Lately, there’s been an uptick of consumers worried that the federal public service loan forgiveness program is going away, so the Student Loan Ranger thought it might be a good time to separate fact from fiction on that front.
First, let’s do a little refresher on the program as it stands today.
The program, signed into law as part of the College Cost Reduction and Access Act of 2007, was to relieve the pressure of high student loan debt for borrowers who wanted to work in the public service arena, where pay is often lower than in the private sector.
Eligible federal student loan borrowers would make monthly payments, based in most cases on their income, while working for an eligible employer. After 120 of these payments, any remaining balance would be forgiven. Unlike under the income-driven plans such as income-based repayment and Pay As You Earn, this forgiveness amount is not taxed as income.
[Get six true answers about public service student loan forgiveness.]
1. Which loans and payments are eligible? Federal Stafford and PLUS loans — including Parent PLUS loans — made under the federal direct loan program are eligible for PSLF. If you have loans made under the Federal Family Education Loan Program or Perkins loans, you can consolidate them under the direct loan program so they qualify. Defaulted loans are not eligible, but can regain their eligibility if the default is resolved.
For a payment to count toward the 120 payments needed to qualify for forgiveness under the PSLF program, it must meet all of the following criteria:
— Be made under a 10-year standard, income-based, Pay as You Earn or income-contingent repayment plan, or a combination of these plans.
— Be made on or after Oct. 1, 2007. Payments made prior to that date do not ever count toward PSLF.
— Be made while the loan is under the direct loan program.
— Be made while the borrower is working for an eligible employer.
— Be made while the loan is not in default.
— Be made within 15 days of the due date and in the full amount on the monthly bill.
[See how rehabilitation can recover from student loan default.]
2. What is an eligible employer? The payments described above must be made while working full time for an eligible employer. Eligible employers include state, federal, local or tribal governments, nonprofit organizations with a 501(c)(3) tax-exempt status, AmeriCorps or the Peace Corps.
Other types of nonprofit employers also meet the criteria if they specialize in areas of public service such as public health, education and safety. A full list of these areas is online.
3. How do I apply? Borrowers seeking forgiveness under the program have three choices: submit their eligibility paperwork annually, every few years or once after the 120 payments have been made. In the end, it’s up to the borrower to supply the loan holder with the proof that they met the employment criteria for the period where eligible payments were made.
Because the burden of proof is all on you, and different companies have different record retention policies, the Student Loan Ranger strongly suggests sending proof of employment annually.
Once you’ve reached eligible payment 120, you’ll likely have to submit an application, though one has not actually been developed yet. That’s because the first recipients of this benefit won’t be eligible until October 2017.
[Learn more about ways to afford and pay for college.]
4. What will happen? Of course, whether this program will still be around in 2017 is what is worrying our readers.
Both the House and the Senate, as well as the Obama administration’s budget proposal , have brought up the idea of putting a balance limit on PSLF or even canceling it altogether. There are two issues at stake, one being the expense to the education budget and ultimately the federal taxpayer, and the other being the concern that the program may result in irresponsible borrowing.
The proposal that seems to be the most popular would cut off forgiveness at $57,500, which is the aggregate loan limit for undergraduate students.
With that said, it’s fiction to say that the program is being canceled and all student loan borrowers are doomed!
This is highly unlikely. The Student Loan Ranger cannot think of a single time that the Congress has changed a rule for a benefit such as forgiveness or a deferment or payment option where they have not grandfathered in existing eligible borrowers. So while we cannot make any promises nor see into the future, we can tell you with a significant degree of confidence that if you are already paying toward public service loan forgiveness, and Congress does decide to limit or sunset the program, you will most likely not be affected.
However, if you are a current or prospective student considering student loans, do not make borrowing decisions based on the assumption that this program will absolve you of them down the road. While we are fairly confident that existing borrowers would be grandfathered in to the existing PSLF rules, we are equally confident that some sort of change is coming to the PSLF program. Whether it is restricted or canceled altogether for future borrowers remains to be seen.
If Congress were to make this change, it would happen as either part of the budget appropriations process coming up this fall, or part of a reauthorization of the Higher Education Act, which could happen anytime in the next few years.
More from U.S. News
Look to Rehabilitation to Recover from Student Loan Default
A Timeline of Federal Student Loan Delinquency, Default Consequences
Understand the Consequences of Student Loan Default
Public Service Loan Forgiveness: Common Questions Answered originally appeared on usnews.com
Correction 08/19/15: A previous version of this post misstated the name of the forgiveness program in the headline.
