Student Loan Uncertainty: Will the Public Service Loan Forgiveness (PSLF) program survive?
By: Laura Chiesman
The cost of education, and how to provide for that expense, is a frequent topic of discussion for families and financial advisors. We have covered the costs of college and reviewed various ways to save for education in previous blogs.
Alternative solutions or additions to saving to pay for college include financial aid, scholarships and student loans. The average Class of 2016 graduate has $37,172 in student loan debt¹, and those who continue on to graduate school and beyond are likely to have significantly higher loan balances.
Many students plan their educations and eventual career paths around their access to student loans, followed by the pay off or loan forgiveness options available. One such consideration is the public service loan forgiveness program.
What is Public Service Loan Forgiveness (PSLF)?
The program was created under the College Cost Reduction and Access Act of 2007 and is available to certain borrowers with Federal Direct Subsidized Stafford/Direct, Federal Direct Unsubsidized Stafford/Direct and Federal Direct Consolidation Loans. The initial criteria to be eligible for Federal student loan forgiveness under this program is that the borrower must be employed full-time for ten years (120 months) by a federal, state, local, or tribal government, a 501(c)(3) non-profit organization or other public service non-profit that meets IRS requirements, or with AmeriCorps or the Peace Corps.
In addition to very specific employment requirements, there are a number of hoops to jump through, records to keep, time schedules and calculated levels of loan payments that must be followed to eventually qualify for loan forgiveness. Eligible borrowers must be enrolled in a qualifying repayment plan and must have made 120 monthly payments in order to have their remaining loan forgiven. The potential for relief from some portion of student loan debt could certainly warrant attention to all these requirements and details!
No borrowers have had their loans forgiven under this program so far.
The program was created under the College Cost Reduction and Access Act of 2007 and was initiated on October 1, 2007. The requirement for 120 payments means that the first possible eligibility date is October of 2017, and this looming date has fueled commentary and speculation about the future of the program.
What to do?
Those contemplating taking on new student loan debt should carefully consider their options and understand that the programs may change. Many believe that those with loans in place now will be ‘grandfathered’ in, maintaining the possibility of loan forgiveness, should the rules change.²
In the face of uncertainty it’s advisable to ‘over-document’ and to abide by the rules currently in place. The Federal Student Aid website provides links to necessary forms and information on many programs, including PSLF.
Current or soon to be graduates with Federal student loans must carefully determine and document that their employment qualifies for the program which can be done annually by filing an Employment Certification for Public Service Loan Forgiveness form. Work with your financial aid department, contact your lender to calculate your payment amount, and make these payments on time, every time!
If you need help with the complexities of your financial life, please visit our website where you will find complimentary resources you can use. Or call our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area at (321) 773-7773 to schedule your complimentary consultation.