I've advised thousands of borrowers on the Public Service Loan Forgiveness (PSLF) program. I started doing this after my wife had a terrible experience with what was previously known as FedLoan Servicing, which MOHELA has since replaced. This guide will show you my top 40 tips to maximize your benefits under the PSLF program.
I seriously wish this list of 40 tips existed back when we made all our mistakes. Also, open our PSLF calculator so you can see how much you could personally save.
Editor's note: The executive action by President Biden on October 6, 2021, was extremely important for borrowers. Hopefully, at that time you submitted an ECF form through studentaid.gov/pslf if you have Direct Loans, or if you have FFEL loans, you consolidated first and then submitted an ECF form before the October 31, 2022, deadline to get additional credit towards the PSLF program. Additionally, all suspended payments between March 13, 2020, and when the payment pause ended on September 1, 2023, count towards PSLF, provided you have been working at a qualifying nonprofit or government employer full-time during that time.
Where things went wrong with PSLF for us
The first thing we didn’t know? Apparently, only loans through the Direct Loan program qualify. Because of this, we lost four years of credit while she worked in health care at a not-for-profit hospital. Then, we filed the PSLF form and had her loans transferred to FedLoan Servicing.
Despite her payments for over three years on an IDR Plan (Income-Driven Repayment), half of her loans only showed one month of payment credit. We ran the numbers, and rather than fight FedLoan Servicing any longer, we just decided to refinance student loans and pay them back as fast as possible.
I don’t want anyone else to become a PSLF program horror story like us. I started Student Loan Planner® to help clients with huge student debt burdens come up with a plan to pay back their loans and save every dollar possible throughout the process. Our expert team of student loan consultants specialize in PSLF and other repayment strategies. We've condensed 40 tips on PSLF to maximize your benefits under the program.
Public Service Loan Forgiveness: Many ways to save money
The Public Service Loan Forgiveness program is always in the headlines. In 2015, a number of borrowers at the American Bar Association (ABA) were retroactively told that they didn't qualify. The ensuing panic and media coverage from the ABA lawsuit inspired me to write this article.
In previous years, the media made a ton of noise over the 99% rejection rate of federal student loan borrowers for the PSLF program. Again, there was panic over media coverage with borrowers questioning the validity of the program. But here's the thing: You can use PSLF to your advantage with the right strategies.
You’ll want to become an expert in Public Service Loan Forgiveness if you have an obligation of over $50,000 in student debt so you can be fully educated about this option.
Our PSLF calculator can help, too. Also, consider listening to episode two of The Student Loan Planner® Podcast, where I go over in detail why the program is not broken, despite what many in the media portray.
What jobs qualify for Public Service Loan Forgiveness?
1. Work at a 501(c)(3) employer? Good.
This is the first kind of qualifying Public Service Loan Forgiveness job. Most doctors and pharmacists qualify for PSLF through working at a 501(c)(3) hospital. The government has an obligation to determine eligibility by who your employer is, not what kind of job you do.
A 501(c)(3) is a tax-exempt charity that could receive a big check from a rich person who would get to deduct that donation from their taxes.
Think major academic hospitals, the Red Cross, foundations, private not-for-profit universities, etc.
You can literally look up if your employer is a 501(c)(3) online by Googling a site like Guidestar, with extensive not-for-profit organization listings.
2. Work for the government? Very good.
If you work for a local, state, federal or tribal government or government agency, your work should qualify for the PSLF program.
If you're an assistant district attorney, teacher, city employee, professor at a public university, public health official, etc., you qualify.
Make sure you actually work for the governmental employer directly and not through an independent contractor arrangement. Also, don't run for Congress thinking you can take advantage of loan forgiveness. They explicitly excluded themselves from this benefit.
3. What about public service organizations? It's less certain, and nobody knows what it means.
If I were dependent on the forgiveness of student loans for my financial health, the only employer I'd work for would be a 501(c)(3) or government.
The form for Public Service Loan Forgiveness lists another category of qualifying employment with a “not-for-profit public service organization.” It's unclear why Congress included this category and what they meant by it. Perhaps they wanted to cover employers who provide service to the public but are not 501(c)(3) or government.
There's been a lot of disagreement over what qualifies. In 2020, the American Bar Association sued the U.S. Department of Education (after their lawyers were denied). The final result was that ABA employees became recognized by the federal government as dedicated public servants who are eligible for PSLF going forward. The moral of the story here is that the law often seems open to interpretation in PSLF-eligible situations, and there are many more opportunities out there for ambiguous situations like this one.
Regardless, if I owed over $100,000, I'd only work for an employer that definitely qualified for PSLF.
4. Some jobs don't qualify.
There are a lot of people doing good work at not-for-profits in these categories. Unfortunately, none of them qualify for Public Service Loan Forgiveness.
So, if you're writing memos at the Republican or Democratic National Committee or preparing policy briefs for the AFL-CIO, PSLF doesn't apply.
In the past, faith leaders in worship services were also ineligible for PSLF. However, a 2020 policy change opened the door for faith leaders to meet the PSLF employment requirement. Eligibility began on July 1, 2021.
There's also a loophole for folks working for tax-exempt faith-based ministries whose primary work isn't any form of proselytizing. That means if you're the full-time cook at a Catholic soup kitchen, you qualify, but if you're the priest, you don't.
Sign up for an Income-Driven Repayment (IDR) plan
5. PSLF gives you four choices to pay, based on income.
There are four student loan repayment options to qualify for a PSLF program. These qualifying repayment plans ask you to pay a percentage of your income towards your student loans in order to qualify. This explains why they're called income-driven repayment (IDR) plans. But don't worry, we'll help you with the math.
The percentage of income you pay ranges from 5% to 20%, depending on the plan you choose.
Calculation based on a percentage of Annual Gross Income (AGI) minus 225% of the federal poverty line for your family size
- Saving On A Valuable Education (SAVE): 5% for undergraduate loans, 10% for graduate loans
Calculation based on a percentage of AGI minus 150% of the federal poverty line for your family size
- Income-Based Repayment (IBR): 15%
- Pay As You Earn (PAYE): 10%
Calculation based on a percentage of AGI minus 100% of the federal poverty line for your family size
- Income Contingent Repayment (ICR): 20%
The percentage you are asked to pay doesn't change, no matter how high your total loan balance is. Although some payment plans are capped with a maximum required payment.
For SAVE (formerly Revised Pay As You Earn), you receive a deduction of 225% of the federal poverty line before they multiply by that respective percentage to determine the payment.
For IBR and PAYE, you get a deduction of 150% of the federal poverty line. For ICR, they use 100% of the federal poverty line as the deduction. The only reason to use ICR is if you're going for PSLF with Parent PLUS loans and missed out on the Double Consolidation Loophole.
6. Most people should choose between SAVE and PAYE.
SAVE (formerly REPAYE) asks you to pay 5% of your discretionary income for undergrad loans and 10% for graduate loans, while PAYE uses 10%. Remember that discretionary income is generally your AGI subtracted by 225% of the poverty line for SAVE or 150% for PAYE.
If you're going for forgiveness, then obviously, you want to pay as little as possible to maximize the amount forgiven.
Choosing between SAVE and PAYE will come down to your income and desired repayment path. PAYE has a 20-year repayment and a payment cap that could be beneficial for high-income earners. But SAVE comes with lower monthly payments and an interest subsidy that you won't receive with PAYE.
7. Choose the right plan between SAVE and PAYE or NEW IBR.
The new Saving on a Valuable Education plan (SAVE) is the best plan for most borrowers pursuing PSLF. That's because the SAVE plan allows a borrower to file married filing separate and provides a deduction of 225% of the poverty line for your family size.
However, SAVE has no payment cap. That means some borrowers with rapidly increasing incomes, such as physicians, might be better served starting with SAVE and switching to PAYE or New IBR if they qualify. There are also some situations for married borrowers living in community property states, such as California and Texas, who will want to file taxes separately and make sure to not provide authorization to the IRS to share income data with their servicer (for example, if you need to provide alternative documentation of income to certify).
8. Don't forget that IBR and PAYE have payment caps, even if you're a high-income earner.
Again, if you’re single, uncertain if you want to do PSLF, and don’t make a ton of money, choose SAVE. If you're married and you expect to have a rapidly increasing income where you could hit a payment cap relatively soon in your 10 years of PSLF, I’d recommend choosing PAYE. Both plans are good though.
The impacts of earning more on an IDR plan
Way too many high-income professionals make a huge mistake with PSLF when their incomes increase. They incorrectly believe that they will not meet the eligibility requirements for an income-driven repayment program, and refinance their loans.
I've seen this cost borrowers over $400,000 before. If you've already built up more than five years of PSLF program credit, be extremely careful before refinancing. I'd highly suggest getting a second opinion before you do something irreversible, like selling your loan to a private lender.
Payment caps you need to know
IBR and PAYE have a cap equal to the 10-Year Standard Repayment Plan when you enter repayment for the first time. SAVE has no payment cap. Hence, if your combined marital income is $500,000, but you owe $100,000, you could have a monthly payment amount of around $1,000 on IBR or PAYE — but you'd pay more than four times that under SAVE.
When a lower-income spouse marries a higher-income spouse, you need to be careful not to give up on Public Service Loan Forgiveness when you could take advantage of repayment caps.
Back when FedLoan was still a federal student loan servicer, FedLoan had its fair share of errors, such as sending out letters to high-income borrowers telling them that they're no longer eligible to make payments based on income. When that happened, it resulted in panic, and borrowers would call their servicer and ask what to do now that they aren't eligible. The clueless phone rep would tell them to switch to something else. That is a mistake.
You never get kicked off of IBR or PAYE. You merely have your payments capped. Ignore the letter, and your payments should be capped. If they aren't, then you need to escalate to a supervisor.
9. No one except Parent PLUS borrowers should be using Income Contingent Repayment (ICR).
This plan is the worst option for someone pursuing Public Service Loan Forgiveness. Income-Contingent Repayment requires you to pay 20% of your income with only a 100% federal poverty line deduction.
Sometimes ICR shows up with the lowest payment on the federal repayment estimator. I can't really figure out why, since in almost every case I've seen (and I've seen thousands), ICR shows up poorly for those with Direct Loans.
Remember, the goal is to pay as little as possible to maximize the loan forgiveness benefit. If anyone is on ICR, please send our pro-PSLF consultants an email at email@example.com and take a look at switching.
One huge exception
If you have Parent PLUS loans, then your only option to receive PSLF is to consolidate into a Direct Consolidation loan. After that, you need 10 years of qualifying service while on ICR. That plan requires you to pay 20% of your discretionary income. Hence, it probably only helps if you owe more than $50,000 in Parent PLUS loans.
Know that when consolidating Parent PLUS loans, you need to keep the loans separate from any in your own name.
There's a huge gap between the number of parents eligible for PSLF and those actually receiving it. If you're working for a government or not-for-profit employer and have Parent PLUS loans over $50,000, definitely contact me.
I've worked with several clients who were incorrectly placed on ICR. Clearly, the people they used for student loan help didn't know what they were doing. If you're convinced that ICR is the best plan available and you have Direct loans originating in your name only, I want to write a blog post about you.
Filing the Public Service Loan Forgiveness form and moving to MOHELA
10. Certify your public service employment status right away to create a paper trail for PSLF from the beginning.
If you're going for the PSLF program, you want to get this process started ASAP:
- Use the PSLF Help Tool to fill out the free Public Service Loan Forgiveness form. This is also known as the Employment Certification Form (ECF).
- Send it in and wait a couple of months to hear back.
- Don't put this off. There is everything to gain and nothing to lose, except a few hours of your time.
I've heard stories that some loan servicers will tell borrowers to leave their loans with them for the full 10 years, then apply for PSLF (which transfers your loans). That's terrible advice and constitutes a clear conflict of interest.
After all, servicers only get paid if you leave your loans with them. If everyone who could qualify for PSLF applied, the other servicers would lose millions in revenue from servicing fees.
Why you need to move to MOHELA ASAP
To give the servicers the benefit of the doubt, I don't think this is some grand profit-hungry strategy. I just think that most phone reps give bad advice in general. Move your loans over to MOHELA ASAP if you plan to get PSLF, since they're the only servicer set up to track PSLF program credits.
Should you just give up on Public Service Loan Forgiveness because it's hard to get? Only if your hourly wage is above $1,000. In that case, it might be irrational to spend your time dealing with MOHELA.
However, if you owe over $50,000 and plan to work in a qualifying job anyway, it'd be a poor decision to let bureaucratic incompetence get you down — especially when folks like us are here to help answer your questions.
11. Send in the Employment Certification Form at least annually, but preferably semiannually, because it's free.
Once you begin tracking your progress towards the 10 years needed for student loan forgiveness, you'll want an extensive, documented paper trail. I anticipate a lot of folks will have trouble at the end of their 10 years of employment verifying their status. We lost three years of credit towards PSLF, thanks to FedLoan Servicing. Hence, I held their competence in very low esteem.
To avoid problems, send in (or upload online) the ECF annually at the minimum. The PSLF program form is free, so send it in every six months to create a solid paper trail. It forces the folks tracking the loan program to communicate often with you about your growing progress toward the 120 months needed for loan forgiveness.
12. Explicitly tracking progress towards PSLF automatically moves your loans to MOHELA, so you might as well get it over with.
Loan servicers are pretty bad as a group. Unfortunately, the federal government gave a monopoly to MOHELA (although, originally, for so many years, it was FedLoan Servicing) for managing accounts for borrowers working towards Public Service Loan Forgiveness. That means if you're happy with your loan servicer, you'll lose that when you send in your Employment Certification Form.
The benefits of tracking your progress toward PSLF outweigh the inconveniences of a slightly more annoying loan servicer. No servicer is worth having an inaccurate paper trail when applying for PSLF.
How do you qualify for the PSLF program?
13. You must have only Federal Direct loans if you want them forgiven.
If you work at a qualifying employer, but your PSLF application is rejected, you probably have non-qualifying loans.
If you took out loans in 2010 or earlier, you need to pay extra close attention to the type of loans you actually have. Most loans after 2010 will be made under the Federal Direct program. Loans from 2010 or earlier are likely on the old FFEL program, which doesn't qualify for PSLF.
You can fix this with a loan consolidation that converts everything into a Direct Consolidation loan. However, consolidation loans reset the PSLF payment time clock, since, legally, it's a new loan.
Editor's note: A rare exception to the payment count reset is available through the IDR waiver. This one-time account adjustment gives you credit for pre-consolidation payments. Plus, periods of forbearance and deferment can also count. But many borrowers must take action by the end of 2023 to get the full benefit.
Loans that qualify for forgiveness
There are actually 17 different types of federal student loans that qualify for PSLF. Most need to be put into a new Direct Consolidation loan. Some of the ones that run through the Department of Health and Human Services don't even show up on the NSLDS database; you have to request that they manually get added. In that case, the new Direct loan would qualify for PSLF.
Here are a few loan types that could be consolidated to meet program requirements for PSLF that most people miss:
Examples of Health Resources & Services Administration loans that don't show up on NSLDS:
- Nursing Student Loans
- Health Education Assistance Loans (HEAL)
- Health Professions Student Loans (HPSL)
- Loans for Disadvantaged Students (LDS)
- Primary Care Loans
Institutional loans that do show up on NSLDS but must be consolidated for a PSLF program:
- Federal Perkins (need to be manually included in consolidations)
If you didn't know that these loans could be made PSLF eligible, you might accidentally view them as private loans and pay them off, when they could be forgiven. One of the dead giveaways of potential PSLF-eligible loans is a flat 5% interest rate. Heartland ECSI often services many of these kinds of loans.
One example I had recently was a couple with $25,000 of HPSL and $25,000 of Perkins loans that were eligible for forgiveness, but only if they consolidated them into Direct Loan status.
Other possible forgiveness options
Student loans may also be eligible for forgiveness through the Total and Permanent Disability (TPD) Program. If you become totally disabled while repaying your loan, your remaining balance can be forgiven through this program.
Eligibility requirements and repayment details vary from federal to private loans, but it is an option worth considering if you find yourself no longer able to work due to disabilities.
“Borrower defense to repayment” can make you eligible for forgiveness if you received misleading information from your school. If your school engaged in fraud or misconduct, you can get your loans discharged under this plan with an online form.
14. Everything else doesn't qualify, but sometimes you can turn it into a Direct loan that does qualify.
Federal student loans on the Federal Family Education Loan program (FFEL) do not qualify for PSLF. Neither do private loans, loans made to you by grandma, Health Professions loans, Perkins loans, or any other kind of loan.
If you have a Direct student loan, it will say “Direct” in the name and will qualify for Public Service Loan Forgiveness.
If the loan description just says “Stafford Unsubsidized loans” or “Perkins,” without “Direct” in the front of the name, it almost certainly isn't eligible.
Remember that consolidation is a remedy for many kinds of ineligible loans.
15. 120 qualifying monthly payments on income-driven repayment, and no, you can't rush it.
You need 10 years of credit towards the PSLF program to have your student loan debt forgiven tax-free. The more precise definition is that you need 120 months of income-driven payments at a qualifying employer. Those 120 qualifying monthly payments have to be made monthly, and you can't make extra payments to speed up the clock.
Sometimes when you make extra payments, it puts your loans into paid-ahead status. We often have to work with folks in this situation, so pay the minimum and no more.
In 2020, the Trump administration enacted a stimulus bill, which the Biden administration extended in 2021, that suspended payments from March 13, 2020, to the end of the payment freeze (September 2023), on qualifying student loans. If you were working toward forgiveness at the time, the suspended payments will count toward the 120 you need.
16. PSLF payments are cumulative, not consecutive.
Luckily, the 120 qualifying monthly payments do not need to occur at one employer or consecutively. You could work for three years at a not-for-profit, then work in the private sector for a couple of years, and then work in government for seven years, after which you'd finally qualify for PSLF. That feature encourages mobility of the labor force but only within nonprofit organizations and the government sector.
Remember that the PSLF program is not a payment plan. SAVE, PAYE and IBR are payment plans. You could continue payments and move between part-time and full-time status, all while slowly building credit toward the 10 years of full-time credit needed. If you don't end up qualifying for Public Service Loan Forgiveness, you could get the 20- to 25-year IDR forgiveness on the same payment plan. Of course, if you're not doing PSLF, you'll owe taxes on the forgiven balance.
With PSLF, you owe no taxes at forgiveness.
17. PSLF maternity leave benefit: You can get credit while on maternity leave or other family leave.
Under the terms of PSLF, you can take up to three months of leave from your job per year. The technical term is the Family and Medical Leave Act (FMLA). If you're taking time away from your job, ask your HR person if that qualifies as FMLA leave. If it does, then you'll want to maximize this PSLF maternity leave perk by continuing income-driven payments. It will cut down the time needed until your loans are gone. Please do not use forbearance or deferment.
How the Public Service Loan Forgiveness program affects taxes
18. You need to minimize Adjusted Gross Income (AGI).
Your income-driven repayment amount depends on how much money you make, for tax purposes. Minimize your taxable income with pre-tax contributions, to get more PSLF forgiveness. The easiest way to do this is to max out all pre-tax accounts. If you're married, you can also have your spouse do the same. This will lower your AGI as a joint economic unit. The most common pre-tax accounts I'm referring to are the 401k and Health Savings Account (HSA).
Here's a list of more account types that reduce your AGI for PSLF:
- 457 (can do in addition to 403b)
- Solo 401k (for any income earned while side hustling)
- Traditional IRA (can usually only deduct if no retirement plan is offered; can use spousal IRA if spouse doesn't work)
If you have more than a $3,000 loss on investments, you can write that off against ordinary income. In addition, there are write-offs available for real estate investing that I've seen borrowers utilize if they have side hustles or other business income outside of their main job.
19. Calculate your tax penalty before filing taxes separately if you're married.
If you have a spouse with a high income and little or no student loans, you might be tempted to file taxes separately. This subjects you to a tax penalty in most cases. Instead of doing this, a borrower could switch to another income-driven repayment plan. Additionally, they could max their pre-tax accounts. This switch-and-save strategy often eliminates the need to file separately.
However, sometimes filing separately gives you huge savings. Make sure to run the numbers yourself or hire someone like us to figure out if it's worth it.
If you have loans and your spouse does not, filing separately might save you significant money. However, you should almost never file taxes separately if you both have a significant amount of federal student loan debt. I want to make a note that one of the most common and expensive mistakes we see is borrowers filing with the wrong tax status as married couples.
That's one of our strong suits — helping you decide what filing status is best for your student loans. Your CPA is likely to be clueless about this. We'll give you the exact info and questions to ask so that you can figure out which choice is better. In some cases, you can even amend previous returns to get money back if you made a filing mistake. We'll alert you if we think that that's something you need to talk about with your CPA.
20. Public Service Loan Forgiveness is the greatest tax-free student loan forgiveness benefit available today.
Remember that unlike private sector IDR student loan forgiveness, the PSLF program is a tax-free benefit. Private sector employees with big loans must save for the future tax penalty. In contrast, not-for-profit or government employees don't have to cover this extra cost.
Many borrowers love the idea of working for 10 years and being totally finished, without the worry of a big lump sum payment to the IRS. I sympathize.
You need a PSLF side account where you put money into a brokerage. That's to make sure you have asset growth while you're waiting around for loan forgiveness. However, you very likely will get to keep this money once you receive PSLF.
21. PSLF program is equivalent to a phantom pre-tax annual bonus for 10 years.
If you have $250,000 in med school loans and would pay back $300,000 with private lender refinancing, but only $100,000 with PSLF, then that's a $200,000 benefit over 10 years. Adjust this benefit for taxes at a high marginal rate, such as 40%. After the adjustment, you've saved over $330,000 in pre-tax compensation over that 10-year period, or $33,000 per year.
You should add this pre-tax salary equivalent to any compensation you earn for a qualifying job to compare it to a position in the private sector. For example, in the case above, if you earned $200,000 at a 501(c)(3) hospital, you'd add $33,000. That $233,000 salary is what you'd need to earn in the private sector just for those two jobs to be equivalent financially.
In many cases, the nonprofit or government job has better hours and/or benefits. So, you might need to earn significantly more in the private sector to make the two jobs at a breakeven level.
22. Use the annual tax-adjusted Public Service Loan Forgiveness benefit to compare job offers.
When comparing opportunities in the public and private sectors, it's important to adjust for the indirect PSLF program bonus for taxes so you can compare job offers. Take a med student with the $330,000 pre-tax Public Service Loan Forgiveness bonus from tip #21. That's worth $33,000 per year over 10 years. Add the yearly value of PSLF into the annual salary before comparing them to their private sector counterparts.
For lower-earning jobs, I find the bonus can sometimes be greater than a borrower's entire salary. Obviously, PSLF is critical in that case. For higher-earning positions like Big Law associates or high-earning medical specialties, you're generally better off giving up the PSLF program for greater income and refinancing with private lenders.
After helping thousands of borrowers, I've learned Public Service Loan Forgiveness is not good enough to pursue a public service job unless you'd do that anyway. Borrowers without a passion for public service should work in a higher-paying role to maximize their income.
How PSLF impacts investment strategy
23. Put $20,500 per year into your 403b, 401k, or Thrift Savings Plan.
If you're an employee, max out your traditional pre-tax retirement account. The current maximum for individuals in 2023 is $22,500 (or $30,000 if you're 50 years old or older). For most public sector or not-for-profit employees, you will use a 403b. For federal employees, the Thrift Savings Plan (TSP) is the account to use. Sometimes you might actually have a 401k and still be in a qualifying job.
I suggest choosing index funds with rock-bottom expenses of 0.2% per year or less. Consider putting in 120 minus your age in stock index funds and the rest in a bond index fund. So if you're 30, you'd put 90% (120 – 30 = 90) in stocks and 10% in bonds. For the stock funds, I'd suggest a 50/50 split between something like US Total Stock Index Fund and International Total Stock Index Fund. Two Vanguard funds that correspond to these options are VTSAX and VTIAX.
If you have an option like a target retirement fund, I'd keep things simple and just go with that.
24. If you're eligible for a 457, put another $22,500 in that.
I've had clients who worked as employees at a state or municipal employer or hospital system that had both a 457 and a 403b. In that case, you can put up to $22,500 per year in both accounts. That's a max of $45,000 in pre-tax income you can remove from your AGI. That amounts to $4,500 in savings per year for those pursuing Public Service Loan Forgiveness using PAYE or SAVE.
If your spouse has access to a 403b and 457, you could have them max their account as well. That'll save you money if you file jointly.
The highest amount of money you can put into pretax investments as an employee married to another employee with the same eligibility is $45,000 x 2 + $7,750 for your Health Savings Account (HSA). Truly, if you can afford to contribute almost $97,750 a year pre-tax, you will be very well off one day.
If you don't have access to all these accounts, don't sweat it. Focus on maxing what you can and putting the excess in a brokerage account for general purposes.
25. By going for PSLF, you get an indirect matching contribution for your retirement.
Most people save in their retirement accounts because they get an employer match. However, that match does not go any higher if they choose to contribute more. In contrast, the Public Service Loan Forgiveness match is 10 cents on every $1 of contributions all the way up to the maximum.
What I mean is that these contributions reduce your taxable income, which reduces the required Public Service Loan Forgiveness payments since SAVE, IBR and PAYE require less in monthly payments with lower taxable income. The government doesn't directly contribute money to your retirement account if you contribute the max pre-tax amount. Rather, it just takes less out of your pocket in mandatory student loan payments.
26. Don't forget about Health Savings Accounts (HSAs).
They can also reduce AGI: If you're single, you can contribute $3,850 to an HSA. Married people can contribute $7,750 to the family HSA. If there aren't already enough reasons to love a triple tax-exempt account like an HSA, you also receive an indirect match from the federal government of 10 cents for every dollar contributed. To make the math easy, say you put in $5,000 to an HSA for your family, and your income, after adjustments for the federal poverty line, is $100,000.
PAYE or SAVE would require yearly payments of $10,000 towards your federal student loans. After saving $5,000 in an HSA, your income is $95,000, and you have to pay $9,500 on your student loans. Because you eventually get forgiveness tax-free, this balance doesn't matter, so HSAs are pure savings.
This might be one of the coolest and most overlooked areas where someone going for Public Service Loan Forgiveness can save money.
Protect yourself from changes to Public Service Loan Forgiveness in the future
27. Create a sizable non-retirement investment account as PSLF insurance.
Even those who express doubt about the PSLF program must acknowledge the large chance that the program will not be repealed for those who currently have outstanding student debt. That means you should not be paying extra for loans that might be forgiven.
However, many clients of mine express deep concern about carrying six figures of debt. They worry this burden might eventually come back to haunt them. You can cure this worry.
Place these savings in a taxable mutual fund or brokerage account. Over time you'll build savings at a faster rate than inflation. Assume for a moment that the Public Service Loan Forgiveness repeal does happen. You'd be able to cash in the savings and start paying down the debt aggressively.
28. Choose a low-cost index fund provider to implement this side investment account.
Make sure your investment account charges less than 0.5% per year in total fees for investment expenses and advice. Low fees have a powerful wealth-building effect.
I suggest Vanguard for do-it-yourself investors. Most Vanguard investors pay between 0.05% and 0.2% per year in fees (FYI, I get $0 if you click on that link and set up an account.)
For folks who want sophisticated portfolio and investment management and don't like the idea of investing themselves, I suggest Betterment (referral link). If you set up an account through that link, you get a month to one year managed free.
Most Betterment customers will pay between 0.25% to 0.40% per year in total. Since they use mostly Vanguard funds, their fee is essentially 0.25% per year over the cost of Vanguard.
Choose the right investing account for you
It really comes down to how much you want to be involved in managing your investments. Both places will leave you thousands of dollars richer in the long term compared to going with a typical investment company that charges at least five times more.
Realistically, 0.25% of a small amount of money is a very small fee. You could try them out to learn how they invest and then cancel in the future if you decide you know enough to manage your own investments.
29. Consolidating your loans could be a dangerous step if you're going for PSLF.
There are a ton of fly-by-night student loan consolidation factories and even law firms on the internet that charge gobs of money to complete student loan consolidation forms as their one-size-fits-all solution. That could be a horrible decision. Current loans have Public Service Loan Forgiveness in the promissory note. There are two reasons someone going for the PSLF program should consolidate their loans.
- You have non-Direct loans that don't qualify for PSLF. These non-Direct loans include FFEL, Health Professions, Perkins loans, and some others.
- If borrowers want to start qualifying PSLF payments faster, they could consolidate right after graduation. By consolidating the day after you graduate, you can shorten the normal grace period.
Do not consolidate loans for which you have already made PSLF-qualifying payments.
Doing this will eliminate any existing progress toward forgiveness.
Editor's note: As mentioned above, the IDR waiver is a temporary measure that could give you credit for pre-consolidation payments if you consolidated.
Could Public Service Loan Forgiveness be repealed?
30. Some Democrats have wanted to see PSLF means tested.
This is the single most realistic threat to the program's use by current borrowers. This is especially true for individuals with six-figure student debt burdens. In 2015, former President Barack Obama proposed a $57,500 Public Service Loan Forgiveness cap as a max benefit. That was roughly the max amount an undergrad could borrow at the time.
The administration responded to the disproportionate benefit that the PSLF program provides to high-income earners. Of course, that proposal did not pass, due to opposition from Congressional Democrats.
However, I would expect means testing to come back into the conversation eventually, but only for future borrowers. The primary threat for people using PSLF is means testing, not repeal. If a $300,000 borrower does not receive tax-free student loan forgiveness in 10 years, that's probably going to be the reason.
To be clear, I think the risk of that is 5% to 10%, since Public Service Loan Forgiveness has shown that it has bipartisan support.
31. Republican proposals generally try to eliminate PSLF entirely, but only for future borrowers.
Folks who don't currently have loans outstanding are always in danger of not having PSLF as an option. Once you start a graduate program, though, you should be allowed to continue borrowing loans that will be eligible for PSLF, so long as your promissory note includes mention of the program.
With split control of the White House and Congress — a Democrat-controlled Senate and a Republican-controlled House — it's anybody's guess as to what will eventually happen with the pending student loan reform initiatives.
Grad students just starting their programs in 2023 might have some legitimate worries, but will probably be safe. Borrowers with current loans and those about to finish school have very little to worry about. Any Republican plan for repeal should grandfather them into a PSLF program.
Recent history of attempted legislation
In recent years, Republicans attempted to pass the PROSPER ACT, which would have done away with PSLF. It would have grandfathered in anyone who had already graduated or was already enrolled in school on that date. That program is effectively dead.
House Democrats tried to pass The Aim Higher Act, which would have protected and expanded PSLF for future generations. This bill was introduced in July 2018, but it did not receive a vote, so it was not enacted.
With very little legislative progress on PSLF, President Biden issued the Limited PSLF waiver in 2021, which had to be temporary, due to restrictions on executive orders. That waiver ended last fall.
32. Yes, PSLF could be repealed, but it's highly unlikely.
Could the PSLF program be repealed? Yes, it could. However, Public Service Loan Forgiveness has a diverse and powerful set of backers. We have the absurdly high cost of grad school to thank for that. Therefore, the chance that current borrowers who already have loans don't receive PSLF at all is unlikely. This is primarily due to political reasons.
There would also be a massive number of lawsuits. There's a very good argument that PSLF is a contract between borrowers and the federal government that can't be broken.
The PSLF program will cause labor market distortions that are yet to be realized. It also creates a huge disparity between private and public sector employees. For those reasons, I do expect that the PSLF program's days are numbered. However, I would put the odds that current borrowers don't receive the full benefit at 10% or less. That number includes the risk posed by means testing PSLF.
What do recent legal battles over Public Service Loan Forgiveness mean?
33. Do not trust FedLoan Servicing (now, MOHELA).
The Department of Education really hurt some lawyers at the American Bar Association when they overruled FedLoan Servicing that the ABA qualified for loan forgiveness. The lawyers lost two to five years of credit toward Public Service Loan Forgiveness thanks to the error. These lawyers sued FedLoan, arguing that FedLoan rulings should be binding as an agent of the federal government.
The lawsuit resulted in a judgment by the DC Court of Appeals that the government and FedLoan acted in an “arbitrary and capricious manner.” Three of the four affected borrowers received credit for their PSLF service. This is further proof of how durable this program is.
Regardless of the results of that suit, you clearly should not trust federal student loan servicing – whether it's FedLoan, MOHELA or another servicer. Verify your own status for Public Service Loan Forgiveness and make sure you’re taking the right steps.
34. Be aware of government and 501(c)(3) job openings as a backup employment plan.
As I mentioned earlier, the Public Service Loan Forgiveness employment certification form explicitly lists all 501(c)(3) organizations and local, state and federal government employers as qualifying for the PSLF program.
If you're working at a not-for-profit employer that's not the government or a 501(c)(3), keep track of possible job openings in case MOHELA pulls the rug out from under you and voids your progress toward PSLF.
35. The average borrower doesn't need to worry about lawsuits over PSLF.
The media loves to blow things out of proportion. That's exactly what happened, in my view, over the string of PSLF program lawsuits in recent years. Pay attention to the policy that matters, like whether current borrowers will be grandfathered in or if the government will impose a means-test on the PSLF benefit.
Follow the tips in this article. If you do, worry a lot less about what the media says.
Here are a few stories I've seen cause massive numbers of anxiety-laden emails to be sent to my inbox over the past few years:
- “Government Lies About PSLF Eligibility for Public Interest Lawyers”
- “PSLF Has 99% Rejection Rate”
- “New Republican Proposal Would Repeal PSLF”
Is there any wonder borrowers don't trust this program? Ignore the noise and stay focused.
Be aware of conflicts of interest in the student loan industry
36. MOHELA probably wants to hang up on you, not help.
The federal government gave MOHELA (the replacement for FedLoan Servicing) the exclusive rights to manage the PSLF program borrower accounts. Even though it's the chosen PSLF servicer, it has no incentive to help you. Put yourselves in the shoes of their executives. MOHELA earns a flat fee, with no penalty for poor performance and no bonus for great customer service. Hence, MOHELA wants to keep staffing costs down at their call center.
Hence, short phone calls mean lower costs and more profit. Don't ever let a rep from a student loan servicer rush you off the phone. Furthermore, if someone gives you odd information, call back. Speak to as many reps as you need to until you find one that sounds competent.
If you need to appeal your payment count, know that it'll take at least six months. Call back semiannually to track progress and know that your count needs to be correct when you're finally eligible, not today. That means it's not worth losing sleep over.
There's a secret phone number that you should call if you're having a ton of trouble, the Escalated Contact Line for Borrowers and Ombudsman Specialists, (717) 720-7605. Some of my readers who used that phone number (instead of the generic one) report getting their problems fixed in days instead of months. If you reach the voicemail, leave your case number, account number and a brief description of the case.
For borrowers to contact MOHELA, call (636) 733-3700 ext. 2489.
37. Beware of sites that promise Biden Student Loan Forgiveness.
There are a ton of sites and companies in the student loan world that just want your money. If you find a vaguely federal government-looking website with words like “document preparation service” and hyped-up language about Trump or Obama Loan Forgiveness, don't work with them.
These folks game the system to rank for high search volume keywords. They hire people off Craigslist and pay steep commissions, and their answer for every problem is student loan consolidation.
I've seen people lose over $80,000 when loans got consolidated that already had eligibility for forgiveness.
Moreover, the fee for this service is frequently over $1,000. The most we charge is $595, and we actually create a custom plan. In fact, we don't even do any document preparation, because it's easy to do on your own, and that's not where value creation happens. That comes from having a clear plan provided by a CFA, CFP® or CSLP® professional.
There are reputable companies and websites out there that charge far lower, transparent fees. Additionally, they help optimize federal student loans with a rigorous, customized analysis. (Hopefully, after reading this, you feel that way about Student Loan Planner®). Don't pay two to 10 times as much money for a junk service.
38. Financial advisors usually don't understand the details of Public Service Loan Forgiveness.
There are some exceptions to this rule, such as fiduciary Registered Investment Advisors who specialize in specific professions. However, as a general rule, financial advisors don't know the intricate details of how these loan forgiveness programs work. A good advisor should admit what they don't know. He or she would steer you to resources that can help you.
If the advisor does not know how to model tax filing strategies and explain what your monthly payment will be, then you need to look elsewhere for assistance. Financial advisors are generalists. Even the highly knowledgeable ones might make five student loan plans in a month. We easily do more than twenty times that.
“Fee-only fiduciary” does not mean expert advice in all areas. Working with us, you'll probably pay a lot less and get better advice, because all we deal with is student loan debt.
39. Personal finance blogs make a lot of money on private refinancing.
Personal finance blogs make a ton of money from referral bonuses when people refinance their higher education student loans through affiliate links. That includes this site. However, we give a majority of our commission back to the borrower with cash-back bonuses between $300 to $1,275. I want Student Loan Planner® to be known as having the highest level of integrity in the entire student loan universe.
Don't refinance if you qualify for the PSLF program. You'll permanently lose that option. Luckily, I have a business case for going into extreme detail about PSLF. After all, we consult with borrowers on how to maximize the value of the program.
However, other websites take a hands-off approach. Their sole revenue source is from refinancing partnerships.
Even if they are ethical, they will always have an unconscious bias toward private refinancing lenders. If you’re on track for Public Service Loan Forgiveness, you will lose that benefit forever if you refinance simply because a friend said you should do it or you saw the Superbowl ad. Think before you click.
40. Implement these Public Service Loan Forgiveness tips on your own, or hire us for student loan help.
You've made it to the end of my top 40 tips. Clearly, you're going to be in far better shape than your peers. Many will save thousands of dollars from these tips.
Call MOHELA now and implement these best practices directly. If you've benefited tremendously from this article, please share this post with a friend.
Maybe you skimmed this and are overwhelmed with the details, or you'd rather hire somebody to analyze your loans for you. We've advised thousands of borrowers like you. There's a good chance I'll catch something that even the most diligent person might miss. Read how to hire us, and let's see how much money our PSLF-friendly consultants could save on your student loans.
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