[Editor’s Note: We are excited to now have the Peak Housing REIT on our list of available real estate investments! For a relatively small minimum investment ($25,000) for WCI readers, this fund could be a great way to add diversity to and minimize taxes in your real estate portfolio. The investment is relatively new, but it’s already performing far above expectations at 22% YTD. Check out our recent conversation with The Peak Group here on YouTube and see how the Peak Housing REIT could be your next big investing win!]
By Andrew Paulson, CSLP, Senior Student Loan Consultant and Co-Founder of our partner site StudentLoanAdvice.com
The Public Service Loan Forgiveness or PSLF is the well-known holy grail of loan forgiveness programs. Unlike most other loan forgiveness programs, PSLF offers tax-free loan forgiveness AND no cap on the amount of loan forgiven.
Any borrower who has a chance of working in a non-profit organization should definitely consider the program, even if you earn more than you borrowed for college. Yes, we’ve all seen the slew of articles professing the dismal success rate and subpar loan service that has sustained the program. But with recent changes to the program, there’s a big boost in the success rate, and it should be on more people’s radar.
In this article, we will discuss how the program works, how it was created, its success, and some speculations/projections for the future.
Civil Service Loan Cancellation Program
The PSLF program was created as part of the College Access and Cost Reduction Act of 2007 to provide tax-free loan forgiveness to indebted professionals who work as public servants. It was created for the benefit of nurses, teachers, military, law enforcement, government officials, and other employees of non-profit organizations.
PSLF can help encourage borrowers to pursue careers in lower-paying jobs than they would otherwise when entering the private sector.
What is Civil Service Loan Forgiveness?
Public Service Loan Forgiveness is a student loan forgiveness program that provides tax-free loan forgiveness.
PSLF has four requirements:
- Eligible Federal Student Loans – Direct Stafford Loans (unsubsidized and subsidized) and Direct Consolidation Loans
- Qualifying repayment plan—IBR, PAYE, RPAYE, ICR, or the standard 10-year repayment plan
- 120 one-time qualifying monthly payments, no obligation to be ongoing
- Full-time employment with an eligible employer such as a nonprofit or 501(c)(3)
How to Apply for Civil Service Loan Forgiveness
The only mechanism in place to request a remission of public service debt is the Employment Certification Form (ECF). This form must be completed for each eligible employer to receive credit for PSLF.
Although you can wait until you have reached 10 years of skilled employment, we recommend that borrowers complete the ECF form annually. The ECF form is used to get credit for past payments made and to request loan forgiveness once you have reached 10 years of payments. We recommend that you keep track of the ECF forms and the corresponding payment documents.
Expect the repairman to come back with errors. But if you certify regularly, it will be much easier to correct their mistake of two months ago than to go back eight years and two jobs, fighting them over payments to a now-defunct repairman.
Please note: Borrowers must still be employed by a 501(c)(3) nonprofit organization at the time of remittance.
Changes to Civil Service Loan Forgiveness
Civil service loan forgiveness has undergone some changes over the years. The first change or adjustment was the addition of the proof of employment form in 2012. In the first two years, borrowers had little or no understanding of the program, and if you didn’t have a buddy following student loan law closely, then you would have heard from your financial aid officer not to rely on the program.
The Temporary Extended PSLF (TEPSLF) was added in 2018 by the Consolidated Credits Act 2018. This happened when the first group of borrowers became eligible for PSLF in 2017 and about 99% of applicants were turned down. TEPSLF has slightly different requirements than PSLF and has a limited amount of money to support it. Thus, the program is first come, first served. Also in 2018, Federal Student Aid released the PSLF Assistance Tool to assess your employer’s PSLF eligibility.
The most recent change is the PSLF Limited Waiver released in October 2021. The Limited Waiver has huge ramifications for borrowers, but is most useful for those with FFEL loans. If you have FFEL loans and have worked as a civil servant, you should inquire. All you have to do is consolidate your FFEL loans into direct loans and submit a PSLF attestation form. However, we recommend that you review WCI’s interpretation of the PSLF Limited Waiver. Additionally, this is a time-limited waiver set to expire in October 2022.
Is the cancellation of civil service loans legitimate?
Yes, the PSLF is legitimate and many white coats have received it. WCI has a podcast dedicated to financial milestones called Milestones to Millionaire, and host Dr. Jim Dahle has interviewed a number of people who have actually received the PSLF. Not everyone had the smoothest process to get the PSLF, but the financial benefits outweighed the extra paperwork and headaches.
A significant portion of StudentLoanAdvice.com customers are also on their way to getting the PSLF. The added value of pursuing PSLF versus refinancing or taxable loan forgiveness is real, and it can be life changing in certain circumstances.
PSLF success rate
Ahh, the number we’ve all been waiting for. . . here is a report from the Department of Education (ED) over the years. We took TEPSLF and PSLF and combined them in the report below.
Figures prior to September 2019 indicated that only around 2% of applicants received the PSLF. The reports started to improve in 2019. Here are some numbers:
Until September 2021, only 16,119 civil servants had benefited from the PSLF with a fairly low success rate still at 4%. It is important to realize that the number of requests above are totals going back to the start of loan forgiveness from October 2017. For example, there were not 16,119 borrowers who had their loan forgiven from September 2020-2021; there were 10,619.
But as of December 15, 2021, an additional 38,000 borrowers have now received the PSLF. Data has not yet been released on the number of candidates who applied in the last three months. If we launch a hypothetical number of 100,000 applicants over the last three months, from December 2021 to February 2022 (when this article was published), we would see a fairly significant increase in the success rate.
The reason for the increase in the number of approved applications is the recent PSLF waiver which primarily benefits FFEL loan holders. We expect that number to continue to rise in 2022, but lag behind as FedLoan shifts its 9 million borrowers to multiple loan servicers. All those on the right path to PSLF will be switched to MOHELA in 2022.
Now more than ever is the BEST TIME to consider PSLF, given the positive momentum of borrowers getting their loans forgiven tax-free.
The future of PSLF
Our crystal ball is cloudy on the future of the PSLF, but we believe the success rate will continue to increase – and not just a one-time bump with the recent release of the PSLF waiver.
During our consultations, many customers are expressing concern about future changes to PSLF.
- “What if the loan forgiveness becomes taxable? »
- “What if they cap the amount of loan forgiveness? »
- “What if they phase out high earners?”
Each of you signed a Master Promissory Note (MPN) to take out your Federal Student Loans. If the federal government follows its normal process for modifying federal student loans, those currently in the program will be grandfathered into the old one. Basically, if you have a federal loan now, you can continue with the program.
You are not alone if you have thought deeply about whether to do PSLF. At Student Loan Advice, we’ve met hundreds of borrowers just like you who are facing similar challenges. We can help you weigh the pros and cons of different options and which would result in the optimal outcome to beat your debt and get you closer to financial freedom. Contact our experienced team at studentloanaadvice.com today!
Did you manage to get the PSLF? What was your experience like? Do you think the new changes will help candidates pass? Comments below!