Public Service Loan Forgiveness Program
On September 27, 2007, President Bush signed the College Cost Reduction and Access Act (CCRAA) of 2007. Part of the act included a new Public Service Loan Forgiveness Program.
To be eligible to participate in the Public Service Loan Forgiveness Program you must meet the following requirements:
- Make 120 monthly payments on the eligible Federal Direct Loan on or after Oct. 1st, 2007 (FFEL* loans can be moved to Direct Lending through loan consolidation)
- Be employed in a public service job as defined in the CCRAA during the time you make the qualifying monthly payments
- Be employed in a public service job as defined in the CCRAA at the time the Secretary forgives the loan
- Make qualifying payments under the Income-Based Repayment (IBR) plan
*The Federal Family Education Loan (FFEL) program includes loans provided by for profit and non-profit student loan lenders.
The borrower must be employed full-time in a public service job for each of the 120 monthly payments. Public service jobs include emergency management, government, military service, public safety, law enforcement, public health, public education (including early childhood education), social work in a public child or family service agency, public interest law services (including prosecution or public defense or legal advocacy in low-income communities at a nonprofit organization), public child care, public service for individuals with disabilities, public service for the elderly, public library sciences, school-based library sciences and other school-based services, or at an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code; or Teaching as a full-time faculty member at a Tribal College or University as defined in section 316(b) and other faculty teaching in high-needs areas, as determined by the Secretary.
Eligible loans include Federal Direct Stafford Loans (Subsidized and Unsubsidized), Federal Direct PLUS Loans, and Federal Direct Consolidation Loans. Borrowers in the Direct Loan program do not need to consolidate in order to qualify for loan forgiveness. Borrowers in the FFEL program will need to consolidate into Direct Loans. Perkins Loans can also be included if consolidated into a Federal Direct Loan.
To assist you in tracking your periods of qualifying employment and your qualifying payments the Employment Certification for Public Service Loan Forgiveness (PSLF) form is available. The form allows you to get your employer’s certification of employment while you are still employed at that organization or shortly after leaving. The process allows you to receive confirmation of qualifying employment and your Direct Loan payment eligibility. You may also submit the form less frequently than annually to cover more than one year’s employment or for more than one employer.
While use of this form and process is not required, if you want to keep track of your progress toward meeting the PSLF eligibility requirements, you should follow the steps below. If you do not periodically submit the form, you will still be required to submit a form for each employer that you want considered for PSLF at the time that you apply for forgiveness.
Step 1 – Complete, with your employer’s certification, the Employment Certification for Public Service Loan Forgiveness form (PSLF Employment Certification) annually or whenever you change jobs. The PSLF Employment Certification form is available at www.studentaid.ed.gov/publicservice.
Step 2 – Submit the completed form to FedLoan Servicing, the PSLF servicer, following the instructions on the form.
Step 3 – FedLoan Servicing will review your PSLF Employment Certification form, ensure that it is complete, and, based on the information provided by your employer, determine whether your employment is qualifying employment for the PSLF Program.
Step 4 – If the form you submit is incomplete or your employment does not qualify, FedLoan Servicing will notify you and you will have an opportunity to provide additional information.
Step 5 – If FedLoan Servicing cannot determine whether your employment qualifies, you may be asked to provide additional information or documentation to help establish whether you were employed by a qualifying public service organization. This documentation may include an IRS Form W-2, pay stubs, or other documents from your employer that substantiate your employment at the organization or documentation supporting your employer’s eligibility as a public service organization.
Step 6 – If your employment qualifies and some or all of your federally held loans are not serviced by FedLoan Servicing, those loans will be transferred to FedLoan Servicing so you will have a single loan servicer for all of your federally held loans. Earlier payments made to other servicers will be evaluated to see if they are qualifying PSLF payments after those loans are transferred.
Step 7 – FedLoan Servicing will notify you whether your employment qualifies, and, if so, how many payments during the certification period were qualifying payments, the total number of qualifying payments you have made, and how many payments you must still make before you can qualify for PSLF.
After you make your 120th qualifying payment, you will need to submit the PSLF application to receive loan forgiveness. The application is under development and will be available prior to the date when the first borrowers will be eligible for PSLF, in October 2017. You must be working for a qualified public service organization at the time you submit the application for forgiveness and at the time the remaining balance on your loan is forgiven.
Yearly employment certification is not required but highly recommended to provide reassurance that you are making progress towards forgiveness.
To receive loan forgiveness, you will need to use the Income-Based Repayment (IBR) plan. A standard payment plan also qualifies but results in your loan being fully repaid by the 120th payment. You can calculate an estimate of your monthly payment online:
- To see your income-based repayment estimate go to http://www.finaid.org/calculators/loanpayments.phtml
NOTE: Income-Based Repayment (IBR) is recommended for any borrower seeking Public Service Loan Forgiveness. IBR is a new repayment plan and available as of July 1, 2009. For more information about IBR visit http://www.ibrinfo.org/what.vp.html.
Under current tax law Public Service Loan Forgiveness will not be taxed.
You will need to consider whether you are willing to work in a public service job for the 10 years required for the forgiveness program. Borrowers who only work in a qualifying public service job for a few years will not qualify for any of the benefit. Entering into alternate repayment plans that extend your repayment schedule may also increase the amount you pay in interest over the life of your loan.
If you are married you must file a separate Federal income tax return for the income-based payment amount to be calculated on the basis of the borrower's adjust gross income, rather than on the combined income of the borrower and the spouse. There are disadvantages to filing separately. You will want to consider that you might incur a higher tax rate and be ineligible for some credits and deductions if you are married and file separately.
In order to qualify for this program, FFEL borrowers must consolidate their federal student loans through the Direct Loan Program.
To find out more about Direct Loan Consolidation, please visit http://www.loanconsolidation.ed.gov/.