You may be able to get out of debt with Public Service Student Loan Forgiveness, but it can be tough to qualify

Librarians may be able to qualify for Public Service Student Loan Forgiveness. kali9/Getty Images
  • More than 45 million Americans have student loan debt, and it’s affecting their ability to build wealth.
  • The 2007 Public Service Student Loan Forgiveness (PSLF) program invites public sector workers to apply for loan forgiveness after 120 qualifying student loan payments (or about 10 years of work in a qualifying profession).
  • It sounds like a great deal, but the first round of borrowers to apply for loan forgiveness had a tough time getting approved in 2018 – just 206 of more than 40,000 applicants qualified.
  • Read more personal finance coverage.

More than 45 million Americans are saddled with a combined $US1.3 trillion in student loan debt. Without doing a formal poll, it’s safe to say most would be happy to have their loans forgiven.

One way to do that is through Public Service Student Loan Forgiveness (PSLF), a program introduced in 2007 as part of the College Cost Reduction and Access Act that forgives the debts of graduates working in the public sector after at least 10 years of service.

It sounds great, but it can be tough to qualify and jump through the required hoops. Here’s what you need to know.

How does Public Service Student Loan Forgiveness work?

PSLF is available to people who have direct loans from the U.S. Department of Education and work full-time for a qualifying employer. If your loans are not direct federal loans, you can look into consolidating them into a Direct Consolidation Loan to qualify for PSLF.

Qualifying employers include government organisations at any level – federal, state, local, or tribal – nonprofit organisations with a 501(c)(3) tax-exempt status, and other public sector professions, such as working as a librarian or child-care provider.

Military service, social work, education, law enforcement, and other professions qualify, but you’ll want to look carefully at the Department of Education’s list of qualifying professions to be sure yours is included.

Labour unions, partisan political organisations, and for-profit companies do not count as qualifying employers.

The first step towards PSLF after gaining eligible employment is to enroll in a qualifying payment plan, in this case that means an income-driven repayment plan.

Under an income-driven repayment plan (the federal government offers four types) your monthly student loan payment will be set according to how much money you make; it shouldn’t feel too overwhelming. After you’ve made 120 qualifying payments, you can submit an application for PSLF.

Graduates should also submit the Employment Certification for Public Service Loan Forgiveness form annually, or any time you change employers, to ensure you’re on the right track. You don’t have to work for the same company while you’re making your 120 qualifying student loan payments, but submitting this form can help ensure your payments qualify.

You can also work non-qualifying jobs while you continue to make payments, but they won’t qualify as PSLF payments and will delay your student loan forgiveness. If you work for qualifying employers for 10 years without any breaks and follow all requirements, you should qualify for PSLF in theory.

What’s the catch?

There are a few reasons graduates might shy away from PSLF. For one thing, it can be confusing to get started and a difficult process to navigate. Federal student loans are serviced by many different companies, and not all have top-notch customer service. Talking to a financial planner might help if you have access to one.

Also, public service and non-profit jobs sometimes pay less upon graduation than private-sector jobs, meaning you might not start out making as much money as your peers. You’ll have to weigh the value of a limited income against the long-term benefit of student loan forgiveness.

Finally, not everyone who believes they will qualify for PSLF is able to reap the benefits of the program. According to a 2018 report, the Department of Education awarded PSLF to 206 applicants that year – from a pool of more than 40,000. All of the applicants thought they qualified for PSLF but were disqualified because they had the wrong type of loans or were on non-qualifying repayment plans.

The bottom line

Taking the PSLF approach is not without risks, but it can give you financial peace of mind to know that your loans are not going into default. Plus, it allows you to have some discretionary income when you’re starting out, since your student loan payments will be fixed to your income.

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