A Path to Debt-Free Living: Student Loan Forgiveness
Federal student loan payments are currently under forbearance, thanks to the CARES Act passed in March 2020 and actions Congress and the White House took since then. The pause in loan payments is set to expire on September 30, 2021. As that expiration date approaches, borrowers should review their plans for paying off student loan debt. One option for those with federal student loans is the Public Service Loan Forgiveness (PSLF) program.
Eligibility for PSLF
PSLF forgives the remaining balance on specific federal student loans for eligible borrowers. To qualify for PSLF, the borrower must:
- Work for a not-for-profit that is a tax-exempt, 501(C)(3) organization; OR a not-for-profit organization that provides certain types of public services (e.g., public health, public safety, libraries, or emergency management); OR a U.S. federal, state, local, or tribal government agency.
- Be a full-time employee for that agency or organization. “Full-time” means an average 30 hours per week or the organization’s definition of full-time, whichever is greater.
- Have student loans from the Federal Direct Loan Program. Other federal loans (i.e., Federal Family Education Loans and Perkins Loans) are only eligible if you consolidate them into a Direct Loan. Private student loans don’t qualify.
- Repay the loans using a federal payment plan based on the borrower’s income, formally called an Income-Driven Repayment Plan (IDRP).
- Make 120 “qualifying” payments. Such payments must be made while employed with a government agency or non-profit organization, cover the full amount due on your bill and sent no later than 15 days after the due date.
I know first-hand that PSLF can help you become free of student loan debt.
When I started with LSS Financial Counseling, I was a single mom out of college for 10 years who owed tens of thousands of dollars on my student loans. Before LSS, I worked for other non-profits and my salary was never high enough to cover all my expenses and student loan payments. For a while, I was able to defer or pause payments. Then, I consolidated my loans to delay payments further. I knew in the long run, though, that I would run out of options before I had to restart paying down my debt. Also, my loan balance just kept getting bigger and bigger as more and more interest was added.
I learned that LSS employees were eligible for PSLF and that there now were options for me to make more affordable payments based on my income. I put my federal loans into an IDRP and started making qualifying payments.
As one would expect, there was paperwork. I filled out a PSLF Employment Certification Form, sent it to our human resources department, and they verified my employment. My loans were transferred to a federal agency that serviced student loans and certified that payments I’d made up to that point counted towards loan forgiveness. Each year I recertified my IDRP and sent in the PSLF Employment Certification Form to prove that I was still working for a qualifying employer.
Things went smoothly for several years. I switched to a new IDRP that made my payments even lower. I was concerned that changing to new plan would cancel out all my previous qualifying payments, but I was pleased to find out that that this wouldn’t affect my record at all — as long as I kept making payments on time.
Managing Bumps in the Road
The journey to loan forgiveness was not completely smooth. One day I checked my loan payment record and five were missing! If I ignored that issue, it would take five months longer to have my loans forgiven. Therefore, I asked for a payment review. I heard nothing for three months, then contacted the consumer advocate at the office that serviced my loan. The advocate entered my complaint and it took 18 months before the office finished the payment review. Despite the long wait, it was worth it. I got the five payments restored, plus an additional two that hadn’t been counted before. I was back on track.
In March 2020, I benefited from the student loan forbearance provisions in the CARES Act. When I first heard that loan payments would be paused, I was concerned again. How would this affect my progress to forgiveness? My 120th and final qualifying payment was due in December 2020 and I didn’t want my forgiveness date pushed back. Fortunately, the CARES Act said that any months when payments were paused would still count toward the 120 payments, as long as I stayed on an IDRP and kept working full-time for LSS, another non-profit or a government agency.
In September 2020, I experienced another setback. The federal loan servicing agency transferred their records to a new system. In the process, they lost all seven payments I’d restored before. At first, I panicked, but I was ready to fight. I’d saved every payment count from every year, so I could prove that their count was wrong. I requested another payment review and in December 2020, I completed what I hoped would be my final paperwork before forgiveness. I was fearful it would take another 18 months to resolve this. All I could do was wait.
Debt Forgiven, No More Loan Payments
At the end of April 2021, I got good news from the loan service office. I met all eligibility criteria and the remaining balance on my loans were forgiven. I couldn’t believe it! I logged into the office’s website to verify it for myself. I waited another couple of months to be sure and checked my credit report; still no outstanding balance and no more loan payments!
Despite any struggles I had, I am glad I signed up for PSLF. Going through the headaches was worth it once I received notice that my loans were entirely paid off and forgiven.
I know many borrowers have been discouraged in the past about signing up for PSLF. I can attest to the fact that there have been problems with implementing and administering the program. But many of the problems I experienced have now been fixed.
There are steps you can take to help make the journey as smooth as possible. In addition to meeting the eligibility requirements listed above, anyone who enrolls in the program should:
- Be sure to turn in the required paperwork each year.
- Keep a paper or electronic copy anytime you receive a review of your payments.
- Appeal anything you think is not right.
- Be sure you’re working full-time for an eligible employer at the time you apply for forgiveness and at the time your loans are forgiven.
LSS Financial Counseling can explore your eligibility for PSLF and work with you to get you started in the program. Our counselors are experienced and provide non-judgmental support on questions you have about student loans and managing student loan debt. All appointments are free and confidential; call 888.577.2227 to set one up.
Shannon Doyle is a Program Manager for LSS Financial Counseling. Besides sharing her personal experience with student loan forgiveness, she gives presentations on student loans, managing student loan debt and other financial wellness topics.