Public Service Loan Forgiveness Program (Tax-Free)

If you are looking for a way to get out of student loan debt once and for all, you've come to the right place.  

True loan forgiveness programs are hard to come by with many resulting in a huge tax bill that most people aren't prepared for.  However, with this program, any loans forgiven are tax-free.

The Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness program is one of the biggest loan forgiveness programs out there.  It is open to people who work in the public service sector for the benefit of their communities.  

Typically, these are social workers, teachers, doctors, etc. who work for a governmental organization or non-profit organization.  Unlike other programs, your eligibility is determined by your employer not your job title.  You can check your eligibility here. 

With the public service loan forgiveness program, you would simply have to choose from a selected list of payment plans, make those payments on time every month for ten years (or 120 payments), and then the remaining balance will be forgiven.  

These monthly payments do not have to be consecutive if, for instance, you work for an employer that does not qualify for a period.  The best part of this program is that the forgiven portion would be tax-free.

However, the only eligible loans are federal direct loans.  That means if you have Perkins or Federal Family Education loans (FFEL or Stafford), you must first consolidate them under a Direct loan before they would be eligible to be forgiven.  

Be sure to do this before you start your payment plan or else you may have to make qualified payments for longer in order to get them forgiven.

Here is a list of the repayment plans you can choose from:

• Pay as You Earn (PAYE)
• Revised Pay as You Earn (REPAYE)
• Income Based Repayment (IBR)
• Income Contingent Repayment (ICR)

These repayment plans are income driven plans so they are based on your income and family size.  More specifically, they are based on your discretionary income, which is your income after taxes and necessary living expenses.

This is calculated for the REPAYE, PAYE, and IBR plans as your adjusted gross income minus 150% of the poverty line for your family size.  For ICR, it is gross income minus 100% of the poverty line for your family size.

To Apply

There are two different PSLF Forms: the PSLF Employment Certification Form (ECF) and the PSLF Application for Forgiveness.  These forms will need to be submitted at different times.

The Employment Certification Form is used to determine if you work for a qualified employer and to keep track of how long you have been working for them.  Therefore, you will need to submit this form every year. 

This is how the FedLoan Servicing people can keep track of how long you’ve been making qualified payments.  So print this form, sign it, and take it to your employer to sign as well.

After 10 years of your on-time monthly payments and working for an eligible organization, you will want to submit the PSLF Application for Forgiveness.  This will request that your loans be forgiven once and for all.

If you have already been making monthly payments on your student loans but not under the specified plans for the PSLF, you are not eligible for PSLF.  

However, you may still be able to find relief under the Temporary Expanded Public Service Loan Forgiveness program (TEPSLF).  This is a temporary program that was started due to the large number of people who were found ineligible for the PSLF.  We'll talk about that more below.

For those affected by the Coronavirus, the CARES Act ensures that you will still be eligible even if you are not making payments right now.  Find out more about the CARES Act and what it means for your loans.

Temporary Expanded Public Service Loan Forgiveness Program

The Temporary Expanded Public Service Forgiveness (TEPSLF) makes student loan forgiveness much more accessible to public service workers.  

If you've been looking at the stats, you will know that only about 10% of PSLF applicants have had their loans forgiven.  Because of this substantial short fall, the TEPSLF was created to try to help people get their loans forgiven.

To qualify you must fulfill all the requirements of the PSLF with the exception that some or all of your payments were not made with their income-driven plans.  

This is the only reason that you will be able to apply for the Temporary Expanded version.  If you are found ineligible for the PSLF for another reason, you will also be ineligible for the temporary one as well.

For TEPSLF qualifying payments must have been made:

• after October 1, 2007
• for the full amount due on your bill
• no later than 15 days after your due date
• while working full-time with a qualified employer

Also, here is the expanded list of acceptable repayment plans:

• Graduated Repayment Plan
• Extended Repayment Plan
• Consolidation Repayment Plan
• Consolidation Graduated Repayment Plan

Another rule is that the amount you paid in the 12 months before you apply as well as the last payment before applying must be as least as much as you would have paid under an income driven plan.

To Apply

To apply to TEPSLF, you must first be denied for PSLF.  Therefore, first, you should confirm that you are working for a qualified employer by filling out the Employment Certification Form.  Then you must apply for the PSLF by filling out the PSLF Application for Forgiveness.  Do this even if you know you will be denied.  

Then after you receive confirmation that your application has been submitted you can apply for the TEPSLF by sending an email to TEPSLF@myfedloan.org requesting to be reconsidered.   

You don’t have to wait to be denied.  You may send an email while the status of your PSLF application is pending.   Include your name (as submitted on the application) as well as your date of birth.  You can keep the email short and sweet, "I request that ED reconsider my eligibility for public service loan forgiveness."

You may also have to submit additional information such as income and family size.  They will let you know.  Be sure to respond within 21 days though or they may cancel your application.

TEPSLF has limited funding so it is done on a first come first serve basis.  Once the funds run out that is all she wrote.  It may take 60-120 days to hear a reply back about the status of your application.  They will notify you if some or all of your loans have been forgiven.

Things to Note

• Loans in default are not eligible for forgiveness programs.  They must be brought back to good standing first (rehabilitated or consolidated).  Else-wise could try student loan settlement or bankruptcy.
•  Check every year to make sure you still qualify, you don't want to get to the end and find out you do not.
• You need to re-certify every year.

All in All

The PSLF can be a great program as you are given the opportunity to have all of your loans forgiven once and for all.  However, to ensure that you qualify you must do everything to a T.  Make sure your re-certify every year and make on time monthly payments.  

And if you do end up being denied, try for the TEPSLF.  Hopefully, this program will continue to be expanded so that more people can have their loans forgiven.

We all need freedom from this burden.  If all goes well, that will soon become a reality for you.