The sell line for Public Service Loan Forgiveness is that after 10 years of payments you will receive forgiveness of the remaining of your loans (for now this may change with the new PAYE changes in 2015) if you work for a Public Service organization. While this is true, it is obviously a simplification of the process.
To qualify for PSLF, you must make 120 qualifying payments. That is the simple part. In order to know if your payment qualifies you must meet a 3 check-point criteria.
Check point #1: Your Payment Must Be Made in a Certain Window
For a payment to qualify it must be made after the begin date of October 1, 2007. Automatically any payments made before this date do not qualify.
It must be made within a certain payment window as well. This window is 30 days before the due date and 15 days after. This is done as a bit of a safety net. What the DOE is trying to avoid is someone realizing their income is low now but will raise over time and making multiple payments to “stack up” their qualifying payments.
Now during this time you are able to break up your payments as long as the full payment is received by the due date. Here are some examples to illustrate this point.
Your payment is due on the 28th of the month. We are going to assume all 30 day months for this example. So your window is the 28th of the previous month and the 13th of the next month.
Your payment amount is $100.00 a month.
Example 1) You pay $50.00 on the 10th of the month due and $50.00 on the 28th of the month due. This payment qualifies.
Example 2) You pay $50.00 on the 10th of the month due and can’t pay the rest of the month. To “catch it up” you pay $150.00 on the 14th of the following month. This would count as one payment for the second month but the first month would not count. This is because the $100.00 was not received within the window for payment 1. In addition it would only count as 1 payment even though you made enough money to count as two because you can only have one qualifying payment per window.
Example 3) You pay 50.00 on the 10th of the month and can’t afford to pay the rest of the month. To “catch up” you pay $150.00 on the 13th of the month. In this scenario you get two qualifying payments.
This is because payment 1 the full amount was received within the window (the last part being received on the last eligible day) but also it fell 30 days before payment 2 due date meaning it would count as well. While you can only have one qualifying payment per window, this clearly shows the windows do overlap.
Check Point #2: They must be on a Certain Payment Plan
There are two main categories of loans that qualify for PSLF that we will break down further in a moment:
1) An Income Driven Repayment Plan
2) Any Direct Loan payment that are equal to or greater than what your payment would have been on a 10-year Standard Repayment plan.
Also, as stated above, these payments had to be made after October 1, 2007 in order to qualify. Here is a breakdown of these payment categories:
An Income Driven Plan is made up of the Income Based Repayment (IBR), Income Contingent Repayment (ICR) or the Pay As You Earn (PAYE) plans. These plans are based on your income and must be recertified for annually. Even if your payment is $0.00 on one of these plans, it qualifies as part of the qualifying payment criteria.
The second is any plan that is greater or equal to what your payment would have been on a 10-year Standard Repayment. This means is you stay on a 120 month or less term level payment you will qualify. Also the Graduated and Extended Graduated plans sometimes qualify. These plans start lower and increase gradually every two years. So for example lets say you payment on a 10 year plan is $500.00. You switch to a Graduated plan for $300.00. When you are making $300.00 payments, they do not qualify towards PSLF, however once your payments increase and $550.00 they would qualify as they are now more than what you would pay on your Standard plan.
As a result the Extended Level plan would never qualify. Also, you can not make “half-payments”. If your payment plan is $250.00 and you pay $250.00 one month and $250.00 the next (with your regular payment being $500.00), it would not then count as one qualifying payment. However remembered as we covered already, you are able to make your qualifying payments in installments as long as the full amount is received within the necessary window..
While these payments do qualify, at the end of your 120 qualifying payments, the borrower would have no loan debt left to forgive. For that reason, borrowers are encouraged to use one of the Income Driven Repayment plans.
For this reason while there are no official “you make too much” scenarios for PSLF, this is the way that this can occur. There is a ceiling on income plans where you either don’t qualify or where your payment amount is so high there will be nothing to forgive at the end of the 120 payments.
The payment plan rule also is done as a loophole closer. Since any job under a qualifying employer qualifies for PSLF, having these rules in place keeps the President of a non-profit who is making 200k a year from just settling in on an Extended Graduated plan and having forgiveness when most people would agree they can probably afford to pay for their loans.
Checkpoint #3: Your Job Must Qualify
Right of the bat any public (government) employees for state, federal, or local is an eligible employer for the program. Generally speaking if your private organization has 501 c (3) designation from the IRS they are an eligible non profit and your employment would qualify. These jobs include jobs such as colleges, universities, agencies, and charities.
A private employer can also qualify if they meet certain requirements. Usually these requirements include providing one or more of the following public services: emergency management, military service, public safety, law enforcement, public education or library services, early childhood education, public interest law services, etc. In addition, the employer must not be a labor union, a partisan political organization, or an organization that is engaged in religious activities (unless it also provides services unrelated to religion).
The good part is that it does not matter what the job itself is as it is based on the employer. If you are working for a qualifying hospital you qualify whether you are a front line nurse or someone working in the accounting department. However you must work at least full time in order to qualify which is defined as at least 30 hours on average. The awesome part though is if your one job does not meet the full time criteria, you are able to have several part time jobs that can qualify.
In addition you must work directly for the company and not for a company contracted by the qualifying organization.
While you need 120 qualifying payments for Public Service Loan Forgiveness, these payments do not need to be consecutive. The way these payments are counted is you turn in an Employment Certification Form that can be found on FedLoan Servicing’s Website at www.myfedloan.org. This form is filled out by your employer and used to see if your employment qualifies. Once it is deemed acceptable, your payments made during this qualifying time (and after October 1, 2007) are reviewed to see if those payments meet the other two criteria. This then determines your total amount of qualifying payments to date.
Finally, if you particular questions on if your job qualifies or other PSLF inquiries, you can talk to FedLoan Servicing who is the exclusive servicer for PSLF. The number to get to a Public Service Counselor is 855-265-4038.