Public Service Loan Forgiveness Is Changing Lives (But Will It Survive?)

The Public Service Loan Forgiveness program aims to achieve two socially worthwhile goals: Reduce the debt burden on recent college graduates and entice people to enter traditionally low-paid public service careers.

The Public Service Loan Forgiveness (PSLF) program enables people who work for qualifying organizations to securely accept a job in the knowledge that their student loans will eventually be retired, even if they're earning a relatively low salary. The Trump administration recently expressed vague intentions of cutting back on this loan forgiveness opportunity, which has left countless college graduates in the nonprofit sector feeling uneasy about the future.

History of PSLF

The PSLF was instituted in September 2007 under the provisions of the College Cost Reduction and Access Act. Anyone who participates in the program has to make at least 120 on-time payments on their student loans. After they have done so, their remaining educational loan obligations will be waived. Because this arrangement started in late 2007 and requires 10 years of payments, the first individuals to qualify are scheduled to see their outstanding debts vanish later this year.

Who is Eligible?

Only people in specified occupations are eligible for the PSLF’s loan amnesty. Anyone working directly for federal, state or local government can participate, as can those who are employed by tax-exempt 501(c)(3) organizations. Members of the military and volunteer groups, like the Peace Corps and AmeriCorps, are also eligible. Provisions exist under PSLF to cover the debts of those laboring in health care, education, law enforcement and certain other fields that are deemed important for the public interest.

For more information on what types of organizations qualify, consult this page.

The average graduating student now shoulders more than $37,000 in education-related loan debts, making PSLF a welcome lifeline for many. The fact that it wipes the slate clean after 10 years no matter how much debt remains is the key reason why it's beloved by debt-saddled collegians.

However, there are drawbacks for individuals too. Only those who work more than 30 hours a week are entitled to enroll, and only Federal Direct loans are covered. These include both subsidized and unsubsidized Stafford loans, as well as PLUS loans, but not Perkins or Federal Family Education Loans. However, there's still hope if your student debt is currently ineligible, because you can possibly restructure it with a Direct Consolidation Loan. In this case, only the amounts you pay after consolidation will count. The majority of your payments must be made under the terms of an income-based repayment plan, so it's advisable to switch over to one if necessary to comply with PSLF regulations.

A solid history of making the called-for payments in full and by the monthly due date is required for continued eligibility. Any missing, late or partial payments will not count bring you closer to the mandated total of 120. Thus, a high level of personal financial discipline is essential for successfully taking advantage of PSLF.

How Has the PSLF Helped the Nonprofit Sector to Grow?

Qualifying companies and other entities in the nonprofit sector gain by being able to deploy PSLF benefits to attract talent that would otherwise go elsewhere. However, the rules surrounding which organizations meet the requirements are pretty stringent. In particular, labor unions and groups that engage in political activity are excluded. Even though government agencies are themselves suitable places of employment for PSLF, firms that contract with the government are not unless they separately qualify under the stated rules.

The Future of Student Loan Forgiveness is Uncertain

President Trump's 2018 budget proposal includes plans to eliminate the Public Service Loan Forgiveness program. It's unlikely that people who are currently enrolled will be affected; most observers expect that the worst that will happen is that it will be closed to new applicants. This means it might be time to investigate your options under PSLF if you haven't already entered it, because there's no telling when this avenue for student loan forgiveness might disappear.