Student Loans: File Waiver For Expanded Public Service Loan Forgiveness (PSLF)

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Like many folks, I left college with a negative net worth due to $30,000 in student loans. After reading through several articles about changes in the Education Department regarding student loans, I think the overall takeaway is that if you’ve had problems with your student loan management in past years, now would be a good time to check again – especially if you are working towards the Public Service Loan Forgiveness (PSLF) program.

The idea behind PSLF was that if you worked full-time in public service (ex. military, government, nurses, teachers, non-profit workers) and made regular income-based payments for 10 years (120 monthly payments), you would have the remaining balance forgiven at the end of those 10 years. However, this incentive turned out to be an elusive reward at the end of a long and winding maze. The program started in 2007, and as of April 2020, only a little over 2,000 people total (under 2% of the 145,000+ applicants) were ever approved for PSLF.

The maze appears to be opening up a bit, with over 30,000 people expected to be approved in 2021. Most importantly, you must take action and file for a PSLF waiver as soon as possible (must be done by October 2022):

On Oct. 6, 2021, the U.S. Department of Education (ED) announced a temporary period during which borrowers may receive credit for payments that previously did not qualify for PSLF or TEPSLF. Learn more about limited PSLF waiver.

The previous rules were pretty complex and rigid. For example, you could have been paying more than required, but if you weren’t on the right repayment plan, your payments didn’t count toward the 120 monthly payments required (10 years).

Under the new rules, any prior payment made will count as a qualifying payment, regardless of loan type, repayment plan, or whether the payment was made in full or on time. All you need is qualifying employment.

This change will apply to student loan borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those who consolidate into the Direct Loan Program by Oct. 31, 2022.

If you file for the waiver, these types of past monthly payments can now count towards the 120 required:

  • If you were previously ineligible because your loan was of the wrong “type” (will have to consolidate)
  • If you were on an “ineligible” payment plan method
  • If you were deployed active military and placed your loans on hold
  • If you had partial payments
  • If you had payments that were late

You must still be:

  • Employed by government, 501(c)(3) not-for-profit, or other not-for-profit organization that provides a qualifying service
  • Work full-time
  • Have Direct Loans or consolidate into Direct Consolidation Loans. Private student loans are NOT eligible.

It is still rather confusing as to which jobs exactly qualify as “public service”. Your job description doesn’t matter, only the status of your official employer. You could be a teacher or a nurse, but one might be a nurse at a nonprofit hospital and the other might be at a private hospital (or their hospital changed from one to the other at some point, out of their control).

There are also now special considerations for borrowers misled by their schools. Examples of such schools include Corinthian Colleges (Heald College, Everest College, WyoTech), ITT Technical Institute, American Career Institute, Westwood College, Marinello Schools of Beauty, and the Court Reporting Institute. This is called Borrower Defense Loan Discharge:

If your school misled you or engaged in other misconduct in violation of certain state laws, you may be eligible for “borrower defense to loan repayment,” sometimes shortened to “borrower defense.” This is the discharge of some or all of your federal student loan debt.

Students with total and permanent disability have also had their student loan debt forgiven. Students whose schools closed while they were enrolled may also receive loan forgiveness.

Notably, all student loan forgiveness is also considered tax-free at least through through December 31, 2025.

Even if you don’t work in public service, there are still other income-based repayment plans and forgiveness programs. I’m not an expert on the student loan landscape these days, but I would be careful before re-financing your student loans with a private lender as it is non-reversible. Be sure to understand the benefits (such as a lower interest rate) but also what you are giving up (such as these types of forgiveness options).

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