Q&A: Public Service Loan Forgiveness

Question: Justin: Have you seen the recent articles about Public Service Loan Forgiveness? Sounds like the program is crumbling and we may need to rethink our strategy.

Answer: Yes, I have seen the articles1 & 2, including the one that stated 99% of people who applied were rejected. This caused many physicians with large loans to feel uneasy. However, the conclusions many are drawing from the article title are miscalculated in my opinion.

Almost all the denials happened12 because the applicants did the paperwork incorrectly, or they didn’t have the right type of loans to begin with, or they didn’t work full time for an employer who qualifies. 28% of the denials were due to incomplete paperwork so that doesn’t concern me. About 70% of the denials were due to not meeting the requirements of the program. This means the applicant worked part-time, didn’t work for a qualifying employer, or had the wrong type of loans. Having the wrong type of loan is the main problem. Before June of 2010, many federal student loans were issued through the FFEL program instead of the Direct Loan program. Loans made through this FFEL program are eligible for income-based repayment (IBR) but are not eligible for PSLF. Only Direct loans are eligible for PSLF. This led to massive confusion for borrowers using IBR because the rules of PSLF were not widely known in 2007-2009.

Clients who are following the PSLF rules should not change their plans because of the articles. If you have Direct Loans, work full-time for a qualifying employer, pay your loans on IBR/PAYE/REPAYE, and have had FedLoan approve your employment certification form, you are on a good path. I still recommend a backup strategy as I alluded to in the Winter 2017 edition of my newsletter. This backup strategy provides an additional layer of security.

Justin Berry

Author: Justin Berry

Justin is an independent financial planner who believes in building relationships with his clients based on financial education and blunt honesty. His goal with everyone he meets is to reduce their financial stress and help them avoid costly mistakes.

Justin is a registered representative and investment advisor representative of CRI Securities, LLC and Securian Financial, Inc.

₁Stacy Cowley. New York Times. September 27th, 2018. “28,000 public servants sought loan forgiveness, 96 got it”

₂U.S. Government Accountability Office. September 2018. “GAO-18-547”

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