Public Service Loan Forgiveness – Is It Right For You?

Public Service Loan Forgiveness – Is It Right For You?

November 09, 2020

Do you feel as though you are drowning in student loan debt? Painstakingly repaying hefty loans can be a long and arduous process. Could the Public Service Loan Forgiveness program work for you?

The Public Service Loan Forgiveness Program is a federal program established in 2007 to offer student loan forgiveness to borrowers who take full time positions in public service or not-for-profit organizations — as long as they make 10 years of qualifying payments. Some of the professions that typically qualify for such forgiveness are nurses, doctors, public service workers, lawyers and many others. The offer is that a borrower’s remaining loan balance will be paid off, tax-free. This is a hugely appealing program, especially for those with postgraduate degrees who are the most likely to carry student loan balances of $100,000 or more.1

We are now seeing early enrollees in the program begin to reach their 10-year repayment mark, and the headlines are not encouraging: “Education Department explains why only 1% of people who applied for public-loan forgiveness were accepted”, “They Thought They Qualified for Student Loan Forgiveness. Years Later, the Government Changes Its Mind.”, “Lawsuit alleges ‘gross mismanagement’ of student-loan forgiveness by the Department of Education”.2,3

Most borrowers are denied because they don’t meet the many requirements of the program. The types of loan, the type of repayment plan, making consistent payments and maintaining your employment certification form are some of the common pitfalls. Ten years of navigating a system full of red tape is a lot to handle.

It’s also getting more complicated - due to the COVID-19 pandemic, PSLF borrowers were granted loan forbearance through December 31, 2020. This relief provided through the CARES act can provide an even greater opportunity for financial flexibility if utilized appropriately.

Naysayers aside, successful PSLF borrowers – meaning those who had their loans forgiven –increased by 50% from March to September of 2019.4 We may be seeing that as the program grew in late 2009-2013, we are seeing borrowers come out of their 10 year repayments successfully in 2019-2023. In fact, the Consumer Financial Protection Bureau estimated that about 25% of the American workforce could be eligible for PSLF one day.

Navigating the PSLF program successfully can be one of the most significant financial moves to make early in life. If you work in public service or for a not-for-profit organization and have student loan debt that at times feels insurmountable, this program could be a great opportunity for you. Having an advisor who understands your situation and the intricacies of such a complex government program could prove to be a priceless relationship.

For example, under the CARES Act, federal student loan payments are paused and interest rates have been set to 0%. However, your “non-payment” still counts towards your required 120 monthly payments.5 Working with an advisor could help guide your financial steps during this forbearance into a better result for your other financial goals.

If you feel you may be eligible for this program or have other questions pertaining to your financial situation, call us today to schedule a complimentary consultation.