Non-profit employees can qualify for a special student loan forgiveness program called PSLF or Public Student Loan Forgiveness. Not everyone works for a nonprofit, which raises an interesting question: can you start your own nonprofit to qualify for PSLF?
The answer isn’t so straightforward. Nothing is preventing you from starting a nonprofit and then pursuing PSLF. It’s what happens along the way that complicates matters.
In this article, we’ll pick apart what exactly PSLF is and how nonprofit employees qualify for it. Then we’ll discuss what’s involved with creating your own nonprofit and qualifying for PSLF under it.
There’s no guarantee that the PSLF program will be around 10 years from now when some people qualify for loan forgiveness after making their 120 payments. In fact, President Trump’s proposed 2019 budget calls for eliminating the PSLF.
"The long-term security of the program is presently in jeopardy because there are those who are against it in Washington," Heather Jarvis, a student loan attorney, told U.S. News.
On a brighter note, "From my research inquiries with financial planners, it seems as though those already submitted and enrolled in PSLF will continue," Dr. Jesse Kiefer, who works at the Hospital of the University of Pennsylvania, also told U.S. News.
However, not knowing what any future outcome will be, if you are already making qualifying payments or plan to, the best course of action is to stay the course until there is a confirmation that the program has been discontinued.
Qualifying for PSLF
Non-profit employees don’t automatically qualify for student loan forgiveness. To qualify, you must work full-time for a non-profit and have made 120 payments (10 years) while working for a non-profit.
The payment period doesn’t need to be consecutive and can be with different non-profits. In other words, you may have worked for a mixture of for-profit and non-profit organizations over the past 15 years. You also made 120 payments on your student loans while working at non-profits. In this case, you qualify for PSLF.
Non-profits include Federal, state government, local government, and 501(c)(3) organizations. Full-time employment may be defined by the organization or at least 30 hours per week, whichever is greater.
Not all student loans qualify for the program. But most government student loans will. Loans that do not qualify include:
- Direct loans that are in default
The following loans are eligible:
- Joint Direct Consolidation Loan obtained with a spouse
- Direct Subsidized / Unsubsidized
- Direct Consolidated Loans
- Direct PLUS
- Direct Stafford Subsidized / Unsubsidized
Note that Direct loans that were consolidated, i.e., Direct Consolidated Loans, restart the payment count. You may want to consider leaving Direct loans out of any consolidation.
You’ll also need to be in a repayment program. Repayment programs include:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR) plan
- Income-Contingent Repayment (ICR) plan
- Standard repayment or plan that monthly payments that are equal or greater
With an understanding of how to qualify for PSLF as a non-profit employee, the next section describes how to create a non-profit.
Creating a Non-Profit
A non-profit organization or 501(c)(3) can be far more difficult to start than a for-profit business. Once you’ve successfully created the non-profit, you must maintain its non-profit status.
The following are steps involved in creating a non-profit, as outlined by nolo.com:
- "Choose a name."
- "File articles of incorporation."
- "Apply for your IRS tax exemption."
- "Apply for a state tax exemption."
- "Draft bylaws."
- "Appoint directors."
- "Hold a meeting of the board."
- "Obtain licenses and permits."
It can take between 2 and 12 months for the entire process. A great source for starting a 503(c)(3) is https://www.501c3.org.
Qualifying Your Non-Profit for PSLF
Now to the big question: Can you create a non-profit to qualify for PSLF? You’ll need to be a full-time employee of your non-profit. That means working 30 hours per week. Next, your student loans will need to qualify as mentioned above. From this, you can see that there isn’t anything special about creating a non-profit that qualifies for PSLF. It is really a question of: (1) did you successfully create a non-profit, which you are able to work for full-time and (2) do your student loans qualify for PSLF?
If yes, then you should be able to have your student loans placed into the PSLF program after meeting the 120 payments requirement.
Qualifying for PSLF is fairly straightforward. The part that you will have more difficultly with is creating a 503(c)(3) and maintaining its non-profit status. At the end of the day, you’ll likely make your life easier by simply working for an existing non-profit.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.