Welcome to Financially Well, the finance podcast for Millennials. On today’s episode, I want to discuss public service loan forgiveness, also known as PSLF. Do your federal student loans qualify for public service loan forgiveness? They might, and you may not even know it. The website Inside Higher Ed recently reported on a story about the financial aid director of a college in Wisconsin. The financial aid director didn’t even realize that his college’s employees are eligible for PSLF. If someone in that position doesn’t fully understand how public service loan forgiveness works, how many student loan borrowers are missing out? And the potential financial consequences for those who aren’t following PSLF news are significant, especially in light of the recent “Limited PSLF Waiver.”
The Public Service Loan Forgiveness program has a brief, but messy history. The program launched in 2007. In the years that followed, borrowers often received poorly-timed or insufficient PSLF news from the federal government. Even worse, some also received incorrect information from student loan servicers. The communication shortcomings have left borrowers desperate for reliable resources.
But the recent report from Inside Higher Ed highlights an unfortunate reality. Even seemingly credible, trustworthy student loan authorities may be failing borrowers. As author David Steele writes:
“Cheryl Rapp, the [The Wisconsin Department of Financial Institutions’] college investment program finance officer, recalled a recent conversation with the financial aid director of a state college as an example of the extent of misinterpretation and misunderstanding—including among people tasked with administering the program—about how PSLF works.
“[Rapp] said, ‘Hey, you should talk to your employees and let them know they’re going to qualify because they work in a UW system college.’ ‘He said, ‘We don’t really qualify.’ I said, ‘You’re in education, you’re a civil servant, you actually qualify and your employees qualify.’ He didn’t feel a need to inform his employees about the Public Service Loan Forgiveness.”
She said it took a while to convince the financial aid director that the program was designed for people like him and his employees.”
The phrase “Public Service Loan Forgiveness” returns 581,000 results in a Google search. The top result for a borrower searching for PSLF news is StudentAid.gov, which is the U.S. Department of Education’s website about federal student aid. For borrowers who visit the site, PSLF has its own link under the “Manage Loans” heading on each webpage.
Here, student loan borrowers learn that “the PSLF Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.” The website also highlights the current Limited PSLF Waiver in a yellow textbox above these details.
A less prominently-displayed fact worth noting is that, unlike other types of student loan forgiveness, the amounts forgiven as part of PSLF aren’t considered taxable income. So borrowers who are on track for public service loan forgiveness don’t need to prepare for the future “tax bomb” that other participants in income-driven repayment plans must consider.
PSLF has five primary qualifying criteria, two of which tie directly to the employer for whom the borrower works. To qualify for PSLF, you must:
Many borrowers might not be surprised to see that “public service” in this context applies to government and non-profit workers. But a young professional who doesn’t pay much attention to PSLF news risks walking away from the program prematurely. Without specific examples, it’s easy to dismiss the countless organizations that qualify as “non-profit.” Harvard University, with its $53.2 billion endowment, qualifies. Jackson Memorial Hospital in Miami, the largest public hospital in the U.S., qualifies. Even a private elementary school that doesn’t operate on a for-profit basis qualifies.
It’s also easy to miss that the PSLF criteria makes no mention about the specific job that a borrower does for a qualifying employer. Sure, you may work for a non-profit. But the accountant or janitor can’t possibly qualify for public service loan forgiveness, right? They do. As New York Times personal finance columnist Ron Lieber has written about the program, “Everyone on the payroll of a nonprofit hospital” qualifies.
As a Washington, DC resident, I’m the financial advisor for several Millennial parents who work for the federal government or a local non-profit. Even when these couples approach me for student loan guidance, they’re typically aware of their PSLF eligibility. But I also meet with many people in their 30s whose employer doesn’t qualify them for public service loan forgiveness. Yet, their interests, skill set, and – in some cases – even past work experience align with many PSLF-eligible jobs. I often wonder if they would have made different career choices if they had known more about how PSLF news might factor into their personal finances.
The U.S. Department of Education in recent years has taken steps to correct the issues that plague PSLF.
The big PSLF news in October 2021, as Lieber reported, included the department temporarily expanding the program to include loans (specifically, Federal Family Education Loans) that previously did not qualify. They also began to give retroactive credit to payments, such as partial payments, that previously didn’t count toward the 120 payment goal. This “Limited PSLF Waiver” will, for now, remain in effect through October 31, 2022.
Then, in April 2022, the U.S. Department of Education also offered a one-time adjustment to borrowers for several student loan situations that didn’t previously count toward forgiveness, including:
The Limited PSLF Waiver and other recent criteria adjustments should help thousands of student loan borrowers. But how many young professionals haven’t even made it far enough in this process to read about this PSLF news? How many Millennials and members of Gen Y remain missing from PSLF entirely?
As Steele wrote for Inside Higher Ed, “Rectifying past failures to approve applications and to clarify who is eligible for the program were part of the [President Biden’s] plan for the previous and current repayment extensions—and part of that failure was due to college faculty, staff and other employees not knowing they were eligible, and considered public service workers, and not being informed of their eligibility by their universities.”
My wife is a neonatal nurse practitioner who counsels many new and aspiring nurses about their potential career paths. So she was a combination of surprised, amazed, and dismayed to learn this spring that her mentees often are eligible for PSLF. I was equally surprised that this was news to her. I’ll admit to a biased personal and professional opinion here. But she is very good at her job, and also very savvy at guiding nurses through their early career journeys. If she doesn’t know, I’m confident that there are thousands of young nurses who have no idea either. And I also assume, as the Inside Higher Ed story suggests, that the same knowledge gap about public service loan forgiveness and PSLF news applies just as well to teachers and many other eligible employees.
A cursory internet search adds credence to this anecdotal evidence. The Jackson Health System website doesn’t mention “Public Service Loan Forgiveness.” The National Student Nurses Association website doesn’t mention the phrase either. The website for the largest university system in the country, the California State University system, doesn’t mention PSLF. Nor does the website for the largest public school district in the country, the New York City Department of Education. These organizations don’t seem prepared to inform borrowers about PSLF at a high level, let alone about evolving rules like the Limited PSLF Waiver.
The financial implications of this failure to communicate are – to put it mildly – significant. Everyone should know when the federal government is willing to forgive all of their student loans. And the fact that this knowledge gap still exists raises a confounding question. What accounts for the disconnect between PSLF marketing and the various participants’ incentives? In other words, why aren’t employers loudly promoting that their company can help workers achieve student loan forgiveness? Why aren’t professional associations constantly reminding members how to find a qualifying employer? Unless I’m missing something, everyone stands to benefit. Aren’t universities and professional associations acting with some negligence when they fail to sufficiently inform their students and members?
Let’s consider a scenario that my wife might encounter with an aspiring nurse in her final year of undergrad. Upon graduation, the nurse could go work for a private practice that services both non-profit and for-profit hospitals. He or she might even earn a slightly higher salary in doing so. Alternatively, the nurse could work for the local teaching hospital, which operates as a non-profit. Let’s assume he or she has turned down a higher salary to pursue PSLF. An income-driven repayment (IDR) plan may help to reduce the amount of income that goes each month toward student loan debt. Then, after 10 years of such work (and as many qualifying IDR payments), the federal government would forgive all of his or her student loans.
The same logic could apply in a variety of other fields and employment contexts. I recall a few friends who worked for several years at their alma mater after they graduated from college. While PSLF was a relatively new concept at the time, I don’t remember the program factoring into anyone’s career plans. But in hindsight, what if they had stuck with their first post-college employer for a little longer? In theory, at least, they already would have achieved total student loan forgiveness.
Let’s assume, based on recent PSLF headlines, that more companies and organizations may start to better understand the value (and importance) of promoting public service loan forgiveness. Even so, PSLF news will not spread widely overnight. So how can you help your family, friends, colleagues, and mentees with updates like the Limited PSLF Waiver? Ron Lieber remains one of the most diligent reporters on this topic. He recently summarized where he would turn for help, writing:
“Many of [the people on the PSLF journey] commiserate on Facebook in a program support group, where you can learn about others’ successes, failures and tactics. The Reddit group about the program can offer similar camaraderie. Both places should have frequent updates from individuals posting about what they’ve heard from which entities about their progress or lack thereof…. The Student Loan Borrower Protection Center offers resources for borrowers, and the Institute of Student Loan Advisors tries to answer debtor questions.… Finally, some companies provide student loan advice to employers as an employee benefit. One of them, Summer, offers free help to members and associate members of the American Federation of Teachers, and it has posted its own guide to the P.S.L.F. changes on its website.”
Such resources are critical for anyone currently pursuing public service loan forgiveness. But word of mouth needs to play a more significant role if we’re to change existing assumptions about PSLF eligibility. This starts with the leaders of qualifying employers better understanding the program’s details. We need to make the financial implications – and, yes, benefits to their organization – clearer to them. I’m hopeful that they’ll then recognize the importance of promoting PSLF to their employees.
[Editor’s note: this article reflects the transcript (which I’ve edited for clarity) of a recent Financially Well podcast episode.]
Kevin Mahoney, CFP® is the founder & CEO of Illumint, an independent firm in Washington, DC that offers financial planning for Millennial parents. He specializes in navigating the new financial decisions that arise during our 30s and early 40s, such as repaying student loans, buying a house, saving for college, & investing for the future. In addition, Kevin also leads a financial wellness benefits program for Millennial employees around the country, including group speaking engagements.
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