How Public Service Loan Forgiveness (PSLF) Works

You might be able to have your student loans forgiven, which can save your tens of thousands of dollars and help you become debt free. But to be eligible for Public Service Loan Forgiveness (PSLF), you need to know the requirements.

PSLF is a loan forgiveness plan that can forgive your remaining student loan balances as soon as 10 years after entering repayment. And the amount forgiven is tax-free, making it an even more valuable benefit.

In this article, we’ll cover the details of how public service loan forgiveness works, how to find out if you’re eligible, what loans and jobs qualify, and how to apply. 

What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness (PSLF) is a federal student loan forgiveness program that allows certain public service and nonprofit employees to qualify for loan forgiveness. Borrowers with Direct Federal Loans or a Federal Consolidation Loan can enroll in PSLF and have their loan forgiven after making 120 on-time payments. 

To be eligible for the PSLF program, you’ll need to meet both the job and loan criteria and apply for the program. Once you’ve joined a PSLF plan, you can start counting payments toward the 120 total payments required.

Additionally, it's encouraged to transition to an Income-Driven Repayment plan (IDR). This plan lowers monthly payments based on discretionary income and ensures the loan won't be fully repaid within 10 years, leaving a balance for forgiveness. There are several IDR plans, but the new SAVE plan is best for most PSLF-eligible borrowers.

After making 120 on-time payments, the program forgives your remaining loan balances. It doesn't assess taxes on the forgiven amounts, providing a fantastic benefit for eligible individuals.

Who qualifies for Public Service Loan Forgiveness?

Public Service Loan Forgiveness is only available to borrowers who have eligible federal student loans and who work for a qualified employer. In general, you need to work in public service in a government job, or for a non-profit organization. You need to have a Direct Loan or a Direct Consolidation Loan to qualify.

Qualifying employers

Only certain jobs qualify for the PSLF program. This includes:

• U.S. government organizations (federal, state, local, or tribal) – including U.S. military
• Section 501(c)(3) non-profit organizations
• Other not-for-profit organizations providing qualifying public services

If you have one of these jobs, you may be able to apply for a PSLF plan. The easiest way to check if your job qualifies is by using the employer search tool. This tool allows you to find if your specific employer is qualified for PSLF plans. You’ll need your employer’s EIN number and your employment start (and end) date. You can usually find your company's EIN on your W-2 tax form or you can check with the HR department.

Eligible loans

Once you have determined that you're working for a qualifying employer, you then need to make sure your student loans qualify for PSLF. Only federal student loans are eligible for the PSLF program, so any private loans will not qualify. 

There are also several types of federal student loans that are NOT qualified for PSLF, including:

• Federal Family Education Loans (FFEL)
• Federal Perkins Loans

Direct Loans

If you have any Direct Loans student loan and work for a qualifying employer, you may be eligible for the PSLF program. This includes any of the Direct Loans offerings, including:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans

Note: Parent PLUS loans cannot change to an IDR plan unless they are added to a Direct Consolidation loan.

Direct Consolidation Loans

Federal student loan borrowers who elect to consolidate using a Direct Consolidation Loan are eligible for PSLF plans. This includes any FFEL, Perkins, or Parent PLUS loans that are consolidated. This is great news since FFEL and Perkins loans are not eligible for PSLF, but using Direct Consolidation Loans makes them eligible.

Consolidating federal loans counts payments made on previous loans enrolled in a PSLF plan. The qualifying payments weigh according to loan balances and the number of qualifying payments made.

For example, let's say you have a $20,000 Direct Loan and you’ve made 20 qualifying PSLF payments. If you consolidate it with another $20,000 Direct Loan with zero qualifying PSLF payments, your total $40,000 consolidation loan will have 10 PSLF payments applied.

What repayment plan should I be on for PSLF?

When applying for PSLF, it's advisable to choose an income-driven repayment plan actively, as this lowers your monthly payments and ensures a remaining balance for forgiveness after 120 qualifying payments. There are four main plans to choose from:

• SAVE Plan (formerly the REPAYE plan)
• Pay As You Earn (PAYE) plan
• Income-Based Repayment (IBR) plan
• Income-Contingent Repayment (ICR) plan

In most cases, the SAVE plan will lower your monthly payments the most and offer the most forgiveness on your PSLF plan. 

While you can stay on a standard 10-year repayment plan, in most cases, this will result you in paying off your loans within 10 years and not receiving any student loan forgiveness.

There are several repayment plans that are NOT eligible for PSLF, including:

• Standard repayment plan for direct consolidation loans
• Graduated repayment plan
• Extended repayment plan

What are the PSLF requirements?

There are a few requirements to be aware of when applying for PSLF:

Eligible full-time employment: Not only do you need to work for a qualifying employer, but you need to work full-time, which is defined as averaging at least 30 hours per week. You must continue working for a qualifying employer for the entire time you are making qualified PSLF payments.

Eligible loan type: You must have an eligible federal student loan to qualify for PSLF. This means a Direct Loan or Direct Consolidation Loan.

Eligible repayment plan: When applying for PSLF, consider selecting one of the four eligible income-driven repayment plans. This choice reduces your monthly payments and guarantees a remaining balance for forgiveness after 120 qualifying payments.

Qualifying payments: You must make 120 qualifying payments while enrolled for PSLF. The payments do not need to be consecutive. While payments were paused from 2020 to 2023, each month still qualifies as a payment toward PSLF, even if you made no payment.

How to apply for Public Service Loan Forgiveness

If you are working for a qualifying employer and have eligible student loans, your loan payments qualify toward your 120 PSLF payments. But to make sure you’re on track, you should use the PSLF Help Tool to check that your employer is eligible and certify that you are eligible for PSLF.

After making 120 on-time payments toward PSLF, you can submit your PSLF form for final approval using the same PSLF Help Tool. This allows you to sign your form digitally and expedite the forgiveness process.

After you submit your form, continue making on-time student loan payments until you pay off balances through loan forgiveness. Missing one payment can jeopardize eligibility, so make sure you continue paying until you apply for forgiveness and clear all remaining loan balances.

Is Public Service Loan Forgiveness worth it?

For eligible jobs, PSLF lowers payments, and forgives a significant loan portion tax-free, offering a cost-effective student loan elimination.

FAQs

Do people actually get Public Service Loan Forgiveness? 

According to the Education Data Initiative, only 2.3% of the PSLF applications received since November 2020 have been approved, and nearly 25% of the rejected applications were due to incomplete paperwork. Only 18% of eligible borrowers even apply. So while many people COULD receive PSLF, unfortunately, not many do.

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