Since 2007, the Public Service Loan Forgiveness (PSLF) Program has offered borrowers with Federal student loans the opportunity to have those loan balances canceled after making 120 qualifying monthly payments while working in public service. In practice, the program’s strict requirements for loan forgiveness have been confusing for borrowers and poorly administered by service providers, which has led to frustrating disqualifications for borrowers who thought they were on the path to forgiveness. To address these issues, the U.S. Education Department announced an overhaul of the PSLF program on October 6, 2021, that will expand the types of loans and repayment plans that will be eligible for forgiveness under the PSLF program.
The overhaul includes a waiver that will give borrowers who work for a qualifying employer the ability to apply their repayment history towards the 10-year repayment period, even if they had previously been repaying their loan on an ineligible repayment plan or loan type. Additionally, it will count payments that may not previously have counted due to minor technicalities, such as paying one day late or being a penny off the required payment amount. Importantly, the waiver only runs through October 31, 2022, so advisors with eligible clients can help them ensure the proper paperwork is filed in time.
One of the key changes in the overhaul expands the type of loan payments that will be eligible for PSLF, and will now permit the inclusion of Federal Family Education Loans (FFEL) and Perkins Loan repayments toward the PSLF requirement of 120 qualifying monthly payments. Previously, only Federal Direct Loan repayments were eligible for this requirement. Importantly, borrowers with FFEL and Perkins loans will need to consolidate their loans into a Federal Direct Consolidation Loan and submit the PSLF employer certification form to the Education Department by the October 31, 2022 deadline in order to be eligible for forgiveness under the PSLF program.
Another key change in the PSLF program overhaul expands the type of repayment plans that will be eligible for PSLF, and will now permit Federal Loan payments under any repayment plan to be eligible for PSLF. Previously, a borrower must have used an Income-Driven Repayment (IDR) plan to be eligible for PSLF.
Notably, some borrowers that the PSLF overhaul does not help are those with private student loans or those who consolidated their loans with a private lender. Even if a borrower made payments for several years under a Federal student loan before opting for private student loan refinancing (perhaps upon finding out their payments did not qualify for PSLF), there would be no relief for them from the PSLF waiver. Which underscores the importance for advisors to consider whether clients with Federal student loans will qualify for relief under the new PSLF guidelines before making the irrevocable decision to refinance into private loans.
Ultimately, the key point is that while the PSLF overhaul creates opportunities for more Federal student loan borrowers to take advantage of the program, there is a limited period for eligible borrowers to act to ensure they qualify. Advisors can review clients’ student loan records, employment, and payment histories to assess whether they might benefit from the waiver, and then support submission of required paperwork before the October 31, 2022, deadline. With potential savings from PSLF forgiveness in the hundreds of thousands of dollars, reviewing PSLF eligibility could be one of the most valuable services advisors can offer clients over the coming months!