Skyrocketing student loan debt is a growing concern for many Americans. Total outstanding student loan debt surpassed total outstanding credit card debt for the first time in U.S. history in June 2010. As of 2017, student loan debt has grown to $1.45 trillion, spread among 44 million borrowers.
Such numbers underscore the fact that massive student loan debt is not only a burden on students and their families, but also on the economy writ large. Today, at least two-thirds of graduates enter the workforce saddled with educational debt, which has had far-reaching economic and social consequences.
Researchers have found that the burden of student debt hinders innovation and entrepreneurship, with higher levels of debt correlating to fewer small businesses being formed. The pressure to repay large loans also steers many students away from lower-paying but critical professions in public service and social work.
But it’s not only an economic problem. A growing amount of research links student loan debt to worsening mental health and emotional wellbeing. A recent two-part series on the podcast “Death, Sex & Money” interviewed a number of students and graduates suffering from crippling anxiety, depression and feelings of shame stemming from their financial stress.
One approach to mitigating student debt is loan forgiveness, for which there are a number of available federal programs. The Consumer Financial Protection Bureau estimates that one-fourth of the American workforce may be eligible for repayment or loan forgiveness, but many don’t know that these options exist.
Below, we’ll help navigate and answer some of the most pressing questions about one popular loan forgiveness option for those working in the public sector.
What exactly is the Public Service Loan Forgiveness program?
The Public Service Loan Forgiveness (PSLF) program was created in 2007 under the Department of Education to encourage students to enter careers in social work. A student who wants to become a public defender, for example, might be more willing to take out a loan to pursue a law degree knowing that her loans would be forgiven after a certain period of time.
The Department of Education describes PSLF as a “broad, employment-based forgiveness program for federal student loans,” which stipulates that anyone who works full-time for an eligible employer can have their loans erased after 10 years of on-time monthly payments (120 payments in total). If your PSLF application is approved, the entire remaining balance of your eligible Direct Loans will be forgiven, including all outstanding interest and principal.
What types of employment qualify for PSLF?
Qualifying employment for PSLF includes government organizations at any level (federal, state or local), or nonprofit organizations that are tax exempt under Section 501(c)(3). This includes employers such as the U.S. military, public elementary and secondary schools, public colleges and universities and public child and family service agencies. However, some 501(c)(3) organizations that pay taxes are still included in the program if they fall under a specified list of public services. These include early-childhood education, public health, public service for the disabled and the elderly, public safety and law enforcement, emergency services and public-interest law services.
Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the program. Labor unions, partisan political organizations, international or intergovernmental organizations (such as the United Nations) and for-profit organizations (including government contractors) do not qualify for PSLF.
You do not have to be employed by the same employer for the entire 10 years, or be working in consecutive public service jobs to qualify. For example, if you have a period of employment with a non-qualifying employer, you will not lose credit for prior payments made. However, payments towards PSLF can only be counted if you are employed full-time by a qualifying employer at the time you make the payment.
What types of student loans are eligible for PSLF?
Only Direct Loans that are not in default are eligible for PSLF. Private student loans, Federal Perkins Loans or Federal Family Education Loans (FFEL) are not eligible. However, federal student loans may become eligible if you consolidate them. Any prior payments made before consolidation would not be counted.
If you don’t know which types of federal student loans you have, check “My Federal Student Aid.” A loan type with the name “Direct” will be a Direct Loan; otherwise, your student loan likely falls under a different federal program.
Are student loans automatically forgiven if you have been employed in a qualifying public service job?
No. You have to apply for loan forgiveness through the PSLF program, and can only do so after having made the qualifying 120 payments for 10 years. (The formal application was recently made available, and can be found here.) You must be employed full-time with a qualifying employer at the time you submit your PSLF application.
You can upload a completed Public Service Loan Forgiveness Employment Certification Form to FedLoan Servicing at any time, however, to ensure that you are making qualifying payments and are working for an eligible employer. The Department of Education recommends submitting this form both annually and every time you switch employers.
In some cases, the PSLF servicer may require additional documentation, so make sure to keep detailed records that identify your employer, show your dates of employment and confirm that you were a full-time employee (e.g. IRS W-2 forms and pay stubs).
How can I make my monthly student loan payments for PSLF?
There are a number of qualifying student loan repayment plans, including standard repayment, Income-Based Repayment (IBR), Pay as You Earn Repayment (PAYE), Revised Pay as You Earn (REPAYE) and Income-Contingent Repayment (ICR). In order to be eligible for Public Service Loan Forgiveness, you have to make the majority of the 120 student loan repayments through an income-driven repayment plan.
You can determine how many qualifying payments you have made by logging into your account at FedLoan Servicing and viewing your loan details. It is also important to remember that the PSLF program does not offer partial loan forgiveness. To receive loan forgiveness, you must make all 120 qualifying payments.
What is the future of PSLF?
The future of the PSLF program is unclear. The budget proposed by the current administration calls for eliminating the PSLF program, as part of its efforts to cut $10.6 billion from federal education.
Additionally, in 2016, the American Bar Association filed suit against the Department of Education on behalf of four lawyers enrolled in the PSLF program whose workplaces and prior payments were retroactively declared ineligible for loan forgiveness. The department’s position is that there is no guarantee of whether anyone will have their student debt erased under the program. A hearing for the case is set for October 6, 2017, as more than 550,000 teachers, social workers and other public servants anxiously await news on the status of their loans.
Are there other loan forgiveness options available?
Though the details around PSLF remain uncertain, there are many other options for loan forgiveness and a number of strategies to tackle your education debt.
One option is the federal Teacher Forgiveness Program, which allows up to $17,500 of federal Stafford loans or the entirety of Perkins Loans to be forgiven in exchange for five consecutive, full-time years as a teacher at certain low-income elementary or secondary schools
Each branch of the military also has its own student loan forgiveness programs. The amounts usually depend on the level of rank achieved. Some government agencies also have specific loan repayment or forgiveness programs, such as those offered by the Defense Department and the Department of Justice.
Another option is to apply for the Income-Based Repayment Plan. This payment plan adjusts students’ monthly loan payments to be no more than 15 percent of their discretionary income. After 25 years of making these adjusted loan payments, the borrowers’ remaining balance is forgiven.
Though paying back your student loans might seem daunting and the many different options impossibly confusing, it’s important to remember that you are not alone. Listen to this “Death, Sex & Money” episode, for testimonials and expert advice about how to tackle your debt proactively and efficiently, or check out this post from NPR for more links and tips on repaying student loans.