PSLF Is Getting Big Changes. Could You Qualify for Forgiveness Now?
The Education Department has announced a Limited PSLF Waiver that could temporarily benefit a lot of borrowers. Here's what you need to know about it.
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When the Public Service Loan Forgiveness (PSLF) program launched in 2007, it promised to provide tax-free forgiveness in as little as 10 years (120 qualifying payments) to student loan borrowers who work for not-for-profit or government employers. Unfortunately, the program's structure has made it difficult for qualified employees to have their loans forgiven.
Forgiveness applications from those who have participated in PSLF had been rejected at a dismal rate of 98%. The core problem is that only certain loans and repayment plans are eligible for PSLF. So when borrowers apply for forgiveness, they may find that few or none of their payments have counted, even if they've worked for a qualifying employer for 10+ years.
Due to the COVID-19 national emergency, the Education Department (ED) has extra flexibility to waive certain student loan rules. And in October 2021, it announced that it had decided to take advantage of these special flexibilities to temporarily waive certain PSLF restrictions through October 31, 2022.
ED estimates that hundreds of thousands of borrowers will benefit from these temporary waivers. Here's what you need to know about the PSLF changes and what you'll need to do to take advantage of them.
All Past Payments Made on Direct Loans Will Now Automatically Count for PSLF
One of the most common complaints of the PSLF program is that there are a variety of ways that payments made on qualifying Direct Loans while working for a qualifying employer could be considered a non-qualifying PSLF payment. How can that be?
One example would be if the payment was made while you were on an ineligible repayment plan. Only payments made while on an income-driven repayment (IDR) plan or the 10-Year Standard Repayment plan are counted. Payments made on any other plan, such as the Extended Repayment plan or the Graduated Repayment plan, do not qualify.
Even if you were on an eligible repayment plan, there are times that your payments may not have counted towards the 120 qualifying payments you need to receive PSLF forgiveness. Examples include if the payment was made late or for less than the full amount due.
If any of these situations apply to you, here's what you need to know. ED has announced a Limited PSLF waiver that will give credit for all previously-ineligible payments that were made prior to September 30, 2021 on non-consolidation loans.
If you've already applied for PSLF and you've had at least some qualifying employment certified, these payments will be credited to you automatically without requiring any action from you. In fact, nearly 30,000 borrowers have already received or will be soon receiving emails from ED letting them know that they've received forgiveness.
If you've never applied for PSLF, you'll need to submit the PSLF form by October 31, 2022 to receive credit for those payments. And even if you've already joined the PSLF program, you may still receive an email from ED asking you to certify additional periods of employment so that certain past payments can be counted.
ED says that 27,000 borrowers could become eligible for immediate forgiveness after providing this additional documentation. And it estimates that, overall, more than 550,000 borrowers could receive an average of two years of progress toward forgiveness as a result of these changes.
Borrowers With Non-Direct Loans Can Get Credit for Their Past Payments Too by Consolidating
So far we've only talked about student loan borrowers who've been making payments on qualifying Direct Loans. But what if you're a student loan borrower who took out a federal loan that doesn't qualify for PSLF, such a Federal Family Education Loan (FFEL) or Perkins Loan?
The Limited PSLF Waiver can benefit you in a major way as well. Now you can consolidate those non-qualifying student loans into a Direct Consolidation Loan and receive credit for all of the past payments you made on those loans while working for a qualifying employer.
If you've previously consolidated your FFEL or Perkins Loans into Direct Loans and you've already joined PSLF, you should automatically receive credit for the previously-ineligible payments. However, if you still have these loans, you must consolidate them and submit a PSLF form by October 31, 2022 in order to have them counted.
It's Now Easier for Military Members to Get Credit for Months Spent on Active Duty
The federal government allows members of the military to place their student loans in deferment during periods of active duty and up to 13 months after the active duty period ends. This benefit is intended to remove the pressure of student loan payments during these already stressful periods of military service.
But taking advantage of this benefit can have a negative impact on servicemen and servicewomen who are pursuing Public Service Loan Forgiveness. You can't normally make progress towards PSLF unless your loans are in active repayment. So months spent with your loans in forbearance or deferment don't count, even if those months were spent serving your country on active duty.
This issue would put service members in a difficult position. They could either continue paying their student loans (possibly causing financial stress for themselves and their families) to stay on track for PSLF. Or they could place their loans in a forbearance or deferment and lose out on months of progress.
Recognizing these challenges, the Department of Education has announced that it will temporarily allow all months spent on active duty to count towards PSLF. So if you placed your loans in a deferment or forbearance during your active duty military service, those months can now be added to your count of qualifying PSLF payments.
If you already have Direct Loans and have already joined PSLF, the Education Department should update you soon on how to get credit for the months that your loans were in forbearance or deferment while you were on active duty. But if you have non-qualifying federal loans, you'll need to consolidate them into the Direct Loan Program by Oct. 31, 2022 to take advantage of this new benefit.
Other Upcoming Changes
In addition to the "headliner" changes listed above, the Department of Education has promised to take a few additional steps to improve the PSLF program. Here are three examples:
- Automatic certification for federal employees: Starting next year, service members and other federal employees will be given credit automatically for their qualifying periods of employment by matching data with other federal agencies.
- Automatic review of denials: The Education Department says that it will be systematically reviewing all denied PSLF Applications in the hopes of finding and correcting processing errors.
- Simpler application process: ED hopes to make it easier to apply for PSLF in the future by improving its database of eligible employers and allowing applicants to digitally sign their applications.
ED is also addressing PSLF in its negotiated rulemaking process. Unlike the Limited PSLF waiver which is set to expire on October 31, 2022, any improvements that are agreed upon during negotiated rulemaking would have long-term effects.
While there's a lot that's temporarily changing with PSLF, there are still two key things that haven't changed.
- You still need to be working full-time for a qualifying employer to join PSLF and to make progress towards forgiveness.
- You still need to log at least 120 qualifying payments (or the equivalent) before your loans can be forgiven.
This second requirement means that you'll need to work for a qualifying employer at least 10 years to earn PSLF forgiveness. Borrowers who are close to paying off their student loans will want to carefully consider whether it makes sense to join PSLF and begin making payments on an income-driven repayment (IDR) plan.
Depending on your situation, joining an IDR plan could push back your debt-free date. So if paying off your loans as quickly as possible is your top priority, you may prefer to stick with your current repayment plan, even if that means missing out on some forgiveness down the road.
For more information about the changes outlined above, you can visit the official PSLF Limited Waiver page at StudentAid.gov. You'll find answers to a variety of frequently asked questions and quick links to additional
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