If you’re counting on loan forgiveness under Public Service Loan Forgiveness (PSLF), you’ll want to read this. Less than 1% of the borrowers who applied for PSLF have actually received forgiveness. What exactly is going on? Why are so few borrowers being granted PSLF?
Estimated read time ~10 minutes, estimated watch time ~7.5 min at 1.5x speed.
Reviewing the Rate of Forgiveness
First let’s look at the borrowers who have applied for PSLF and the categories they were sorted into. While less than 1% actually received loan forgiveness, a little over 1% have been approved for forgiveness but haven’t yet had their loans discharged.
It’s surprising to me that in June of 2018 289 borrowers had been approved for forgiveness, but come Sept of 2018 still only 206 had actually received that forgiveness. While FedLoan Servicing is the one to approve applications, the Department of Education gives the final notice to FedLoan to discharge the student loan. That process can take some time. It’s likely these 83 borrowers are waiting for the Department of Education
Reminder: If you’ve submitted your PSLF application and are waiting for discharge you must continue to remain employed full-time for an eligible employer & continue making eligible monthly payments.
The good news for borrowers, is that although they’re required to continue making monthly payments, they will be refunded for any overpayment after the 120 eligible payments have been made.
Discussion of PSLF Denials
Denial isn’t necessarily the final word in a borrower’s pursuit of PSLF. I suspect a large number of PSLF denials represent a “not yet” scenario. This would happen if a borrower hadn’t made all of the 120 eligible payments yet. That borrower could qualify for student loan forgiveness very soon depending on how many payments short they were.
79% of applications were denied due to not meeting program requirements.
Some of these denials really are the heartbreaking type of denial. Some denials represent borrowers who didn’t have eligible student loans. Most often in this scenario the borrower had an older FFEL loan that isn’t eligible for PSLF and wasn’t consolidated to the eligible Direct Consolidation Loan. Those borrowers represent true denials, they would need to consolidate their debt to a Direct Consolidation Loan and make 120 payments all over again… assuming there’s anything left to be forgiven after 20 years of payments.
29% of applications were denied due to missing information.
Denials due to missing information could potentially be remedied very simply. It depends on what type of information is missing. It could be employment certification information. In this situation borrowers may be able to provide the new information fairly quickly and still move on to forgiveness.
Analyzing Average Forgiveness
The average dollar amount of student loan debt being forgiven is pretty high at nearly $58,000 per borrower. This information suggests that the early borrowers who have had success receiving student loan forgiveness under PSLF might have unique demographics.
This group could represent a small subset of borrowers with masters or professional degrees, think pharmacists or physicians, people who have high salaries but also have significant amounts of student loan debt. The numbers suggest that PSLF may not be doing a great job capturing lower income lower debt public servants such as teachers. These are speculations, and my take on the data provided. Unfortunately demographic information about profession isn’t available in the data series.
How PSLF Stacks Up To Other Federal Loan Forgiveness Programs
Teacher Loan Forgiveness offers student loan forgiveness of up to $17,500 for qualifying teachers in qualifying low-income schools.
In 2009, the first documented year of forgiveness, Teacher Loan Forgiveness provided forgiveness for 14,550 borrowers. In FY 2017 Teacher Loan Forgiveness provided forgiveness for 42,297 borrowers.
Unfortunately the Teacher Loan Forgiveness Report doesn’t provide data about the total number of applicants, so I’m unable to make any comparison about approval percentages.
The Borrower Defense to Repayment program offers a discharge of student loans for borrowers if a college or university misled them, or engaged in other misconduct in violation of certain state laws. In 2016 several for-profit colleges closed and the program became more widely utilized.
As of September 2018 47,942 (24%) borrower claims were approved under the Borrower Defense to Repayment program. Of those approvals just over 15,000 (31.3%) had received partial discharge.
The Problems With PSLF
Poor communication and expectation management.
When PSLF was first announced in October of 2007, it promised loan forgiveness for public servants after 10 years of payments. In reality it’s quite a bit more nuanced than that. Borrowers must have the right type of student loans (Direct Loans), be on the right repayment plan (an income-driven plan), be employed full-time for an eligible employer (non-profit, goverment, tribal), and make 120 eligible payments.
The Employer Certification Form was the first opportunity a borrower had to complete some type of form that would help them ensure eligible employment and track their eligible payment progress. That form wasn’t released until 2012, five years after the announcement of PSLF.
It seems the nuanced requirements of PSLF have been poorly communicated and many borrowers have been unaware of nuances that have compromised their PSLF eligiblity.
Too many rules.
One of the most devastating rules has been the eligibility of only Direct Loans for PSLF. Many borrowers have an older type of student loan called FFEL loans. These loans aren’t eligible for PSLF, unless they’re consolidated to a Direct Consolidation Loan. Ineligible loan types can simply be consolidated to make them eligible, but it’s another piece of information a borrower must know and follow through on.
Important Note: consolidating eligible Direct Loans you’ve already made payments on will restart the 120 payment clock. If you’ve got Direct Loans and have already made eligible payments, don’t consolidate or you have to start over.
The intricacy of being able to consolidate student loan debt to become eligible for PSLF while consolidation could set another borrower back is unnecessarily complex. I think all types of federal student loans (except Perkins, because they have favorable cancellation terms) should be eligible for PSLF. Consolidation is a step that trips up borrowers and adds extra paperwork and processing for the Department of Education and servicers, it should be eliminated.
What do you think? Are you freaking out about the poor loan forgiveness rate for PSLF? Let me know in the comments below or on the Repayable Facebook page.
It’s been everywhere in the news this week, <1% of applications for Public Service Loan Forgiveness (PSLF) have resulted in discharged loans. That number is shockingly low.
If you’re counting on PSLF and feeling terrified at the low approval rate read on to find out what happened based on the data the Dept of Ed released.
Estimated read time ~ 5 min. Estimated watch time at 1.5x ~3 minutes.
28,081 unique borrowers submitted applications for PSLF
96 borrowers (0.3%) have had their student loan discharged
The average value of the discharged student loan debt is $57,500
289 borrowers (~1%) have had their applications approved
~8,000 applications (~29%) were denied due to missing information
~ 20,000 applications (~71%) denied due to not meeting program requirements
These numbers might look a little odd because they’re adding up to more than 100% and the news talks about more than 30,000 while I’m only talking about 28,000. That’s because while there are over 32,000 applications, there are only 28,081 unique borrowers. That’s the number I think matters when we’re talking about denying loan forgiveness. The number of unique lives that are going to be affected, not the number of pieces of paper that get rejected.
71% of applicants didn’t meet program requirements
Not meeting program requirements is likely a nail in the coffin for borrowers hoping to get PSLF. It could mean that the borrower doesn’t have the right loan type (only Direct Loans qualify), or that they’re not working for the right type of employer. In either of these scenarios the borrower isn’t where they think they are and it’s a true denial of forgiveness.
29% of applicants were missing information
This situation might be a little less nefarious for borrowers. It could mean that they’re missing employment information or missing documentation of some sort. This is a potentially fixable problem that might simply take a few months and a second try but doesn’t rule borrowers out of PSLF completely.
1% of applicants have their applications approved
These folks are likely just waiting for their student loans to be discharged at the time the report was made (June 30th, 2018). That means this 1% should be getting their student loans discharged soon.
0.3% of applicants are free
These guys prove that PSLF is possible, though rare right now. These borrowers completed all the necessary paperwork, jumped through all the hoops, interpreted PSLF correctly, not to mention made payments while working for 10 years in qualifying employment and were rewarded with forgiveness.
Whats a borrower to do?
PSLF is very obviously a tricky beast as demonstrated by the statistics above. But it’s not impossible to tackle. I suggest reading up on PSLF on the FSA website. You can also check out a few articles I linked below.
If you’ve ever thought about refinancing your student loans but felt like you weren’t exactly sure what would change then this post is for you. Estimated read time ~3 min, estimated watch time at 1.5x ~ 2 minutes.
Eligibility for Federal Student Loan Benefits
Once you refinance your federal student loans they become private student loans and lose eligibility for all federal student loan benefits. The benefits you could lose include access to income-driven repayment plans, loan forgiveness in case of borrower death or permanent disability, and forbearance and deferment.
The ability to enter deferment can be particularly important for borrowers who may go back to school full-time, otherwise they would have to continue to make student loan payments during school.
Eligibility for Loan Forgiveness
The major Federal student loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF), Income-Driven Loan Forgiveness, and Teacher Loan Forgiveness, only work for Federal student loans. Many state-specific loan forgiveness programs also only apply for federal student loans.
Bottom line: if you want student loan forgiveness, don’t refinance.
Interest Rates Based on Your Financial Potential
One of the major benefits of refinanced student loans is that a borrower can save some serious money on interest. We’re talking tens of thousands of dollars for borrowers with the highest amounts of student loan debt.
That’s because refinancing companies base your interest rate on your ability to repay your debt by looking at your credit score, your income, your total debt, and your financial assets. The borrowers with the best finances are very likely to get an incredibly competitive fixed interest rate. In contrast, Federal student loans which have the same interest rate for each borrower.
Do you have Federal student loans or have you refinanced? Let me know in the comments below or on the Repayable Facebook page.
If you’re considering student loan forgiveness to repay your student loan debt you may not have thought about whether that forgiveness comes with a big tax bill. Today’s post gives you the details on which student loan forgiveness options aren’t taxed as income and which option is. Estimated read time ~ 3 min. Estimated watch time at 1.5x speed ~ 2 min.
Public Service Loan Forgiveness (PSLF)
Not taxed as income. The amount of student loan debt forgiven under PSLF doesn’t have a limit and is not taxed as income.
Teacher Loan Forgiveness
Not taxed as income. The amount of student loan debt forgiven under Teacher Loan Forgiveness is limited to either $5,000 or $17,500 depending on the subjects taught and isn’t taxed as income.
Income-driven Loan Forgiveness
Taxed as income. The amount of student loan debt forgiven under Income-driven Loan Forgiveness is taxed as income.
That means, depending on the amount of debt you have forgiven and your income, you could have a tax bill of thousands or tens of thousands of dollars if you get student loans forgiven under this plan.
Here’s a handy Forbes article with the 2018 tax brackets.
How to Plan
If you’re considering PSLF or Teacher Loan Forgiveness, there’s nothing to plan for.
If you’re considering Income-driven Loan Forgiveness you’ll want to talk to a CPA or tax professional to help you plan for the potentially large tax bill.
Before you go talk to them it will be helpful to know about how much student loan debt you expect to have forgiven. You can find that out by using the Student Loan Repayment Estimator on the federal aid website.
If you’re planning on getting Income-driven Loan Forgiveness what is your strategy for managing the tax bill? Let me know in the comments below or on the Repayable Facebook Page.
If you’re considering student loan forgiveness you’ll need to know what the three major federal student loan forgiveness options are. While there are a lot of smaller niche loan forgiveness programs available, these three cover the most common options through the Department of Education.
Estimated read time ~ 5 minutes. Estimated watch time at 1.5x ~ 2.5 minutes.
3. Teacher Loan Forgiveness
What itis: Teacher Loan forgiveness forgives up to $17,500 if a borrower teaches full-time for five complete and consecutive academic years in a low-income school or educational service agency, and meets other qualifications.
Eligible Loans: Federal subsidized and unsubsidized undergraduate loans (both Direct and Stafford). Graduate loans aren’t eligible for Teacher Loan Forgiveness, but if you have a Direct Consolidation Loan the undergraduate portion of that loan is eligible for forgiveness. Only loans made before the end of the five years of qualifying academic service are eligible for forgiveness.
Teach full-time for five academic years. *Note: taking summer break is still considered full-time employment.
Have an outstanding loan balance after Oct 1, 1998.
Loans must be in good standing, not in default.
Forgiveness Amount: Math and science teachers at the secondary level or special education teachers at either the elementary or secondary level are eligible for $17,500 of forgiveness. All other teachers may receive up to $5,000.
2. Income-Driven Loan Forgiveness
Whatit is: Income-Driven Loan Forgiveness forgives a borrowers remaining loan balance after 20 to 25 years of income-driven payments.
Eligible Loans: Determined by which of the four income-driven plans a borrower chooses. Direct loans that don’t include Parent PLUS loans are eligible for all four of the income-driven repayment plans. Direct Consolidation Loans that are used to pay off Parent PLUS loans are only eligible for Income-Contingent Repayment. FFEL loans that haven’t been consolidated to a Direct Loan can be repaid through the Income-Based Repayment Plan.
Eligibility Criteria:Any borrower with a remaining balance who made payments under an income-driven repayment plan for 20-25 years.
Forgiveness Amount: There is no cap on the amount of student loans forgiven. However, the forgiven amount of student loan debt is taxable as income.
1. Public Service Loan Forgiveness (PSLF)
Whatit is: Public Service Loan Forgiveness (PSLF) forgives a borrowers remaining loan balance after 120 payments were made under a qualifying repayment plan while working full-time for an eligible employer.
Eligible Loans: Direct Loans, including Direct Consolidation Loans are the only student loans that are eligible.
Forgiveness Amount: There is no cap on the amount of student loans forgiven.
Are you considering student loan forgiveness under one of these three options? Let me know in the comments below or on the Repayable Facebook Page if you’re planning on getting Teacher Loan Forgiveness, Income-Driven Loan Forgiveness, or Public Service Loan Forgiveness.
Public Service Loan Forgiveness (PSLF) is one of the fastest and most complete student loan forgiveness plans offered to federal student loan borrowers. PSLF is also one of the most convoluted loan forgiveness programs. So if you’re considering PSLF you’ll want to stay tuned for the 5 steps you need to take to get PSLF.
Estimated read time ~ 5 minutes. Estimated watch time at 1.5x ~ 4 minutes.
Step 1: Determine if you’re working for an eligible employer.
Employers that are eligible include goverment or tribal organizations and 501(c)3 non-profits. To find a list of PSLF eligible employers check out this link. To be eligible for PSLF you’ll need to be employed full-time as defined by your employer or 30 hours per week, whichever is higher.
Step 2: Determine if you’ve made any eligible payments toward PSLF.
To qualify for PSLF you need to make 120 eligible payments. To know if payments you’ve made are eligible or not you need to know which type of loans you have and what repayment plan you’re in.
Do you have Direct Loans, FFEL loans, or a mix of both?
Which repayment plan are you current on?
FFEL loans aren’t eligible for PSLF. The eligible repayment plans for PSLF are Income-Based Repayment (IBR), Revised Pay as You Earn (REPAYE), Pay as you earn (PAYE), or Income-Contingent Repayment (ICR). The 10 year standard repayment plan is also technically eligible for PSLF but after 120 payments under this plan there isn’t any remaining loan balance to be forgiven.
Step 3: Choose your course of action.
If you haven’t been making eligible payments, either because you have FFEL loans that aren’t eligible, or because you weren’t in the right repayment plan, you’ll need to make some changes.
If you have a significant amount of FFEL loans, you’ll need to apply for a Direct Consolidation Loan to make them eligible for PSLF. Only Direct Loans are eligible for PSLF. Consolidating your student loans restarts the clock on 120 payments for PSLF so be sure this is the best choice for you.
Once you have all Direct Loans, it’s time to enroll in an eligible repayment plan. If you’re a new borrower after Oct 1, 200y the Pay as You Earn (PAYE) plan is generally the most affordable option. If you borrowed before that date the Revised Pay as You Earn (REPAYE) or Income-Based Repayment (IBR) plan may be best, it’s a good idea to compare them using the studentaid.gov calculator. If you’re a parent with a Parent PLUS loan, Income-Contingent Repayment (ICR) is the only repayment plan option that’s eligible for PSLF.
Step 4: Complete and submit the employment certification form.
This form allows you to double check that you’re in eligible employment for PSLF and will speed up the process for loan forgiveness once you’ve made 120 qualifying payments. This step isn’t required but is strongly recommended to make sure your forgiveness goes smoothly after you’ve spent 10 years making eligible payments.
Step 5: Stay on track.
Ever year you’ll need to resubmit your income information to remain on an eligible income-riven repayment plan. Failing to do so means you’ll waste money making ineligible payments or paying a higher monthly payment.
You’ll also want to check your progress with FedLoan Servicing to make sure you’re both recording the same number of eligible payments made toward PSLF and to identify any problems early. Any time you change employers you’ll want to submit the employment certification form. Finally, you’ll need to keep your student loans in good standing by making your payments on time each month.
Are you considering PSLF? Let me know on the Repayable Facebook Page or drop me an email jeni@repayable.org. For bite-sized student loan tips and motivation follow me @therepayable on Instagram.
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