Under the federal Public Service Loan Forgiveness (PSLF) program, the balance of a borrower’s debt is forgiven after 120 qualifying monthly payments.
Only federal Direct Loans are eligible for PSLF. You have to be paying off the debt under a certain type of income-driven repayment plan while working full time for a qualifying employer.
Borrowers often believe the forgiveness is based on the type of job they do, but to qualify for the program, it’s all about the employer. For PSLF eligibility, you must work (or volunteer) in public service for one of the following:
• A government organization (federal, state, local or tribal).
• A not-for-profit that is a 501(c)(3) tax-exempt organization as determined by the IRS. (Other not-for-profit organizations that don’t have the 501(c)(3) exempt status may still count toward qualification forgiveness. This would include certain types of public-service jobs in law enforcement, military service and education.)
• AmeriCorps or the Peace Corps.
To get the full details of what employers and student loans qualify for PSLF, go to studentaid.ed.gov.
The program can provide a great amount of financial relief. Instead of 20 or 30 years of monthly loan payments, you can shed the debt in 10 years. And, the forgiven amount is not taxable.
So many public-sector workers were upset to learn that they didn’t qualify that Congress stepped in last year to provide a temporary fix that allows borrowers, under certain circumstances, to still qualify for forgiveness. Except even this effort has been fraught with problems.
PSLF was created to encourage people to enter public-service-related jobs. The promise of debt forgiveness is a powerful incentive for many to stay in jobs they dislike or that have low pay. But 10 years is a long time.
This is why I encourage people to have a backup plan when they’re counting on PSFL. If you’re in a horrible job situation, it may well be worth giving up the loan forgiveness. Here’s why.
• Your mental health should come first. If you have options — and this reader does — take the exit. Don’t continue to work at a place that makes you miserable.
• Sure, the job is temporary, but two years is ample time to look for the next employment jump.
• Because PSLF requires you to be in an income-based plan, this means the monthly loan payment should be affordable. Since the new job pays more, this borrower can make extra payments to aggressively get rid of the debt.
When there is free money on the table, it’s hard to walk away. But look at it this way: This was your debt to repay in the first place. The loan forgiveness was a bonus. Yes, you give up valuable debt relief, but you get to leave behind a toxic work environment — and that’s a fair exchange.
