payments, it’s important to realize that negative amortization may occur which would ultimately increase your loan balance and make repayment more costly.
- Should I pay extra now if I think I might be eligible for PSLF later?
No one wants to pay extra if their loans are going to be forgiven anyway. Conversely, no one wants to accumulate interest waiting for forgiveness that never comes. For MD students, the recommendation is to use Pay As You Earn or IBR to get a low payment during residency. You may be unable to pay extra towards your loans anyway. When you finish residency, you will get a substantial salary bump, you will choose an employer, and you will have to determine if PSLF is right for you. If your post-residency employer is a non-profit, PSLF might be in your future, so continue making only the minimum required payment. If you enter the private sector, you probably want to start sending in extra money towards your loan balance.
- How do I apply for forgiveness?
- Borrowers only apply for forgiveness after they have made their last of the 120 payments. The application is under development by the government, and will be ready by the time you qualify. Students will work directly with their servicers to verify their employment qualified, and that their payment history is complete. You must continue working for an eligible non-profit employer and your loans must be in good standing until forgiveness is officially completed. You can file this form every year to document that your employer qualifies.
- What happens if I change my mind about PSLF, do I have to leave IBR or PAYE?
Pay As You Earn and IBR are repayment plans, but they do not require you to do PSLF. For example, if you choose PAYE, you will make payments based on your income until your loans are paid off, or 20 years pass. If you reach a point where you realize you won’t be eligible for PSLF you may want to start paying more than is required to reduce your balance faster and therefore the overall cost of the loan will be less. Remember there is never a penalty for prepayment of loans. We strongly encourage borrowers to contact their servicer before leaving IBR or PAYE to discuss implications of such actions.
- Is there a way to determine what amount I might have forgiven?
- Many factors can affect your repayment totals. MD borrowers should consider the length of their residency and average salary as an Attending Physician as these are two of the most crucial components. Those students with a long residency/fellowship will make a relatively low income, and therefore low payments for an extended period of time. This will therefore leave more loan debt to be forgiven assuming they remain eligible. The AAMC has a MedLoan Calculator (for MD students only) that can project many different scenarios and estimate how much may be forgiven after the 120th eligible loan payment.
- Where can I find more information?
You can find more information about Public Service Loan Forgiveness on the Department of Education website. Please see www.ibrinfo.org, and refer to the Department's IBR FAQ for the most up-to-date postings.