Forgiving Student Loans through Public Service

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Forgiving Student Loans through Public Service

Graduates burdened under high student debt loads have an additional tool to help them erase their debt, courtesy of Uncle Sam.

The Public Service Loan Forgiveness Program (PSLF) is a US government program created in 2007 to provide certain professional employees with forgiveness of their loans in return for working full-time in a public service job. Besides providing debt forgiveness, this program aims to attract more professionals into public service. The program was overhauled in 2021 by the Biden administration to make eligibility easier and less restrictive than it had been previously. Prior to the overhaul, nearly all applicants were rejected due to reasons such as being in nonqualifying loan repayment plans.

Here are the main points of the program in a nutshell:

• You must be working full-time for a government or not-for-profit organization.
• Your loans must be Direct Loans.
• You must be repaying your loans under an income-driven repayment plan.
• You must make at least 120 qualifying payments. (Note that Covid-suspended payments will count toward this total—even though not actually made—as long as you are working full-time for an eligible employer.)

Here are the details.

What loans are eligible?

Not all loans are eligible for the program. Only those received under the William D. Ford Federal Direct Loan program qualify. Perkins loans and loans from the Federal Family Education Loan Program do not qualify. They may, however, become eligible if you consolidate them into a Direct Consolidation Loan. Loans from private lenders do not qualify.

Note, however, that the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) Program was enacted in 2018. The eligibility requirements for TEPSLF are basically the same as for PSLF, but more loan repayment plans are eligible. Keep in mind that this program has limited funding and will be available on a first-come, first-served basis.

You must make at least 120 payments under the program; only then can the remainder of your balance be forgiven.

What jobs are eligible?

The eligibility of a job depends on the eligibility of the employer. Jobs in government organizations (U.S. federal, state, local, or tribal), including the military, and in not-for-profits that are tax-exempt 501(c)(3) organizations qualify. Not-for-profits that are not tax-exempt under 501(c)(3) might still qualify depending on the type of public service they do.

For-profit organizations do not qualify.

If you work for a contractor of a qualifying employer, the contractor, too, must be a qualifying employer.

You must work full-time—at least 30 hours a week or your employer’s definition of full-time, whichever is greater. If you work multiple part-time jobs that qualify, and if your combined average hours are 30 or more per week, you will be counted as full-time.

A note about taxes

In general, debts that are forgiven are required to be counted as income on the borrower’s tax forms, meaning the borrower must pay tax on them; the tax burden can run into thousands of dollars. But debts forgiven by PSLF are not considered income by the IRS, so no tax is due on them.

Getting started on the process

Provided that you have met the criteria, you must fill out and submit the Public Service Loan Forgiveness (PSLF) and/or the Temporary Expanded PSLF (TEPSLF) Certification & Application form. You can find links to them, along with more details and help about the programs, here and here.

Special opportunities for medical professionals

In addition to the Public Service Loan Forgiveness Program, healthcare professionals might be able to take advantage of several loan repayment programs offered by the Health Resources & Services Administration. For example, registered nurses can have up to 85% of unpaid nursing education debt repaid. In exchange, they must serve at least two years in a medically underserved community. See here for details.

Special opportunities for teachers

There is a fairly limited federal Teacher Loan Forgiveness Program in addition to the Public Service Loan Forgiveness program. See here for details. There are also limited state and local loan forgiveness programs for which teachers might qualify. See the American Federation of Teachers database for details.

Final note

NOTE: All these programs have complex qualification requirements, and some are subject to alterations in the future.