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Shoptalk 541, February 23, 2010

Policy Resources

Understanding Public Service Loan Forgiveness

Through the College Cost Reduction and Access Act of 2007, Congress established Public Service Loan Forgiveness (PSLF) to encourage individuals to work full-time in public service jobs. Under this program, borrowers of eligible loans may qualify for forgiveness of the remaining balance due after they have made 120 payments, after October 1, 2007, under certain repayment plans while employed full time by certain public service employers.

Eligible loans
Any non-defaulted William D. Ford Federal Direct Loan Program (FDLP) loan is eligible for loan forgiveness, including:

  • Federal Direct Stafford/Ford Loans (Direct Subsidized Loans)
  • Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans)
  • Federal Direct PLUS Loans (Direct PLUS Loans) - for parents and students
  • Federal Direct Consolidation Loans (Direct Consolidation Loans)

A borrower with a defaulted loan may be eligible for PSLF by consolidating the defaulted loan or by rehabilitating the defaulted loan.

Loans made under other federal student loan programs may qualify for forgiveness if they are consolidated into a Direct Consolidation Loan. However, only payments made on the Direct Consolidation Loan will count toward the required 120 monthly payments. The following types of loans may be consolidated into FDLP:

  • Federal Family Education Loan Program (FFELP) loans, which include —
    • Subsidized Stafford Loans
    • Unsubsidized Stafford Loans
    • Federal PLUS Loans — for parents and students
    • Federal Consolidation Loans (excluding joint spousal consolidation loans)
  • Federal Perkins Loans*
  • Certain Health Professions and Nursing Loans*

*To consolidate a Federal Perkins Loan or Health Professions or Nursing Loan into FDLP, the borrower must also consolidate at least one FFELP or FDLP loan.

ED's National Student Loan Data System (NSLDS) can help a borrower determine what types of federal student loans he or she has received. Non-federal student loans (aka alternative or private loans) are not eligible either for consolidation into FDLP or for PSLF.

Payment requirement
The borrower must make 120 separate, on-time, full monthly payments, after October 1, 2007, while employed by an eligible public service organization. Payments made prior to October 1, 2007, do not count toward the 120-payment requirement. Payments do not have to be consecutive. Each of the monthly payments must have been made for the full scheduled installment amount within 15 days of the due date. Lump sum payments, that is, paying more than the required monthly amount, are counted as one payment unless the borrower is a Peace Corps or AmeriCorps volunteer using some or all of his or her Peace Corps transition payment or AmeriCorps Segal Education Award to make a lump sum payment. In this case, the Peace Corps or AmeriCorps volunteer will receive credit for up to 12 qualifying payments for PSLF.

To have a balance eligible for forgiveness, the 120 qualifying payments must be made under one or more of the following FDLP repayment plans:

It is important to understand that a borrower will not have any remaining balance to be forgiven after 120 payments unless, at some point, the borrower's payments were reduced through selection of IBR or ICR. The Standard Repayment Plan is included because a borrower may have made payments under the Standard Repayment Plan for a portion of the 120 months and made the remaining payments under either IBR or ICR, resulting in a remaining balance after 120 payments have been made. While payments made under these other FDLP repayment plans may be counted toward the required 120 payments for PSLF, IBR will generally provide a borrower with a lower monthly payment than would be required under any of the other plans.

Any month when the calculated payment under IBR or ICR is zero counts toward a borrower's required 120 monthly payments. However, the months when a borrower is in a deferment or forbearance do not count toward the 120 payments required for PSLF.

While a Grad PLUS borrower can benefit from PSLF by working in public service employment and making at least some of the required 120 payments under IBR or ICR, parent PLUS loans are not eligible to be repaid under IBR or ICR. However, a parent PLUS borrower could consolidate the PLUS loans and then choose ICR for the new Direct Consolidation Loan. A Direct Consolidation Loan that repaid a parent PLUS loan may not be repaid under IBR, but it can be repaid under ICR.

Employment requirement
The specific job that a borrower performs does not matter, as long as the borrower is directly employed by a public service organization. For example, if a borrower is a full-time employee of a public school system, he or she would meet the requirements for PSLF, regardless of his or her position (teacher, administrator, support staff, etc.). A borrower who works for another entity under contract with a public service organization is not eligible for PSLF. The borrower must be directly employed, full time, by an eligible public service organization —

  • when making each of the required 120 payments;
  • at the time the borrower applies for loan forgiveness; and
  • at the time the remaining balance on the borrower's eligible loans is forgiven.

The term "public service organization" covers a broad range of employers, including any federal, state, or local government organization or agency and most charitable non-profit organizations. Any federal government, state government, local government, or tribal government entity (including the military, public schools and colleges, public child and family services agencies, and special governmental districts) is a PSLF-eligible public service employer.

Eligible non-profit employers include those that have received a 501(c)(3) designation from the Internal Revenue Service (IRS), which has a searchable 501(c)(3) organization database. These include most private schools, colleges, and universities, as well as thousands of other organizations, agencies, and charities.

A private employer is defined as a nonprofit organization, not a labor union, a partisan political organization, or an organization that is engaged in religious activities (unless the qualifying public services it provides are unrelated to religious instruction, worship services, or proselytizing). The private employer provides one or more of the following public services:

  • emergency management,
  • military service,
  • public safety,
  • law enforcement,
  • public interest law services,
  • early childhood education (including licensed or regulated childcare, Head Start, and state-funded pre-kindergarten),
  • public service for individuals with disabilities and the elderly,
  • public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations),
  • public education,
  • public library services, and
  • school library or other school-based services.

Full-time employment generally means working an average of at least 30 hours per week, or the number of hours the employer considers full-time. A borrower may qualify for PSLF by working full time at a combination of public service organizations. To benefit from PSLF, a parent PLUS borrower must be employed by an eligible public service employer; the employment of the student on whose behalf the parent borrowed the PLUS loan does not qualify the parent for PSLF.

Documentation and applying for forgiveness
It is a borrower's responsibility to have documentation that supports a PSLF request. This includes documentation from the borrower's employer or employers. Based on this employment documentation, ED will identify qualifying employment and payments. ED is developing a PSLF application that a borrower may use to document his or her qualifying employment while making the required 120 payments. Until the form becomes available, a borrower should keep records that clearly identify his or her employer, show that the employer meets the definition of a public service organization, indicates the borrower's dates of employment, and demonstrate that the borrower is a full-time employee.

More information
For more detailed information about PSLF, see ED's PSLF Web page, including frequently asked questions and fact sheet. More details are also available in the PSLF regulations at 34 CFR 685.219(b).

For more information about FDLP Direct Consolidation Loans see ED's Loan Consolidation Web page and checklist tool for consolidation.

More information about IBR is available on TG's Repaying Your Student Loan - Income-Based Repayment pages and Shoptalk's IBR special edition. And TG offers an IBR calculator, which can help borrowers determine if they may be eligible for IBR.

For questions about PSLF, IBR, or consolidation, contact TG customer assistance at (800) 845-6267, or send an email to cust.assist@tgslc.org.

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Ask the Policy Expert

Q.: For the Teacher Loan Forgiveness Program, a borrower must teach for five consecutive years. Are there any breaks allowed that will not disqualify the borrower?

A.: Yes. Regulations allow for breaks in qualifying teaching service due to:

  • A return to postsecondary education related to teaching service (on at least a half-time basis)
  • A condition covered under FMLA
  • A call or order to active duty status for more than 30 days as member of Armed Forces reserve

In addition, GEN-06-07 provides a waiver for interrupted teaching service due to Hurricane Katrina.

Do you have a question?
Feel free to Ask TG™. Ask TG, TG's online query tool for borrowers, schools, and lenders, offers a database of frequently asked questions about financial aid, student loan processing, and TG's products and services. To submit a question, visit tgslc.custhelp.com.

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