In 2017, Federal Student Aid began accepting actual loan discharge applications for the Public Service Loan Forgiveness (PSLF) Program for Direct Loan borrowers. This was the 10 year mark of when the program started.
On paper, the program sounds fantastic.
You make 120 qualifying payments on your student loans while working full-time in a qualifying public service job and your loans will be forgiven.
If you have made these payments consistently since October 1, 2007, you should have qualified for the program beginning in 2017 — as long as you met the above requirement.
The reality however is that, almost two years after they started accepting applications, the Department of Education has only accepted 2% of the applications that have shown up on their desk for the PSLF. However, this headline is extremely misleading.
The program is working exactly as intended - but borrowers need to understand exactly how it works.
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Why This Is Important
With your average graduating students owing $33,000 and the national student debt now at the trillion-dollar mark, this is both frightening and ridiculous.
In order to help people find out if they had qualifying public service jobs, in 2012, the government introduced the Employment Certification Form (ECF).
Although this form is completely voluntary, filling it out will help you determine if your current employment really does qualify for the PSLF.
The ECF is also helpful if you have recently changed jobs and would like to determine if your current job makes you eligible.
In March of 2019, Federal Student Aid rejected more than a million ECF forms according to their own data.
Yes, this is even before the actual PSLF!
ECF forms were rejected for the following reasons:
- Missing information: 60%
- No eligible loans (only Direct Loan borrowers can apply for the PSLF): 20%
- Incorrect form type: 11%
- Employer ineligible: 5%
Federal Student Aid has cited the following reasons for refusing 99% of PSLF applications:
- Qualifying payments (or the lack thereof)
- Missing information
- No eligible loans
- Employment dates
- Employer not eligible
The average loan amount for those in the 1% approved was $59,244.
As you can see, in both the ECF and PSLF rejections, one of the top reasons for rejection was the fact that their employer was not eligible. This meant that even though these people thought they were in public service jobs, they really were not.
So What Exactly Are Public Service Jobs?
One of the biggest lessons we can learn from the performance of the PSLF program so far is the fact that you have to be certain that your job is considered a public service job.
So what exactly are public service jobs?
According to the Federal Student Aid website, you need to:
- Work for the government
- Work for a 501(c)(3) organization
- Work for a not-for-profit organization that is not a 501(c)(3) organization that provides a public service as its primary purpose.
If you work with AmeriCorps in a full-time capacity or volunteer with the Peace Corps you can apply for the PSLF.
See If Your Job Is Eligible For PSLF At StudentAid.Gov
The Department of Education has recently created a tool where you can search for your employer and see if it qualifies for Public Service Loan Forgiveness. Simply enter your employer's EIN number and find out (that's the number from your W2 or on your PSLF form). Try The Tool Here >>
If you work with a federal, state, local, or tribal government, you are eligible for the PSLF.
This can be any role within the government organization - from assistant to mayor. You must be a full time employee of the government, so 1099 contractors don't count.
This also includes the military, DOD, and all branches of the Federal government.
A non-profit organization that falls under the IRS code 501(c)(3) is also one that does not pay federal income taxes.
They fall under the following categories:
- Religious: Churches, synagogues, and any other organization that exists for religious purposes will fall under this category.
- Educational: Many public schools fall under this category.
- Charitable: Organizations that focus on providing charitable services.
- Scientific: A scientific corporation that, for instance, ships equipment to poorer countries so they can have access to advanced research tools, would be considered a 501(c)(3) organization.
- An organization that does testing for public safety.
- Animal protection organizations.
- Organizations that protect the rights of children.
- Organizations that foster national or international sports competition.
If your job falls into any of these categories, you could be eligible for PSLF.
Not-for-Profit Organization That Is Not a 501(c)(3) Organization
If the organization you work for is not a 501(c)(3) organization but is a not-for-profit organization that provides a qualifying public service, you could apply for the PSLF too.
Certain not-for-profit organizations that provide a public service may not be tax-exempt at all.
In some cases that not-for-profit may enjoy some tax exemptions but not necessarily under the 501(c)(3) code.
These are the types of organizations we’re talking about here.
It is possible, for instance, that your local chamber of commerce is not a 501(c)(3) organization but it is tax-exempt under a different IRS code.
If that chamber of commerce, however, provides a qualifying public service, you could be eligible.
AmeriCorps and Peace Corps
If you have a full-time, approved AmeriCorps position, the Department of Education considers it to be equivalent to working in a public service job for the purposes of PSLF.
The Department of Education also considers volunteering in the Peace Corps equivalent to working in a public service job.
And so assuming you meet all the other criteria, this is qualifying employment as well.
What Are Not Considered Public Service Job Organizations?
- Partisan political organizations
- Labor unions
- For-profit organizations including for-profit government contractors
- Not-for-profit organizations which are not tax-exempt and which do not provide a qualifying public service
No matter which public service job category you belong to, you also need to:
- Have made 120 payments toward your Direct Loan
- Be making payments under an income-based repayment program
- Be working full-time for that organization
- Be a Direct Loan borrower
- Have been making these payments on or after October 1, 2007.
Thoughts on the PSLF
99% of PSLF applications have been rejected so far. But most of those were because the borrowers weren't eligible and educated on the program, or simple paperwork mistakes.
However, the reasons the Federal Student Aid website provides might give an insight into why it has worked out that way.
If you are planning on applying for the PSLF, it is important that you fill out the ECF, although it is a voluntary form.
Filling it out will do two things for you:
- If you are ambiguous on whether your current work is considered a public service job, you will find out before investing the time in applying for PSLF.
- If you are in fact employed in a public service job, it will help you keep track of how many payments you have made so you can increase your chances of approval for the program.
Furthermore, the Biden Administration has been taking steps to streamline the process - such as by automating it for government employees. Learn about Public Service Loan Forgiveness Reform here.
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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 on the About Page, or on his personal site RobertFarrington.com.
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.