Table of contents:
- PSLF Statistics
- Eligibility Requirements for PSLF
- Qualifying Repayment Plans
- Qualifying Employment
- Eligible Loans
- 1099 Independent Contractors
- Should You Be Concerned?
Public Service Loan Forgiveness (PSLF) has been a controversial program over the years. The PSLF Program was established under the College Cost Reduction and Access Act of 2007. It is designed to provide loan forgiveness to borrowers who choose to pursue certain types of employment.
Since the PSLF Program started, the first group of borrowers became eligible to apply for forgiveness in October 2017. Since this time, we have seen reports from the Department of Education that provide borrowers with new insights.
In order to be eligible for forgiveness under the PSLF Program, you must make 120 qualifying monthly payments under a qualifying repayment plan. These payments must be made while working full-time for a qualifying employer. Additionally, only Direct Loans are eligible to receive forgiveness.
As of September 30, 2018, the Department of Education released a report indicating that 41,221 borrowers have submitted nearly 50,000 applications to have their loans forgiven. Almost 45,000 applications have been processed and only 423 applications have been approved by the PSLF Loan Servicer and only 206 borrowers have officially had their loans discharged.
Here are the report statistics as of 09/30/2018:
|Unique Borrowers Submitting Applications||41,221|
|Total Number of Applications||49,669|
|Applications Pending Processing||4,945|
|Applications Processing Complete||44,724|
|Number of Applications Approved by PSLF Servicer||423|
|Number of Applications Denied Due to Not Meeting Program Requirements||32,409|
|Number of Applications Denied Due to Missing Information||11,892|
|Unique Borrowers with Discharges Processed||206|
|Dollar Value of Loans Discharged||$12,320,000|
To summarize this report, about 99% of processed applications have been denied. Of the denied applications, about 73% were denied due to not meeting the PSLF Program requirements with the rest being denied due to missing information. This is a staggering number of people who did not understand the eligibility requirements.
Eligibility Requirements for PSLF
A qualifying payment is a payment that you make:
- after October 1, 2007;
- under a qualifying repayment plan;
- for the full amount due as shown on your bill;
- no later than 15 days after your due date; and
- while you are employed full-time by a qualifying employer.
You must make 120 qualifying monthly payments to be eligible for PSLF forgiveness. You cannot make qualifying payments while your loans are in:
- an “in-school” status;
- the grace period;
- deferment; or
Additionally, excess payments made towards your loans in advance do not count towards the 120 monthly payments. For example, you cannot pay double one month and expect it to count as the equivalent of two monthly payments towards PSLF.
Qualifying Repayment Plans
All of the income-driven repayment plans that base your monthly payment on your income are eligible for PSLF. Additionally, payments made under the 10-Year Standard repayment plan are eligible. However, keep in mind that the 10-Year Standard repayment plan is designed to have your loans paid off within 10 years (120 months), which leaves nothing left over to be forgiven. For this reason, borrowers who are pursuing PSLF tend to favor the income-driven repayment plans.
Qualifying employment is based on who your employer is rather than the type of job you perform for the employer. Employment with the following types of organizations can qualify for PSLF:
- Government organizations at any level (federal, state, local, or tribal);
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code;
- Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if their primary purpose is to provide certain types of qualifying public services; and
- Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program.
The following types of employers do not qualify for PSLF:
- Labor unions;
- Partisan political organizations;
- For-profit organizations (this includes for-profit government contractors); and
- Not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code and that do not provide a qualifying public service as their primary function
Additionally, qualifying employment requires that you be working at least 30 hours per week. If your employer’s definition of full time is more than 30 hours, then you must meet your employer’s definition to be eligible for PSLF.
Only Direct loans are eligible for the PSLF program. If you have older loans under the Federal Family Education Loan (FFEL) Program, they are not eligible. Additionally, Perkins loans are not eligible either.
These non-eligible loans may become eligible by consolidating them into a Direct Consolidation Loan. Only qualifying payments that you make on the new Direct Consolidation Loan will count.
Please be careful when consolidating. If you have been making payments on eligible Direct Loans and choose to consolidate them, any qualifying payments will not be carried over. Consolidating will restart the clock back to 120 qualifying monthly payments to be eligible for PSLF.
1099 Independent Contractors
Over the years, many physicians have received poor advice that led them to believe their work as an independent contractor would qualify for PSLF. This confusion seemed to come from their interpretation of the Employment Certification Form as it relates to contract work. Without any official statement from the Department of Education, many physicians took a leap of faith and hoped that their 1099 work at a non-profit hospital would qualify for PSLF.
The Department of Education has recently released an online tool designed to help borrowers determine whether or not they are eligible for PSLF. The tool asks borrowers to choose the type of employer they work for. It also states, “If you do not receive a W-2 from an organization, but instead receive another type of tax form, such as 1099, we do not consider you an employee of the organization for the purposes of PSLF”. This is the first time we have seen a statement from the Department of Education specifically adressing that 1099 independent contractors are not eligible.
From the beginning, we have been cautioning physicians about this situation since no statement had been provided by the Department of Education until recently. An official statement has still not been released by the Department of Education, so the statement provided by their online tool is the newest piece of information that hints at their intentions to deny PSLF to 1099 independent contractors and reserve the eligiblity only for W-2 employees.
Should You Be Concerned About PSLF?
The purpose of this information is not to cause concern. However, it is important to shed light on how the program is turning out for the majority of people who have applied for forgiveness. As of recently, the results have been very poor with the majority of people being denied.
With that said, the majority of people were denied because they did not meet the eligibility requirements. If you are seeking forgiveness through the PSLF Program, it is extremely important that you understand the requirements. If you meet all of the eligibility requirements, then you are on the right path.
Asking for loan forgiveness is a very important aspect of your life that should not be taken lightly. It is crucial to make sure that you are taking all of the necessary steps to position your loans for forgiveness. If you don’t, you could be asking for a lifetime of struggling with your student loans.
This information is provided for educational purposes only. It is not intended to be a guide on the federal Public Service Loan Forgiveness (PSLF) program and should not be relied upon for the purpose of receiving loan forgiveness. The PSLF Program is a government program and the rules and requirements may be changed. There are additional requirements and eligibility information that is not included in this article.