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Student loan debt has become an epidemic. Many former students struggle to repay what they borrowed after entering the workforce.
The Public Service Loan Forgiveness (PSLF) program can reduce some of this burden for government and nonprofit employees. If you meet the requirements, the government will forgive any remaining debt.
It sounds simple enough, but it's surprisingly difficult to get. Only 0.5% of student loan borrowers who apply for PSLF actually receive it, according to data from the Department of Education. The other 99.5% receive a rude awakening -- and no governmental assistance. Most applications are rejected because borrowers made a mistake that rendered them ineligible.
Here are seven devastating mistakes you don't want to make if you’re hoping for PSLF.
1. Assuming you're automatically enrolled
The Public Service Loan Forgiveness program isn't available to everyone, and it doesn't cover all student loans. In order to qualify, you must
- have a Federal Direct student loan;
- work for the government, a nonprofit organization, AmeriCorps, the Peace Corps, or another qualifying organization for at least 10 years; and
- make 120 on-time payments on a qualifying student loan repayment plan.
Failure to meet any of these requirements could render you ineligible for PSLF.
Even if you do meet all of these requirements, the government could still deny you PSLF if you didn’t fill out your employment certification form. This is essentially a notice from your employer acknowledging that you work for them. You must submit it when you start your public service job, when you change jobs, and annually while working toward PSLF.
If you miss a form, the government could deny your request. Without the form, there's no proof that you worked for a qualifying organization during that time.
2. Filling out the employment certification form incorrectly
If you forget to include important information -- like your employer's signature -- on your employment certification form, the government could deny your PSLF application. You may be able to appeal the decision by providing the correct information, but this takes time.
Meanwhile, you're still responsible for student loan payments that would have been forgiven if you'd filled out your form correctly the first time.
Before submitting your employment certification form, look it over for incomplete or incorrect information. And be sure to sign it and have your employer sign it before you submit it.
3. Enrolling in the wrong repayment plan
There are eight federal Direct student loan repayment plans, but they don't all qualify for PSLF. If you choose a graduated or extended repayment plan, your loans won’t be eligible for PSLF.
The standard plan is also a poor choice. It’s a qualifying repayment plan for PSLF, but the schedule requires you to pay off your student loans within 10 years. At the end, there’s nothing left for the government to forgive.
You're better off with an income-driven repayment plan instead. The following plans qualify for PSLF and leave you with debt for the government to forgive:
- Pay As You Earn (PAYE) Plan
- Revised Pay As You Earn (REPAYE) Plan
- Income-Based Repayment (IBR) Plan
- Income-Contingent Repayment (ICR) Plan
If you haven't been making payments on one of these plans, you could be in trouble. But there's still hope.
Disqualification due to the wrong repayment plan is such a rampant issue that Congress passed the Consolidated Appropriations Act in 2018 -- the act allotted $350 million to borrowers whose PSLF applications were disqualified due to an unqualified repayment plan.
The Temporary Expanded Public Service Loan Forgiveness program will only last until those funds are used up, so apply right away if you think you qualify.
4. Failing to consolidate Perkins, FFEL, and Parent PLUS loans
Only Federal Direct student loans qualify for PSLF. Other loan types, like Perkins loans and Federal Family Education Loans (FFELs), don’t qualify unless you roll them into a Direct Consolidation loan.
Not sure which type of federal student loans you have? Log into your federal student aid account to check. Consolidate any loans that don't say "Direct" if you want them to be eligible for PSLF.
Parent student, or Direct PLUS, loans are an odd exception to this rule. Even though it’s a Direct loan, you still must consolidate your loan in order to be eligible for income-driven repayment plans, and by extension, PSLF.
5. Consolidating loans at the wrong time
Consolidating your student loans closes your old loans and opens a new one. This can simplify your monthly payments, but it can complicate things if you're pursuing PSLF.
To qualify for PSLF, you have to make 120 on-time payments. Consolidating your loans resets that clock. If you make payments for two years and then consolidate your loan, those two years of loan payments no longer count toward your PSLF requirements.
If you're going to consolidate your federal student loans, do so right after you graduate, before you begin working toward PSLF. Once you're past that point, stick with the payment arrangement you already have rather than tacking on a couple extra years to your required PSLF payments.
6. Missing payments
Your 120 qualifying loan payments for PSLF don't have to be consecutive, but they do have to be on time. If a single payment is more than 15 days late, that payment won't qualify for PSLF.
That doesn't mean you can never qualify for PSLF. It just means you have to make one additional payment to make up for the late payment.
7. Paying extra
If you're pursuing PSLF, it doesn't make sense to pay extra on your student loans. You're reducing the amount of money the government has to forgive when you could've kept that money for yourself. This strategy can also create problems for PSLF applicants.
Say you have a $250 monthly student loan payment and you pay $300 one month. Your loan servicer will apply the extra $50 to your next month's payment and your next month's bill will only be $200. But if you only pay this amount, it may not qualify for PSLF because it's not a "full" payment.
If you run into this issue, you may be able to contest it with your loan servicer. But you're better off just avoiding the situation altogether by only paying the correct amount each month.
Worth getting right
The Public Service Loan Forgiveness program can be a lifesaver to those struggling with student debt. But a single mistake can erase all hope of government relief.
Make sure you understand the terms of PSLF and avoid the seven mistakes listed above so you don't run into unexpected issues.