It’s here! Finally! The long awaited application for Public Service Loan Forgiveness (PSLF). True to Dept. of Ed fashion, it has one big bug in it. The kind that you don’t want to step on because you know it’ll be messy. But first, lets discuss what PSLF is, and then we can look at the form.
What is PSLF?
PSLF was enacted in 2007 (President Bush Jr.) to benefit those who work lower paying jobs that serve the public good. My words, not theirs. Three things are needed to qualify:
1) The right kind of job
2) The right kind of loan
3)The right kind of payment
Nothing prior to October 2007 counts, and you must have all three things AT THE SAME TIME for 120 months. That doesn’t have to be 120 consecutive months.
The right kind of job:
Any government (US Federal, State, Municipal, etc.) or 501(c)(3) non-profit, or other not-for-profit job in the public service sector (grey area that spawned a lawsuit).
The right kind of loan:
Only Direct Loans qualify (those taken directly from the Dept. of Ed). FFEL and Perkins don’t qualify. If you have a FFEL or Perkins, simply consolidate your loan. That makes it a Direct Loan and then you’ll start qualifying for PSLF.
The right kind of payment:
Your Direct Loan must be on either the 10-year standard repayment plan or any Income Driven Repayment Plan (IDR). IDR includes:
-Income Contingent Repayment (ICR)
-Income Based Repayment (IBR)
-Pay As You Earn (PAYE)
-Revised Pay As You Earn (REPAYE)
If any of the three items above, job, loan, or repayment, are missing for a given month, that month doesn’t count towards PSLF. Periods of forbearance, when the loan isn’t being paid – that doesn’t count towards PSLF. Late payments – those don’t count either. Once you have 120 months, THEN you can complete the new application. Let’s discuss that now.
The application itself is simple enough. Mostly check boxes. Check the wrong one, and it will say you don’t qualify.
One nice thing about this form is how it helps clergy qualify. Question #8 asks about average hours per week worked. It specifies not to count “religious instruction, worship services, or proselytizing.” That means all the other time spent managing and community outreach and support COUNT. Clergy can qualify for PSLF!
Another nice feature (in my opinion) is the clarity it gives to the grey area of not-for-profit public sector jobs that qualify. See question #13 which lists services that qualify, so long as, “your employer provides as its primary purpose”. Remember that lawsuit filed by the American Bar Association (ABA) and others where an ABA employee was told suddenly they don’t qualify for PSLF? This is why. The ABA doesn’t fit any of these definitions.
The Annoying Bug
Section 4 is the employer certification. This is the bug.
In 2012, Dept. of Ed introduced the Employer Certification form. Basically, it’s a form you bring to your employer, they complete it and send it to your servicer. From here, all loans with an employer certification were transferred to FedLoan Servicing, who would verify that the employer qualifies you for PSLF. Many people have been completing this form, once they learn of it. FedLoan has been requiring borrowers to complete the form annually, even if they haven’t changed employers. And this is the problem.
Section 4 of the PSLF application requires the borrower to have their employer sign the form. WHAT?! WHY!?!? Doesn’t FedLoan already have a bunch of Employer Certification forms? Why does ED require this redundancy? But it gets worse!
Section 5 basically states that you need to submit a PSLF application for EVERY QUALIFYING EMPLOYER YOU WORKED FOR DURING THE 120 MONTHS OF QUALIFICATION. Again I ask, why?! There’s no checkbox asking if your employer has already completed a certification and sent it to FedLoan. Does this mean employer certification forms are irrelevant? I’ve always thought they were, but this to me puts that to bed; they are completely useless.
So now, ED wants you, the borrower, to complete a PSLF application for every qualifying employer you worked for during the 120 month qualification period. This assumes you no longer work for those other employers. Now you, the borrower, have to go back to that former employer, and have them certify that you worked there. What if you left on bad terms? What if HR doesn’t like you? What if the employer no longer exists?
OK, so maybe this isn’t a huge problem. This only affects those who have worked at multiple places over time. What if you moved – cross country? You gotta fill out the form, mail it to your former employer, hope they complete it, and be nice to them if they haven’t so they can do you the favor. What if HR is over worked and underpaid, like the rest of us, and your application is put in a pile that they’ll get to eventually?
Messy is the polite word.
Anybody who watches what’s going on knows the current administration is not focused on borrowers. The best we can do is hope the process works, hope our former employers will complete the form timely, and see what happens. I’m already rolling up my sleeves for a fight. Care to join me?
Is the balance that is forgiven going to be taxed as income ??
No. PSLF is a non-taxable forgiveness. That’s one reason it’s so valuable.