Public Service Loan Forgiveness – The Finer Details

Here we are, roughly 18 months past October 2017, when your fellow borrowers were first able to apply to have their student loans forgiven through public service loan forgiveness (PSLF). Since then, a lucky few have indeed had their loan balances discharged. However, it is safe to say the confusion and frustration of many more borrowers has received the lion's share of attention. You may be aware of the basics of PSLF – make 120 qualifying monthly payments and the balance of your federal Direct Loans is forgiven tax fee – however, the specifics of this program may not be widely-held knowledge. This article will address the finer points of PSLF to hopefully make your loan forgiveness a smoother process.

Done Correctly

If you make 120 qualifying monthly payments on your federal Direct Loans, the balance will be discharged tax free after the 120th payment. Qualifying repayment methods include income-driven repayment plans (income-based repayment, pay as you earn, revised pay as you earn and income-contingent repayment), as well as the 10-year Standard Repayment Plan. You must also file the PSLF employment certification form with FedLoan Servicing (the government entity responsible for overseeing PSLF) for each period of qualifying employment. This can be done retroactively after you leave an employer, but it can be helpful to stay current with your employment certification form. Once your 120th payment is made, you can apply to have your loans forgiven and do not need to make payments while your application is processing.

Qualifying Loans

Only federal Direct Loans are eligible for PSLF (Direct Stafford, Direct Grad PLUS or consolidated Direct Loans). Private, state, parent PLUS, Perkins and Federal Family Education Loans (FFEL) are not eligible to be forgiven under this program. FFEL and Perkins loans may be consolidated into a Direct Loan to become eligible for PSLF. However, be aware that any qualifying PSLF payments already made on Direct Loans will not count toward loan forgiveness for the new Direct Consolidation Loan. For this reason, consolidating existing Direct Loans with non-Direct Loans may not be beneficial, as you would have to restart your PSLF payments.

Can my income disqualify me from paying under income-based repayment?

No, not according to the Department of Education's "Income-Driven Repayment Plans: Questions and Answers" document, which can be found online and states, "If your income increases to the point that your calculated PAYE or IBR payment amount is more than the monthly amount you would be required to repay under a 10-year Standard Repayment Plan, you will remain on the PAYE or IBR plan, but your monthly payment will no longer be based on your income. Instead, you will pay the amount you would have been required to pay under a 10-year Standard Repayment Plan. This 10-year Standard Repayment Plan monthly payment amount will be calculated based on the amount of your eligible loans that were outstanding when you first began repayment under the PAYE or IBR plan." The cap on your monthly payment under the 10-year Standard Repayment Plan is sometimes referred to as the "permanent standard." You should not be told by a student loan representative that you must now select another repayment plan, as REPAYE and new enrollment in the 10-year Standard Repayment Plan will result in higher payments, and therefore less to be forgiven.

Repayment Methods

The goal of PSLF is to have your loan balance discharged while paying the minimum amount possible along the way. This may lead to casually checking the "lowest monthly payment" box when recertifying each year, which would lower the next 12 payments but could end up costing you significantly more over the life of your loans. How? This may switch you from income-based repayment, in which your payments are capped, to REPAYE, which does not limit your payments. For this reason, you will want to understand how much you would save under REPAYE in the near term and compare this to how much extra REPAYE may cost you after training.

In addition to the aforementioned points, it is a good idea to keep a meticulous record of your student loans, including documentation of all written and verbal interaction with any student loan representatives.

This article was authored by Marshall Weintraub, CFP®, and Michael Merrill, CFP®, CLU®, ChFC®.

Marshall Weintraub and Michael Merrill are financial advisors with the independent financial services firm, Finity Group, LLC, and wrote the book Financial Planning Basics for Doctors. To ask them questions or arrange a consultation, email them at or visit Office Address: 4380 SW Macadam Ave, Suite 245, Portland, OR 97239. Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Finity Group, LLC and Cambridge are not affiliated. 249536 DOFU 02/19