Should You Be Concerned About Public Service Loan Forgiveness?
A lot of the questions I’ve been getting lately are should I be concerned about Public Service Loan Forgiveness (PSLF)?
Recently PSLF, Public Service Loan Forgiveness, has been in the headlines:
- Market Watch Headline: This government loan forgiveness program has rejected 99% of borrowers so far
Should I be panicking or stay calm if I’m currently planning for PSLF?
I would argue the latter. Why?
Let’s read beyond the actual headlines and break down the 99% number:
- 70% of the borrowers whose applications were denied didn’t meet at least one of the eligibility requirements
- 28% were denied because the applications were incomplete
We could stop the conversation right there as 98% of the applicants either 1.) Did not follow the rules properly and 2.) Did not fully complete the application.
First, let’s understand what it means to be eligible for PSLF:
- You must make 120 on time payments no later than 15 days after your due date
- You must be employed full-time by a qualifying employer (government agency or nonprofit organization)
- You must be under a qualifying repayment plan (income driven repayment plan)
- You must have direct loans
4 requirements are all it takes. One of the quotes from the Marketwatch article was “Many who watch PSLF closely have been concerned for years that its complicated mix of requirements would make it difficult for borrowers to access.” I don’t really agree with that.
But I do see where they are coming from so let me explain why most people were ineligible.
- October 2007 is when the PSLF program came about
- Most of this data from the headlines above is coming from 2018, just 10 years out from when the program started
- Social media, google, etc weren’t mainstream around 2007
- If the program requires that you make 120 payments (10 years) to be eligible for forgiveness that means that someone would need to have been properly informed about PSLF on October 2007, start making payments right away and never have missed a payment for 120 months.
- How likely was it that they were properly informed, never missed a payment, worked for a qualifying employer for 10 straight years, had the right type of student loans, and had the right repayment plan?
- In 2007, only 21% federal student loans consisted of direct loans1
- The remainder types of loans were not eligible for PSLF
When you take into consideration that we are just now seeing data from 2018, exactly 10 years after the program came about, it’s not surprising that 99% of applications were denied. I believe now that more people are educated about the program we will see those numbers rise over the years.
If you are still worried about the program that’s understandable. It’s a lot of money on the line and could be costly if you make a mistake.
If you are concerned about the program, not sure whether you’d be better off refinancing vs planning for PSLF feel free to schedule a call with us here. We charge $395.00 – $695.00 for a specialized financial plan that will focus on a student loan analysis.
Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. 2412983/DOFU 2-2019
1Forbes Everyone Calm Down About Rejected Student Loan Forgiveness Applications Preston Cooper Sep 2018