How to Hack the Secretly Successful PSLF Program.

$115,000,000 (and rising) in student loan forgiveness.

Introduction

The world sure picked a hell of a time to have a pandemic, especially for college graduates. Student loan debt is more than $1.5 trillion, and many of us were already struggling to pay it off.

Add to that 36 million (and counting) lost jobs and stagnant or reduced salaries for millions more, and you’ve got a situation where people are just drowning in debt with no way out.

Many were already clamoring for mass student loan forgiveness in 2019, and the din is just getting louder during the pandemic.

• The bad news: Mass student loan forgiveness will never happen.
• The good news: Student loan forgiveness is already here.
• The best news: It’s on sale!

Stick with me and I’ll show you how.

Hello PSLF

The Public Service Loan Forgiveness program has been around for 13 years, and forgiving student debt for the past three.

Now, it hasn’t been without its problems. You may have seen a few stories about it.

• Education Department rejected 99% of applicants for student loan forgiveness program
• Why Public Service Loan Forgiveness Is So Unforgiving
• CFPB Blasts FedLoan Servicing for Sucking at Managing PSLF Program

However, these problems almost exclusively affected the first cohort of borrowers.

For example, people were first eligible for the program in 2007, but the form to verify your job eligibility didn’t even exist until 2011.

That is super poor planning by the government, but it’s a problem that is now fixed. The program is finally working through the first date kinks to get to fulfill the promises that were initially advertised.

What is PSLF?

I’ve written about the PSLF program in several articles (here, here, and here), but here’s a quick overview.

The whole concept was to incentivize high quality students, who would otherwise be more handsomely paid in the private sector, to become high quality employees working for the government or nonprofit sector for less money.

If you work for 10 years, then viola! Your loans are forgiven. Seems simple enough in theory.

To qualify, you only needed to meet four criteria.

1. Work at the right place (government or non-profit).
2. Have the right kind of loans (only federal loans, not private loans).
3. Be on the right repayment plan (Income Driven Repayment plans only).
4. Make the right number of monthly payments (120 payments, which is 10 years if done all in a row).

PSLF Backlash

Unfortunately for many people who started working towards PSLF right at the beginning, there was little to no communication about the nuances of these four criteria.

Just one example is the requirement to use only federal loans. The sticking point is that loans from the Federal Family Education Loan (FFEL) Program and Federal Perkins Loan Program, while federal, do not qualify for PSLF.

Innumerable other examples are available, but you get the point.

So starting October 2017, the first month of eligibility, applicants were getting rejected at rates as high as 99%. This made for terrible headlines for the program and quite the backlash among borrowers.

Other complaints included

• Extremely slow turnaround of paperwork by the Department of Education
• Contradictory information provided by FedLoan Servicing (the only loan servicer contracted for the PSLF program)
• Mistakes in calculating monthly payments, number of payments, and forgiveness amount

Why PSLF Now?

Right now is a wonderful opportunity to hop on board the PSLF train for three main reasons

1. It’s real.
2. It works.
3. It’s on sale.

PSLF Is Real

So many people want mass forgiveness that isn’t going to happen. They’re pinning their hopes on a pipe dream.

Instead of going to a political rally, yelling for loan forgiveness, then going home; you could be working at a qualified job and making progress towards a forgiveness plan that already exists.

Two years ago, people could argue that PSLF was a farce.

Now, not so much.

Here are a few stories of people receiving forgiveness in amounts of $170,000, $190,000, and $230,000 through PSLF.

Personally, I have $134,673 in student loan debt. My payments barely cover interest, so let’s assume that’s the balance in 5 years when I reach my 120 payments.

Assuming that I should have paid back that full amount over 10 years under a standard plan (that I now won’t have to pay), I can basically add $13,467 to my annual salary. And as a government employee, that’s a nice pay bump.

Check out the full explanation of my loan situation.

PSLF Works

These are not just one-off stories.

As mentioned earlier, PSLF received a ton of bad press, and rightfully so. The poor planning and lack of communication from both the Department of Education and FedLoan Servicing in the early years came back to bite them 10 years later.

While some issues remain, most of the major problems have been fixed for newer borrowers.

The biggest issue for all PSLF borrowers is that FedLoan Servicing failed to plan for the influx of applicants in late 2017, so they have been “ramping up” their number of customer service employees.

And yes, you read that right.

In 2020, they are still reeling from an unexpected volume of phone calls in 2017. Go figure.

Regardless, approval rates are up, as is the amount of student debt being forgiven.

Take a look at these numbers.

• Total Student Debt Forgiven: $115,999,254 (7.6% of outstanding student loans)
• Unique Borrowers Receiving Forgiveness: 1,831
• Average Balance of Forgiveness: $63,353

It’s On Sale

The CARES Act put all federal student loans on interest free forbearance for 7 months, from March 2020 through September 2020. The best thing? Those “payments” still count towards PSLF.

Let’s see how that works out.

My monthly student loan payment is $336.69 on the REPAYE plan. For the seven months covered by the CARES Act, I am taking that payment and putting it in savings. This means that the government is allowing me to pay myself a total of $2,356.83 while still counting those months towards the government forgiving my loans.

Talk about double dipping!

(All that being said, I realize that many people are having a hard time putting food on the table or keeping a roof over their heads right now, so this suggestion may come across as privileged. However, it’s the very real fear of losing my job that makes me put away this money each month now that it is not assigned for my student loans. The double dip just makes me grin a bit when I do transfer that money over each month.)

The Future of PSLF

Now that you’re excited about this amazing program, I’m sure you’re ready for the anticlimax of the article and the announcement that PSLF is going away in a few years.

You couldn’t be more wrong.

Sure, there is some chatter about deep-sixing the whole thing, but it will never happen, and here’s why.

Too Much Success

Going back to those bad headlines, the big number everyone was pushing was a rejection rate of 99.2%. And that’s bad. But no one is reporting that it is getting better.

The approval rate is up from 0.8% to 3.6%. That’s an improvement of over 400%. Sure, it’s still low, but some people think it could go as high as 50% by 2024.

Too Much Politics

For whatever reason, politicians hate giving away money to individuals.

Corporations get bailed out all the time, but God forbid a person reaps the benefits of abiding by contractual obligations and receives $200,000 in loan forgiveness.

You would think the sky is falling.

The current administration is no exception and has suggested axing the PSLF program in each of its budgets the past four years. But those suggestions have been a complete non-starter when compared to bigger problems, so the program is safe for now.

Too Much Law

I know that I didn’t realize this until years into repayment, but the PSLF program is legally baked into your contract with your student loan servicer. The Master Promissory Note has PSLF as one of several forgiveness options listed, and as we all know, the MPN is a legally binding contract.

This puts the government into a sticky situation. Should the program ever actually be abolished, a grandfather clause would legally have to be included.

Summary

I know the world is going to hell in a handbasket right now, and you probably have many of the same worries that I do.

I’m worried about my job. I’m worried about my wife’s job. I’m worried about school and daycare come the fall.

It’s enough to make anyone’s head spin, and we can hardly get outside to even breathe fresh air. But this is an opportunity to make up some lost ground.

Take a few moments to see if you qualify for PSLF. If so, you just earned 7 months free towards your forgiveness.

If you don’t qualify, take a second look and see if it’s worth going for PSLF. You never know…the private sector may not be everything it’s cracked up to be.

If you are interested in actionable, up-to-date info about personal finance, click here.

This article is for informational purposes only and should not be considered Financial or Legal Advice. Not all information may be accurate. Consult a financial professional before making any major financial decisions.