Did someone say loan forgiveness? Many people with outstanding college loans were waiting with bated breath as the Biden administration pushed for broad student loan forgiveness programs. While this effort ultimately ended up falling short, all hope is not lost. Numerous loan forgiveness programs exist, and it's possible you may be eligible for some without even realizing it.
In this article, we focus on Public Service Loan Forgiveness (PSLF). So, let's dive into what exactly PSLF is and who meets the eligibility criteria.
What is PSLF?
PSLF was implemented in 2007 to encourage more people to pursue careers in public service by erasing some of their student debt from federal loans. The program is aimed at helping student loan borrowers who become teachers, nurses, doctors, police officers, or any employee who works for a non-profit organization.
Who is eligible?
If you are employed by a non-profit organization, including schools, universities, state agencies, hospitals, the Red Cross, and more, you qualify. This eligibility applies to positions ranging from top executives to entry-level associates.
This means if you are getting degrees such as your master’s degree, MBA, or going to medical school, it is possible for you to qualify for Public Service Loan Forgiveness (PSLF).
Parents, if you have a child planning for college and you are employed by a non-profit organization, there are avenues to make use of PSLF. The potential for parents to harness the benefits of PSLF for their children's education is not widely utilized, but it can serve as a highly effective tool for financing your child's education.
So, how does it work?
Simply put, you make 10 years of payments, and the rest gets completely forgiven by the federal government. Re-payment plans do vary, but it is the equivalent of getting a home mortgage for 25 years and the bank thanking you after the first 10 years/120 payments and telling you that you do not have to pay the remaining 15 years or 180 payments. Imagine receiving a letter in the mail, informing you that you no longer need to write another check? You could use that money for other expenses or even better, invest it! Individuals enrolled in the PSLF program actually get to experience this, and their stories are filled with pure joy. In fact, some even throw parties to celebrate.
If you do think that you might qualify, keep reading, here is how it works:
- Confirm that your employer qualifies you for PSLF here. (Pro tip: You will need your employer’s tax ID which you can find on your W-2)
- Enroll in PSLF
- If you are taking the loan for yourself, you will need to consolidate your loans and make sure to select an income-driven repayment (IDR) plan. Most often, this type of plan will help you make lower monthly payments. If you are a parent who works for the government or a non-profit, you will have to take some additional steps to become eligible.
- Make your regular monthly payments for 10 years, totaling 120 on time payments.
- Re-certify each year that you are still working for a non-profit. (Pro tip: It does not have to be the same qualifying non-profit for the whole ten years. You are allowed to change jobs!)
Here is a bit more on Income Driven Repayment (IDR) plans –
You will also be on an income-driven repayment (IDR) plan that caps monthly bills at a set percentage of your income. There are multiple plans that can be selected. If you qualify for PSLF, and your goal is to maximize the amount forgiven, you should select the plan that will help you keep your monthly payments as low as possible during the repayment period.
The newest example of an IDR plan is called the SAVE plan. The SAVE, or Saving on a Valuable Education, plan is an income-driven repayment program. Income Driven Repayment (IDR) plans in general have become increasingly popular with borrowers over the last few years. The SAVE plan calculates payment size based on income and family size. It qualifies borrowers who consistently make their monthly payments to see their debt forgiven after a certain number of years. The number of years to reach forgiveness varies based on a few factors, such as your employer and balance.
Starting in July 2024, borrowers approved for a SAVE plan will see their monthly payments reduced to HALF for undergraduate loans, falling from 10% to 5% of disposable income. Please consult StudentAid.gov for additional details and to apply, the main federal loan website for all things related to loans. This sub-page addresses Public Student Loan Forgiveness www.Studentaid.gov/pslf.
Parents – For parents there is a bit more complexity, but it is worth it!
- Structuring the loans based on your specific situation is critical and requires advanced planning.
- The loans must initially be Parent Plus loans and later must be consolidated to allow the loans to be moved to an IDR plan and ultimately be eligible for PSLF.
- Many of us are having children later in life and there are some professions like law enforcement and education where people can retire on the younger side. This creates the need for thoughtful planning to ensure that you maximize this benefit through how and when you take loans for your child/dependent.
- It is essential that parents work for a qualifying non-profit for 10 years after the child graduates and must certify employment to prove eligibility. Parents can work for different qualifying non-profits over the 10-year period as long as they are considered full-time employees.
Navigating the loan consolidation process can be challenging to say the least. The stakes are high because outstanding loan balances are high. Tuition is high! The reality of funding college or graduate work is daunting. For many people, they are making one of the biggest financial decisions of their lives and they are going at it alone. It is not always evident as to which repayment plans are available to you or what the rules and regulations can qualify or disqualify you for. If you need help either saving for college, surviving the college years or trying to figure out how to live, budget and pay your loans…seeking advice from a CFP® (Certified Financial Planner) is a great first step.
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