Is PSLF Right for Me?
Student loan forgiveness is not always the best choice.
Last updated: April 14, 2022
With all the negative news about the PSLF program, you might be nervous about the legitimacy of the program. My view is that PSLF is going to be around for quite a while. Take a look at this article for a further explanation.
Now that’s out of the way, is PSLF the right program for you? I’ll give you the short answer right up front. It depends.
No one is alike, and everyone’s situation is different.
So now I’ll give you the guideline I tell people who ask me this question.
If you can pay off your student loan within three years without neglecting your health, then forgo PSLF.
If it will take four or more years to get rid of your student loan debt, then I say sign up for PSLF and get your payments as low as possible. There are several reasons for this, but this one is the biggest.
Financial plans with a timeline of longer than 3 years normally fail. It’s just human nature.
If you decide to pursue student debt payoff, those 3 years should be in a steady state environment. Income, expenses, housing…you name it. If you’re going for a quick payoff, minimize the variables.
Now, how do you figure out whether you can pay off your loans within 3 years?
Let’s get started.
Are You Qualified?
PSLF has a few key requirements in order to be approved. They are:
- Qualifying Employment
- Qualifying Loans
- Qualifying Repayment Plan
- Qualifying Number of Payments
More details can be found my Simple Guide to Public Service Loan Forgiveness, but I will give an overview here.
Qualifying Employment
Most people are familiar with the fact that a government job qualifies for PSLF. That is true, but there are several others that also qualify, non-profit work being the next major job.
There are a few jobs that qualify for PSLF that are in the private sector but support either government or non-profit companies, but you need to be very careful about going down that road. The guidelines are few and far between, and several borrowers have had to sue the Department of Education to prove their jobs were, in fact, qualifying.
For simplicity’s sake, stick with a government or non-profit job.
Qualifying Loans
First and foremost, you need to identify if your loans qualify for the PSLF program. Only Direct Loans are allowed. If you have other non-qualifying federal loans, you can consolidate them into Direct Loans.
Private loans are absolutely non-qualifying.
If you are planning on paying off your student debt within the three-year time frame, then refinancing your loans, public or private, might be your best option. Sites like SoFi or Laurel Road may give you a better interest rate for the short timeframe.
The biggest drawback of refinancing into private loans is that you do not have the protection of federal loans.
- No forbearance.
- No deferment.
- No going back to PSLF if you meet the love of your life, start having babies every year, need to lower your monthly payment.
Nope, these lenders are private financial companies, and they are all about the bottom line. Imagine your worst day with one of the federal student loan servicers (here’s looking at you, FedLoan). Now add the legal responsibility to increase shareholder value, and you could be looking at a very bad situation.
Proceed cautiously and choose wisely.
Update: As of April 2022, private loan borrowers have been having a hell of a time paying back their loans, while the rest of us with federal loans had 2+ years of a payment pause during the pandemic.
Qualifying Repayment Plan
In short, you need to be on one of the Income Driven Repayment (IDR) plans.
The four IDR plans available are
- Income-Contingent Repayment Plan (ICR)
- Income-Based Repayment Plan (IBR)
- Pay As You Earn Repayment Plan (PAYE)
- Revised Pay As You Earn Repayment Plan (REPAYE)
Additionally, payments made on the standard 10-year repayment plan also qualify. If you would like to pursue PSLF and have made payments on the 10-year plan while working at a qualifying employer, you could just switch to an IDR plan and still have your prior payments count towards PSLF.
Qualifying Number of Payments
PSLF is advertised as a 10-year forgiveness plan because is requires 120 monthly payments.
Easy math, right?
Wrong.
Everyone always forgets two main things.
- There is a 6-month grace period between graduation and the beginning of student loan repayment that is ineligible for PSLF. Even if you make payments, FedLoan will disregard them when counting your payments.
- You need to still be employed at a qualifying employer and making qualified payments during your approval verification at the end of your 120 payments. Yes, you will be refunded that extra money, but it still could take several months.
These two items can easily add a full year to your PSLF plan.
Lastly. Never pay ahead.
Long story, short: it completely screws up your payment count. Just set your monthly payment to auto-pay and leave it alone.
Now that we know what you need to have to qualify for PSLF, we next need to decide if that is the path you want to choose. To do that, you need to measure your income against your expenses, now and over the next 10 years.
Income Potential
First up is income. While it’s impossible to tell what your salary will be in 10 years, it’s also impossible to tell what anything will be in 10 years.
For example, when I graduated high school in 1999, I could not imagine that we would be attacked by terrorists, go through a devastating recession, yet still have the computer in our pocket (iPhone) that we all dreamed of by 2009.
But don’t worry about it. Like with everything else in life, you have to make the best choice you can with the limited data you have.
So, find out as best you can what types of jobs you can get at a qualifying employer and a non-qualifying employer.
When estimating your income, be sure to set it as full-time income, as this is a requirement of the PSLF program. Only full-time employment (30+ hours/week) qualifies.
Don’t estimate your salary for 20 hours/week so you can pursue your ultimate goal of turning into a professional Mahjong player.
Now that you’ve got your set-in cement yet completely wild-ass guess for your 10-year income projection, let’s move on to the other half of the equation; expenses.
Expenses
As with your 10-year income, you can know for sure about your 10-year expenses. So, we’re back with guesstimating.
There are a couple of big areas of expenses that I want to touch on. Sure, everyone has housing, food, transportation, blah, blah, blah. Whatever. Those are pretty steady-state and can only get reduced by so much.
I’m talking about how these categories are impacted in the future.
Family Size
First up is family size.
Where are you now? Where do you want to go?
- Are you married and expecting twins?
- Are you single with no prospects in sight, and marriage isn’t even on the radar for you?
The first example is primed for PSLF, and expenses are increasing very soon and will vary dramatically over the next 10 years. This couple should lower their student loan payment as much as possible until forgiveness.
The second example is perfect for a quick payoff. Even is this person met Mr. Right, it would still probably take a few years to date, then get engaged, then get married. By that time, her debt will be paid off and she can start her marriage without the burden of student loan debt.
Car Loans and Credit Cards
The next big area to look at is non-student loan debt. They are all different and have varying impacts on your PSLF decision.
The biggest factor with your other debt is when it will ultimately fall off your expense report. I understand that this is dependent upon how much you pay on it, especially with credit cards, but let’s just assume that you’re making minimum payments for the moment.
If you’re finishing up some short-term debt in the next 18 months, feel free to work towards a quick payoff. Just use the snowball method and apply those debts to your student loan debt.
However, if your car loans are for another six years, and your credit card debt will take another three, then stick with the lower monthly student loan payments and go for PSLF.
Mortgages
Mortgage debt is a little bit different.
Throwing extra money at your mortgage doesn’t work all that well if you’ve got outstanding debt. Even if you doubled your payment, it would still take 10 years to pay off the 30 years, fixed rate mortgage.
In the meantime, you could be investing that money or paying off higher interest debt.
Since mortgage debt is so long, it has little impact on your decision to either quickly pay off your student loan debt or pursue PSLF.
Regard mortgage debt as a fixed expense and ignore it.
The Takeaway
You have your income. Your have your expenses. You have a sense of the immediate future.
Can you pay off your loans?
If the answer is yes, then buckle down, follow through, and kill those loans as fast as you can.
If the answer is no, then work the system, lower your payments, and take advantage of a program that rewards you for putting in your 40 hours every week.
So there you have it. A quick and easy review of whether PSLF is the right choice for you.
For new graduates, it may take you a few years to figure out your career (read: life). And that’s okay. Just keep make sure your student loan options are part of your decision matrix when pursuing job options.
For older graduates, take a second look at your job history. You may have been working at a PSLF eligible employer for many years without even knowing it. This could mean the end to your loans much sooner than you think.
Case in point. I have counseled someone who was in the same predicament. She had worked at a university for almost 8 years. He thought his job wasn’t eligible for PSLF as it was not a state school. He didn’t realize that private, non-profit schools qualify as PSLF eligible employers.
After getting almost 100 qualified payments approved after submitting an Employer Certification Form, his loans will be forgiven in a mere 2 years via PSLF rather than 12 years via IBR forgiveness.
Best of luck to you all in tackling your student loans!