In Defense of Public Service Loan Forgiveness
PSLF is still beta testing, but will soon be ready for prime time
Last updated: April 14, 2022
The Public Service Loan Forgiveness (PSLF) program has received a litany of bad press the past couple of years, with good reason.
Since the first cohort of borrowers was eligible for forgiveness in October 2017, it seems there are have been nothing but problems in processing, approving, and disbursing the student loan forgiveness that so many were anxiously looking forward to.
That being said, I’m sticking with PSLF.
The Bad News
Before we get into the nuance of PSLF, let’s name the elephant in the room. PSLF has been a disaster.
The Department of Education completely fumbled the rollout and has failed to provide proper oversight of the federal loan servicers.
FedLoan Servicing is an abomination of a company and lied to borrowers about being PSLF qualified for years (and probably still are). The other loan servicers were just as culpable.
NPR sums it up best.
Here’s the problem. The first several years this program was in effect, the Ed Department and loan companies — they really did a terrible job of managing it and of explaining it to people.
So borrowers were often given no advice, or sometimes they were given wrong advice to the point that, in recent years now, we’re seeing thousands of borrowers come out of the woodwork and say, wait; I thought I was on track. And instead, they realize they don’t even qualify for loan forgiveness.
Things got so bad that Congress hastily cobbled together the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program. TEPSLF allows borrowers, who were otherwise disqualified for PSLF, to argue their case to have their payments applied to a broader set of forgiveness criteria.
TEPSLF has helped, but not that much.
The PSLF approval rate is 1.19%. The TEPSLF approval rate is 4.16%.
Thus far, PSLF has been a failure. However, there is hope. And no, it isn’t through the government forgiving all $1.6 trillion in student loans.
The Good News
By all measures, the approval rates for both PSLF and TEPSLF are minuscule, but we are still in the first wave of PSLF applicants. For reasons we discuss later, it will take several years to solve the problems of the botched rollout and handoff to the servicers.
For all of that, there are a few reasons to stick with PSLF.
From the June 2019 PSLF Report
- PSLF borrowers with an approved ECF: 1,132,007
- Total outstanding balance for borrowers with approved ECF: $102,188,629,795
- Total balance discharged for borrowers with approved PSLF application: $52,045,282
- Average balance discharged for a borrower with approved PSLF application: $61,592
So, over 1 million borrowers have made at least one PSLF qualified payment, which represents over $100 billion in student loans. That’s just over 6% of the national student loan balance.
If you don’t think 6% is a lot, just imagine if we had a 6% drop in GDP. There would be literal blood in the streets.
The correct information is being disseminated, and borrowers are ensuring they are properly qualified. That’s not to say that it’s a cakewalk to get PSLF approval, but things are getting better.
Qualification Problems
There are four main criteria for PSLF approval, and you need to have them all correct before forgiveness is approved.
- Qualifying employer (and a full-time job)
- Qualifying repayment plan
- Qualifying loan
- Qualified number of payments (120)
Let’s go through each of them, look at the past problems, and see how they will get better in time.
Qualifying Employer
The 10-year window began in October 2017, but the Employment Certification Form (ECF) was not created until 2011. That was four years of financial aid counselors not able to give direct answer about PSLF to students and graduates and borrowers crossing their fingers they were in the right job.
Many borrowers were not at the right job for the first few years, but they switched employers to still qualify. There will be an increase in PSLF approvals due to this switch, but it will take 4–5 years to emerge on official reports.
Borrowers who graduated after 2011 have had access to the ECF for their entire careers, so there will be fewer cases of working for a non-qualifying employer. Expect the PSLF approval rate start to skyrocket in 2021.
In the meantime, if you want to see if your current or future employer qualifies without submitting the ECF, go to the IRS Tax Exempt Organization Search.
Qualifying Repayment Plan
Any of the current Income-Driven Repayment plans serve as a qualifying repayment plan for PSLF. Unfortunately for the first round of applicants, until 2009, the only payment plan available was the ICR or Income Contingent Repayment plan.
ICR was a radical change from the standard, graduated, or extended plans available at the time, and it was slow to catch on. Once the additional IDR plans became available (IBR in 2009, PAYE in 2014, and REPAYE in 2015), more and more borrowers trusted that they weren’t a gimmick and signed up.
Qualifying Loan
Only Direct Loans qualify for PSLF. This was one of the biggest misconceptions early on and is coming back to haunt borrowers.
Now, this mistake is only minimally due to lack of investigation by the borrowers. It has almost everything to do with the complete lack of care, knowledge, communication, and compassion by the student loan servicers, particularly FedLoan Servicing.
There are myriad stories of borrowers who were interested in PSLF communicating with their student loan servicers, trying to ensure they had the correct loans, employment, and repayment plan. (Check out /PSLF on Reddit.)
Time and again, the servicers mistakenly told the borrowers that everything was correct and to keep making payments. The problem was that the servicers were wrong. Wrong.
FedLoan started receiving applications that showed 120 payments on FFEL, Perkins, and whatever other loans existed aside from Direct Loans. The loans were promptly rejected.
However, just like the IDR plans, the Direct Loan problem will also be self-rectifying, as all federal loans were switched to the Direct Loan program starting July 1, 2010. All new borrowers from that academic year forward will have no choice but to have qualified federal loans. (Private loans are another matter.)
Qualified Number of Payments
All of these problems led to the primary source of rejection for PSLF: not enough qualified payments, accounting for 55% of unqualified applications.
Summing up what we have previously discussed, many borrowers misunderstood what a “qualifying payment” is. Remember, a qualifying payment is one that is made when you have a
- Qualifying employer (and the full-time job of 30 or more hours/week)
- Qualifying payment plan
- Qualifying loan
You need all three for your payments to count as “qualified”. For example:
- ICR payments on your FFEL loans while working for a local government do not count. (FFEL loans don’t qualify.)
- Extended payments on your Direct Loans during active duty military do not count. (Extended payment plans don’t qualify.)
- REPAYE payment in your Direct Loans while working for a contractor employed by the federal government does not count. (Private sector jobs don’t qualify.)
Borrowers also may have counted just 10 years of payments and assumed they qualified. This is easily understood, as the program is touted with the tagline of, “10 year to student loan forgiveness.”
Sure, it takes a minimum of 10 years to make 120 monthly payments, but the reality is more nuanced.
The 10-year timeline discounts the grace period right after graduation, any forbearances or deferments, and the time that you still need to be employed during the approval process. In all, it’s about 11 to 11.5 years until forgiveness.
One thing to note: the number of applicants rejected by PSLF for lack of qualified payments is inflated due to the TEPSLF requirement that applicants first be rejected by PSLF.
Missing Information
The next largest category of PSLF disqualification is missing information, which accounted for 24% of all applications.
This is an easy fix. TRACK EVERYTHING!
- PDFs and hard copies of proof of payment (both FedLoan documents and bank statements).
- All e-mails sent directly to you.
- Save as a pdf all communication sent to you over FedLoan’s website messenger.
- All conversation. Every time you call FedLoan, fire up a Word doc and type down the date, time, CSR name and employee number. (This has saved me on more than one occasion.)
It completely sucks for current applicants who need to find stuff from over a decade ago. But if you are still working towards your 120 payments, you have plenty of time to create your Forgiveness Folder. Make sure it includes everything from the list above, plus whatever else you think is pertinent.
Also, go over your PSLF forms multiple times on multiple days (i.e. sleep on it) before submitting them to FedLoan Servicing. It’s amazing how seemingly simple but insidiously baffling these forms are.
From an NPR interview about the complicated PSLF/TEPSLF forms:
I talked to a lot of borrowers who are brass tacks people. They have budgets for their families. And they could not figure this out. They were baffled.
One of the people I spoke with, Jonathan Barnes of Chicago — he told me he believed he had done everything right when he applied for this expansion. But then he got a rejection letter…
Future Improvements
The program will see much higher approval rates in the coming years, mostly due to improved consumer education, which is due to improved government communication. Borrowers will have a much better definition of what jobs, plans, and loans qualify.
They will also have a healthy distrust (read: complete paranoia) of the student loan servicers.
If you have been rejected by PSLF because of the laughable, lamentable lack of support by the DOE, then you have my empathy.
If you are in a later group of PSLF applicants, then get your info together pronto. While the letter of the law is on your side, the DOE and student loan servicers are decisively not.
Your future is up to you; so, do the work, take radical responsibility, and get your loans forgiven.
The Takeaway
The government screwed the pooch for the first 4 years of a “10-year” program, so DOE will have to keep hearing the complaints for quite a few years.
To recap:
- Only one little known IDR plan was available until 2009.
- Direct Loans were not standardized until 2010.
- The Employer Certification Form did not exist until 2011.
Borrowers who graduated between 2007 and 2011 are, in essence, beta-testing the PSLF program for the rest of us.
However, this doesn’t mean that you should discount the program. Even Trump can’t get rid of PSLF, and his administration has only called for ending new enrollees while grandfathering in the current ones. The quote below, from MarketWatch, puts it nicely.
Still, borrowers likely don’t have to worry about the program being eliminated any time soon. Getting rid of the program would require an act of Congress and its something Congressional Democrats are loathe to do. Even if lawmakers were to move forward with Trump’s proposal it would apply only to new student loan borrowers taking out debt after July 1, 2020.
If you are gunning for PSLF, go for it. The program will be around for a while, so get your ECF in and approved, then work your plan for forgiveness.