I started giving advice to friends and family about student loans after our horrible experience with the Public Service Loan Forgiveness (PSLF) program and FedLoan Servicing.
We could have saved tens, if not hundreds of thousands of dollars on my wife’s student loans if we had only understood how the Public Service Loan Forgiveness program really works.
The first thing we didn’t know? Apparently, only Direct loans qualify. Because of this, we lost four years of credit while she worked 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 3 years on Income-Based Repayment, half of her loans only showed 1 month of payment credit. We ran the numbers, and rather than fight FedLoan Servicing any longer, we just decided to refinance and pay it back as fast as possible.
I don’t want anyone else to become a PSLF horror story like us. I started Student Loan Planner to help clients with huge student loan debt burdens come up with a plan to pay back their loans and save every dollar possible throughout the process.
These tips below have allowed me to help clients save millions on their student loans. To see how much PSLF could save you, make sure to pick up your own copy of my PSLF spreadsheet.
Contents
- 1 What Jobs Qualify for Public Service Loan Forgiveness?
- 2 Sign Up for an Income-Driven Repayment Plan
- 2.1 5. PSLF gives you four choices to pay based on income:
- 2.2 6. Most people should choose between PAYE and REPAYE:
- 2.3 7. If you aren’t eligible for PAYE, then it’s probably REPAYE, then IBR:
- 2.4 8. Don’t forget that IBR and PAYE have payment caps even if you’re a high-income earner:
- 2.5 9. Literally no one alive should be using Income Contingent Repayment (ICR):
- 3 Filing the Public Service Loan Forgiveness Form and Moving to FedLoan Servicing
- 3.1 10. Certify your employment status right away to create a paper trail for PSLF from the beginning:
- 3.2 11. Send in the employment certification form at least annually, but preferably semiannually because it’s free and FedLoan Servicing sucks:
- 3.3 12. Explicitly tracking progress towards PSLF automatically moves your loans to FedLoan Servicing, so you might as well get it over with:
- 4 How do you Qualify for the PSLF Program?
- 4.1 13. You have to have only Federal Direct loans if you want them forgiven:
- 4.2 14. Everything else doesn’t qualify, but sometimes you can turn it into a Direct loan that does qualify:
- 4.3 15. 120 Monthly Payments on income-driven repayment, and no you can’t rush it:
- 4.4 16. No need for consecutive payments or working all 10 years with the same employer:
- 4.5 17. You can get credit while on Maternity Leave or other Family Leave:
- 5 How the Public Service Loan Forgiveness Program Affects Taxes
- 5.1 18. You need to minimize Adjusted Gross Income:
- 5.2 19. Few people going for PSLF should file taxes separately if they’re married:
- 5.3 20. PSLF is the greatest tax-free student loan forgiveness benefit available today:
- 5.4 21. PSLF is equivalent to a phantom pre-tax annual bonus for 10 years:
- 5.5 22. Use the annual tax adjusted Public service loan forgiveness benefit to compare job offers:
- 6 How PSLF Impacts Investment Strategy
- 7 Protect Yourself from Changes to Public Service Loan Forgiveness in the Future
- 8 Could Public Service Loan Forgiveness be Repealed?
- 9 What do Current Legal Battles over Public Service Loan Forgiveness Mean?
- 10 Be Aware of Conflicts of Interest in the Student Loan Industry
- 10.1 36. FedLoan Servicing probably wants to hang up on you, not help:
- 10.2 37. Beware of sites that promise Obama Student Loan Forgiveness or Trump Student Loan Forgiveness.
- 10.3 38. Financial advisors usually won’t understand the details of Public Service Loan Forgiveness:
- 10.4 39. Personal finance blogs make a lot of money on private refinancing:
- 11 40. Implement these Public Service Loan Forgiveness Tips on Your Own or Hire Me for Student Loan Help
The Public Service Loan Forgiveness Program: So Many Ways to Save Money
Public Service Loan Forgiveness is now back in the headlines. A number of borrowers at the American Bar Association were retroactively told they didn’t qualify. The ensuing panic and media coverage from this lawsuit inspired me to write this article.
You’ll want to become an expert in PSLF if you have over $50,000 in student debt so you can be fully educated about this option. Our PSLF calculator below can help too.
Perhaps you’d rather not be an expert in Public Service Loan Forgiveness and would rather hire someone to help you instead. If so, I do flat fee student loan consultations and have helped hundreds of clients. Please read these top 40 tips if you wish to do it yourself. Alternatively, hire me and I will find every dollar I can with a solid, long-term loan strategy at travis@studentloanplanner.com.
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 501c3 hospital. The government determines 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 listings.
2. Work for the Government? Very Good:
If you work for a local, state, or federal government or government agency, your work should qualify for PSLF. 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 because they explicitly excluded themselves from this benefit.
3. Public Service Organizations. Less certain, and nobody knows what it means:
If I were dependent on student loan forgiveness for my financial health, the only employer I’d work for would be a 501(c)(3) or government. The form for PSLF 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 big disagreement over what qualifies right now. As you might have heard, the American Bar Association sued the Department of Education after their lawyers were denied. Basically, the law seems open to interpretation here. However, if I owed over $100,000, I’d only work for an employer that definitely qualified for PSLF.
4. What Jobs Don’t Qualify: Political Organizations, Labor Unions, and Churches / Synagogues / Mosques:
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, preparing policy briefs for the AFL-CIO, or preaching for a local congregation, PSLF doesn’t apply. There’s a loophole for folks working for tax-exempt faith-based ministries whose primary work isn’t proselytizing. That means if you’re the full-time cook at the Catholic soup kitchen you qualify but if you’re the priest, you don’t.
Sign Up for an Income-Driven Repayment Plan
5. PSLF gives you four choices to pay based on income:
These are Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income Contingent Repayment (ICR). All four programs ask you to pay a percentage of your income towards your student loans. That percentage doesn’t change no matter how high the total balance is. The percent of your income required under each plan is 15%, 10%, 10%, and 20% respectively. You get a deduction of 150% of the Federal Poverty Line before they multiply by that percentage to determine the payment.
6. Most people should choose between PAYE and REPAYE:
PAYE and REPAYE both ask you to pay 10% of your income to your student loans. If you’re going for student loan forgiveness, then obviously you want to pay as little as possible to maximize the amount forgiven. Choosing between PAYE and REPAYE depends on your marital status, joint income, and how certain you are that you’ll pursue the program.
Almost everyone pursuing PSLF should be using the REPAYE or PAYE programs.Click To TweetIf you’re single, uncertain you want to do PSLF, and don’t make a ton of money, I’d choose REPAYE. If you are married, make a significantly different income from your spouse, and are fairly certain about pursuing PSLF for 10 years, I’d choose PAYE. Either plan is likely a good decision.
7. If you aren’t eligible for PAYE, then it’s probably REPAYE, then IBR:
Some folks are not PAYE eligible. If you had loans before 2007 or didn’t take out any loans after 2011, then you aren’t eligible. The only reason to choose IBR over REPAYE is if you are married, or you make a very high income and already have several years of PSLF payments. In that case, it might make sense to use IBR while filing taxes separately or because of the Public Service Loan Forgiveness cap in payments. There are also some rare situations for married borrowers living in community property states such as California and Texas who might be better off using IBR instead of REPAYE. However, most people going for PSLF should be using PAYE. If that’s not an option, then go with REPAYE.
8. Don’t forget that IBR and PAYE have payment caps even if you’re a high-income earner:
If you’re single, uncertain you want to do PSLF, and don’t make a ton of money, I’d recommend choosing REPAYE. If you are married, make a significantly higher or lower income than your spouse, and are fairly certain about pursuing PSLF for 10 years, I’d recommend choosing PAYE. Either plan is likely a good decision.
Way too many high income professionals make a huge mistake with PSLF when their incomes increase. They incorrectly believe that they will not be eligible for an income based repayment program and refinance. I’ve seen this cost borrowers over $400,000 before. If you’ve already built up more than five years of PSLF credit, be extremely careful before refinancing. I’d highly suggest getting a second opinion before you do something irreversible like sell your loan to a private lender.
*Update: FedLoan has been messing up lately by sending out letters to high income borrowers telling them they’re no longer eligible to make payments based on income. That causes panic and borrowers will call and ask what to do now that they aren’t eligible and the clueless phone rep tells them to switch onto something else. That is a mistake. You never get kicked off of IBR or PAYE, you merely have your payments capped. You need to ignore the letter and your payments should be capped. If they aren’t then you need to escalate to a supervisor.
9. Literally no one alive should be using Income Contingent Repayment (ICR):
This plan is by far the most terrible option for someone pursuing Public Service Loan Forgiveness. Income Contingent Repayment requires you to pay 20% of your income. This is more than any other plan, and remember the goal is to pay as little as possible to maximize the forgiveness benefit. If anyone is on ICR, please send me an email at travis@studentloanplanner.com and take a look at switching.
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 originated in your name only, I want to write a blog post about you.
*One huge exception: If you have Parent Plus loans, then your only option to receive PSLF is to consolidate into a Direct Consolidation loan. However, you only have access to the ICR payment plan, which requires you to pay 20% of your discretionary income. You also must work an additional 10 years at a qualifying government or not for profit employer. There’s a huge gap in 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.
Filing the Public Service Loan Forgiveness Form and Moving to FedLoan Servicing
10. Certify your employment status right away to create a paper trail for PSLF from the beginning:
If you’re going for PSLF, you want to get the process started ASAP. The first thing you can do is 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 months to hear back. There is no benefit in putting this off.
11. Send in the employment certification form at least annually, but preferably semiannually because it’s free and FedLoan Servicing sucks:
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-year employment verifying their status. We lost three years of credit towards PSLF thanks to FedLoan Servicing. Hence, I hold their competence in very low esteem.
To avoid problems, send in the ECF annually at the minimum. FedLoan sucks and the PSLF form is free, so send it in every 6 months to create a solid paper trail. It forces the folks tracking the loan program to communicate often with you about your growing progress towards the 120 months needed for forgiveness.
*Update: FedLoan now allows you to complete and upload the PSLF certification form online, and borrowers tell me it’s a vastly better option than mailing in the paper form.
12. Explicitly tracking progress towards PSLF automatically moves your loans to FedLoan Servicing, 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 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 sooner 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 have to have only Federal Direct loans if you want them forgiven:
If you work at a qualifying employer but your application for PSLF is rejected, the reason is probably that you 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 loan program, which doesn’t qualify for PSLF. You can fix this with a loan consolidation that converts everything into a Direct Consolidation loan. However, this resets the PSLF payment time clock since legally, it’s a new loan.
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 PSLF. If the loan description just says “Stafford Unsubsidized” or “Perkins” without “Direct” in the front of the name, it almost certainly isn’t eligible for Public Service Loan Forgiveness.
15. 120 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 all your debt forgiven tax-free. The more precise definition is you need 120 months of income-driven payments at a qualifying employer. Those 120 payments have to be made monthly, and you can’t make extra payments and speed up the clock.
16. No need for consecutive payments or working all 10 years with the same employer:
Luckily, those 120 payments do not need to occur at one employer or consecutively. You could work 3 years at a not-for-profit then work in the private sector for a couple years, and then work in government for 7 years, after which you’d finally qualify for PSLF. That feature encourages mobility of the labor force but only within the not for profit and government sector.
17. You can get credit while on Maternity Leave or other Family Leave:
Under the terms of the Public Service Loan Forgiveness program, 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 continue income driven payments as it will cut down the time needed until your loans are gone. Please do not use forbearance or deferment.
Make income-based payments and get 3-month credit toward PSLF on maternity leave.Click To TweetHow the Public Service Loan Forgiveness Program Affects Taxes
18. You need to minimize Adjusted Gross Income:
Your income driven repayments depend 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 you spouse do the same. This will lower your AGI as a joint economic unit. The most common pre-tax accounts I’m referencing are the 401k and Health Savings Account.
19. Few people going for PSLF should file taxes separately if they’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. Make sure to run the numbers before filing taxes separately. It usually isn’t worth it, but sometimes it can save money if you’re making a similar income to your spouse.
20. PSLF is the greatest tax-free student loan forgiveness benefit available today:
Remember that unlike private sector student loan forgiveness, PSLF 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.
21. PSLF 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 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.
22. Use the annual tax adjusted Public service loan forgiveness benefit to compare job offers:
When comparing opportunities in the public and private sector, it’s important to adjust for the indirect PSLF 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 annual salary before comparing them to their private sector counterparts.
How PSLF Impacts Investment Strategy
23. Put $18,500 per year into your 403b, 401k, or Thrift Savings Plan:
If you’re an employee, max out your traditional pre-tax retirement account. For most public sector or not for profit employees, that will be a 403b. For federal employees, the Thrift Savings Plan (TSP) is the account to use.
I suggest choosing index funds with rock-bottom expenses of 0.2% per year or less. Consider putting in 100 minus your age in stock index funds and the rest in a bond index fund. So if you’re 30, you’d put 70% in stocks and 30% in bonds. If you’d rather have a service do this for you, I suggest Blooom. I make a small commission if you run your retirement account through their free tools to find out if you’re paying hidden fees. To get personalized recommendations for how to invest in your retirement account, it’s only $10 per month. 
24. If you’re eligible for a 457, put another $18,500 in that:
I’ve had clients who worked as employees at a state or municipal employer that had both a 457 and a 403b. In that case, you can put up to $18,500 per year in both accounts. That’s a max of $37,000 in pre-tax income you can remove from your AGI. That amounts to $3,700 in savings per year for those pursuing Public Service Loan Forgiveness.
25. By going for PSLF, you get an indirect matching contribution for your retirement:
Most people save in their retirement accounts because they receive 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.
Don't leave free money on the table by losing out on the 'PSLF match.'Click To TweetWhat I mean is that these contributions reduce your taxable income, which reduces the required PSLF payments since REPAYE, 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 $3,450 to an HSA. Married people can contribute $6,900 to the family. 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 REPAYE 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 student loan 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 PSLF 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.
Save at least 1% of your total loan balance per month as PSLF repeal insurance.Click To TweetPlace 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 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 (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 Wealthfront. Most Wealthfront customers will pay between 0.35% to 0.4% per year total. 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.
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 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 PSLF in the promissory note. There are two reasons someone going for PSLF should consolidate their loans. First, if they have non-Direct loans that don’t qualify for PSLF, consolidation is probably a good idea.
These non-Direct loans include FFEL, Health Professions, Perkins loans, and some others. Secondly, 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 towards forgiveness.
Could Public Service Loan Forgiveness be Repealed?
30. Some Democrats want 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. President Obama proposed a $57,500 Public Service Loan Forgiveness cap in 2015 as a max benefit. The administration responded to the disproportionate benefit that PSLF provides to high-income earners.
That proposal did not pass. However, I would expect something like it to come back into the conversation eventually. 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.
31. Republican proposal eliminates PSLF entirely, but only for future borrowers:
That would mean that folks who don’t currently have loans outstanding could be in real danger of not having PSLF as an option. Currently, one party controls the White House and Congress. Grad students just starting their programs might have some legitimate worries. Borrowers with current loans and those about to finish school have significantly less to worry about. The Republican plans for the repeal should grandfather them into PSLF.
*Update: The Republicans have attempted to pass the PROSPER ACT, which would do away with PSLF for borrowers who start a program of study on or after July 1, 2019. It would grandfather in anyone who is already graduated or enrolled in school on that date.
32. Yes PSLF could be repealed, but it’s highly unlikely so don’t abandon the program:
Could PSLF 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.
The program causes 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% to 20%. That number includes the risk posed by means testing PSLF.
What do Current Legal Battles over Public Service Loan Forgiveness Mean?
33. Do Not Trust FedLoan Servicing:
The Department of Education really hurt some lawyers at the American Bar Association when they overruled FedLoan Servicing on their incorrect ruling that their employer qualified for loan forgiveness. The lawyers lost two to five years of credit towards Public Service Loan Forgiveness thanks to the error. These lawyers are currently suing FedLoans, arguing that FedLoan rulings should be binding as an agent of the federal government. Regardless of the results of that suit, you clearly should not trust FedLoan Servicing. Verify your own status yourself for PSLF 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 PSLF.
Based on current PSLF lawsuits, I would only work at a 501(c)(3) or government employer.Click To Tweet 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 FedLoan Servicing pulls the rug out from under you and voids your progress towards 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 latest string of PSLF lawsuits. 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.
Be Aware of Conflicts of Interest in the Student Loan Industry
36. FedLoan Servicing probably wants to hang up on you, not help:
The federal government gave FedLoan Servicing the exclusive rights to manage PSLF borrower accounts, so they have no incentive to help you. Put yourselves in the shoes of their executives. They earn a flat fee with no penalty for poor performance and no bonus for great customer service. Hence, FedLoan 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. I recently discovered a secret phone number there that you should call if you’re having a ton of trouble: (717) 720-7605. Some of my readers who’ve used that FedLoan phone number instead of the generic one report getting their problems fixed in days instead of months.
37. Beware of sites that promise Obama Student Loan Forgiveness or Trump Student Loan Forgiveness.
They just want your money: If you find a vaguely federal government looking website with words “document preparation service” and hyped up language about Trump Public Service Loan Forgiveness, don’t work with them. These folks game the system to rank highly for high search volume keywords. They hire people off Craigslist and pay steep commissions, and their answer for every problem is student loan consolidation.
Moreover, the fee for this service is frequently over $1,000. 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 2-10 times as much money for a junk service.
38. Financial advisors usually won’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, financials 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 ten times that.
39. Personal finance blogs make a lot of money on private refinancing:
Personal finance blogs make money from referral bonuses when people refinance their student loans through affiliate links. That includes this site Student Loan Planner. Don’t refinance if you qualify for PSLF. Luckily, I have a business case for going into extreme detail about PSLF. After all, I 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 towards private refinancing. 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 Me 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 FedLoan Servicing now and implement these best practices directly. If you’ve benefited tremendously from this article, please hit me up and let me know. Consider sharing this on social media too to help get the word out to friends.
Maybe you skimmed this and are overwhelmed with the details. Maybe you’d rather hire somebody to analyze your loans for you or just review the plan you’re thinking of using. I’ve advised hundreds of people. 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 we could save on your student loans.
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Can you explain more about the retirement match for PSLF? Does that mean the government is contributing to my account for me? How does that work?
Sure Peter. Your payment for student loans is based on your income right? For anyone going for PSLF, this should probably be on the REPAYE or PAYE program because it’s 10% of your discretionary income and you want to minimize payments on something that’s going to get forgiven.
Discretionary income is what you earn minus 150% times the federal poverty line for your family size. Say that exclusion is $20,000 and you make $100,000 a year. Your income for student loan payment calculation purposes is $100,000-$20,000=$80,000. Under PAYE or REPAYE, you’d owe $8,000 per year in student loan payments.
However, what if there was a way to reduce your income besides just earning less money, which of course would defeat the purpose. There is, and it’s saving in pre-tax retirement accounts and Health Savings Accounts. The max for a 401k is $18,000 per year, and the max HSA contribution for a family is $6750. Say you’re able to put away $20,000 in these pre-tax accounts. Then your income goes from $80,000 to $60,000 and you now owe 10%*$60,000=$6,000 per year on your student loan payments. Since the balance will be forgiven tax free, that $2,000 is after tax money you get to keep. So the government doesn’t contribute to retirement directly, rather you end up with more money in your pocket on an after tax basis. So that’s what I mean about the 10 cents on the $1 PSLF match. Notably, you can take advantage of that all the way up to the cap on contributions to pre-tax accounts. It’s just a way to optimize the payment strategy under PSLF
Hey Travis, I had been giving the AGI aspect of PAYE some thought, and it seems like a benefit of this many people haven’t recognized is for those working in public service abroad. Should I work for an American non-profit abroad, as long as my tax home is abroad, then the first $100,000 or so that I earn is removed from my AGI. So with no AGI, I make no PSLF payments under the PAYE program for the duration of my time working abroad. It’s a pretty narrow case, but it seems like it could be a very useful thing to know for people consider that sort of career path.
That’s a really fascinating case. I admit I didn’t know about that and it’s the Foreign Earned Income Exclusion and you basically get to avoid paying tax on quite a bit of income abroad. Obviously you’re probably paying taxes on that money to wherever you’re living, but you could definitely get credit and avoid having to pay anything.
One cautionary point with getting the payments to qualify, it’s probably by far the easiest if you’re working directly for the US government. If you’re working for a not for profit abroad, you really have to make sure it’s a 501c3 registered in the United States that’s directly paying you. If you’re receiving your salary from some sort of subsidiary that’s not registered in the US, then the public service credit wouldn’t count. But it’s definitely a fascinating case, thanks for bringing it to our attention Alex!
With the small caveat that U.S. gov’t work abroad does count for PSLF but DOES NOT count for Foreign Earned Income Exclusion!
Even if it’s with the state dept or the military in a combat zone? Thought their pay was tax free? I reviewed my notes and I actually had a client using the FEIE but not for PSLF. They were living in one of the countries without a local income tax as well, so he was making a ton of extra income but was utilizing the interest subsidies under REPAYE for maximum impact
https://www.irs.gov/individuals/international-taxpayers/u-s-government-civilian-employees-stationed-abroad
Hi Travis, this was a very informative article, thank you. I am in grad school and besides my loan for grad school I also have a consolidated loan from my undergrad years that is on an in-school deferment. I currently have full time qualifying employment for PSLF but am still about 6 months away from graduating, so I have not yet made any qualifying payments and am not yet on a qualifying repayment plan for either of my loans.
Is there any benefit to submitting the ECF to confirm my employment and get me registered for PSLF? I’m thinking of a scenario where they make changes to the program and if it’s possible that whether you are grandfathered in or not is based on whether you have submitted any ECF forms. Or do you think it’s more likely that changes would be applied based on when the money was borrowed?
It will most likely depend on if you have PSLF in your promissory note or not. You would, and thus the ECF wouldn’t matter. I don’t see when you submit the ECF to matter too much in terms of who gets it and who doesn’t. After all the ABA lawyers submitted the forms and had their approval revoked bc they didn’t work for a 501c3. So I think it’s “do you have PSLF in your loan agreement or not.” If you do I think you could not submit the ECF at all and in theory be ok. In practice FedLoans would probably mess up something and hurt your PSLF chances. Hope that helps feel free to ask more questions Todd.
Hi Travis, can you point me to where you got your info that independent contractors don’t qualify for PSLF? Are you deducing that from the general definition of “employed”? I’ve read the last two versions of the PSLF FAQ from the Student Aid site and can’t seem to find in there any specific mention of that. Thanks.
In general for PSLF it matters who your employer is not what you’re doing. So if you’re an independent contractor usually that means you aren’t employed officially by any not for profit entity. Additionally, you have to be employed full time and contractors are by definition not employees. After all you’re paying your own social security taxes.
Hi Travis, thanks. I just changed to REPAYE and I’m happy with my monthly payment. I have 2 loans with 116 payments left while the others are around 94-96 payments left. It appears, I consolidated the last 2 late in 2014. What does that mean?
Means you’ll have a group of loans forgiven in 2014 and the rest a couple years later. Not that unusual actually. Sounds like you’re on a good path Zinkeng
Can my spouses loans (owe $60k) qualify for PSLF if I work for the government but he does not? Also it appears that I only qualify for ICR for my own student loans (owe $11k). Guessing I should just stick with the standard repayment plan? We decided to file our taxes as married filing separately since my AGI was $76k and my spouses was $47k. Didn’t want them to take my AGI into account when calculating his monthly payments but I’m not sure if this was the best decision?
It has to be the loans of the person working in govt so no pslf 🙁
Generally speaking only 5 percent of the ppl who file separately for taxes actually should. I’d think you are probably costing yourself money by filing separately
Great article! I have a question it didn’t address though. Have you ever encountered an employer who refused to sign the employment certification form? My employer recently told me it was their “policy” not to sign them and suggested I check the box on page 1 (which specifically says ‘because the organization has refused to certify your employment. The Department will follow up to assist you in getting documentation of your employment.”) I checked the box and sent the form off. The Department did not follow up. They mailed me a letter letting me know it was closed because my employer didn’t sign it.
Have you ever encountered a situation like this?
It’s not surprising in the least that they never followed up. In my experience the way things are supposed to work and the way they actually do work are super divergent.
I’d contact the head of the division for whoever made the decision not to certify to understand why. If he or she gives a questionable response I would seek a meeting with the individual to show the burden the company or organization is causing you.
Please let us know what the outcome is!
Hi Travis, I have three questions for you.
Before I considered pursuing PSLF, I aggressively paid ahead on my loans. When I entered the PSLF program, I set up the direct debit for the interest rate reduction it offered in case anything ever happened to the PSLF program. However, because I had paid more than was required in the past, the amount I owe monthly is significantly lower than what the direct debit is charging me. Direct debit is charging me as if I never paid ahead but my statements clearly show that the amount I owe is that much lower amount. I was wondering if I should be paying “the amount owed” instead of the amount that direct debit is charging me. I am afraid that if I only pay the amount owed, those payments won’t count for PSLF. I called FedLoan and every rep I talk to tells me something different. Most stated that I should be paying the amount owed and suggest that I stop my direct debit. However, I once asked for a manager and she told me that my payments won’t count if I only pay the amount owed. I don’t know who is right or wrong so I kept paying the larger direct debit amount and continue to do so. Any thoughts on who is correct? I suspect that the manager is right as the full amount is the 15% of my income for IBR.
My next question is, I am on IBR and have made 1.5 yrs of payments toward PSLF. I have a large amount of grad school debt and a ton of interest. I am not eligible for PAY but would rather be on REPAYE so I only have to pay 10%, Would I lose my PSLF progress if I switched plans? Also, even if I don’t lose that progress, my interest will capitalize ($230k loan with apprx $30k interest) if I switch and I believe I would also lose progress towards the 25 year repayment I have with IBR (if anything ever happened to PSLF). Do you think it would be unwise to switch at this point?
My last question is that I submitted my first PSLF form in September 2016 (it was signed in this month by employer). My government employment started around June 2016 and I continue to work there presently. This is proof that 4 payments have been made and they are full qualifying payments in IBR (every one at FedLoan agrees). However, to this day, my statements always show 0 qualifying payments toward forgiveness. Every time I call, the rep or manager says they’ll have that department that calculates payments look into it. Presently, a year has gone by and it still says 0 payments. Any ideas on what I should do? I will be submitting my next verification form to cover the whole year shortly but I don’t understand why those 4 payments were never verified.
Sorry for the long post, thanks for any advice you have for me. Sadly, I can never get competent answers form FedLoan.
Not surprising Dan. First off, it’s gonna be the larger amount that’s 15% of your income. They do that for the purposes of the standard plan and that wouldn’t help you with PSLF. It’s an accounting convention with FedLoan that would mess you up.
I’d switch to REPAYE if you’re going for PSLF. There’s a few exceptions but they’re pretty uncommon (like large spousal income pushing you above the standard 10 year monthly cap). I wouldn’t worry much about 30k accrued interest.
I’d stay on FedLoan Servicing about the 4 payments they haven’t listed yet. Be a pest. Don’t let them tell you “someone from calculations will look into it.” Plainly, that’s a load of baloney that some underpaid rep is making up to get you off the phone. Always escalate, keep demanding answers, ask for deadlines. Then call back in a month and do it again. Keep being annoying until they actually listen to you. That’s a big time waster, but I think it’s the only way to get them to pay attention.
Travis, thanks for your earlier reply. I haven’t switched from IBR to REPAYE yet but my re-certification has come due and I had a few more questions. I am almost two years into PSLF (paying on IBR).
If I switch to REPAYE, would it reset my PSLF payments?
If I switch, would I lose 1 months PSLF payment for the month I switch? I believe I can opt for forbearance for that one month, how much do I have to pay that month?
I am concerned that if anything happens to PSLF, I will be resetting the 25 year clock for IBR/REPAYE. Which is part of my hesitation with switching.
Also, I read about the interest subsidy with REPAYE, would that apply to my direct grad plus loans? My understanding is that 50% of my interest would be forgiven since my monthly payments don’t cover the interest accrued each month.
Lastly, do you have any insight as to the current status of REPAYE, do you expect the plan to be sticking around for some time?
BTW, I discovered why I had missing PSLF payments on my account. Apparently, since my account is in “paid ahead status,” it caused their system to miss some of my payments. They offered to remove me from it but I chose to stay as paid ahead in case there was a reason I was no longer in qualifying employment for a period of time (I’d be able to pay a lower amount). I believe all my payments would still count regardless.
Thanks for any advice you have.
Switching to REPAYE does not reset payments, and it also does not reset the 25 year clock. The only downside is the capitalization of interest, which isn’t a big deal if you’re going for PSLF. Also, make sure you owe a lot and that REPAYE is actually lowering your payments bc it doesn’t have a 10 year PSLF payment cap.
You will lose 1 month but can opt for a $5 one month forbearance to make sure you don’t throw a bunch of money at it while making the switch.
REPAYE interest subsidy is on all federal Direct loans, so yours would be included, but it’s half of the leftover interest that you’re not paying, not 50% of the total interest.
REPAYE will be around for a while I suspect for folks who started their grad programs prior to July 1, 2018. For those entering this fall all bets are off.
Anyone on PSLF I would advise to disable the paid ahead status. Hope that helps Dan.
If you get a better paying job but keep paying the same payment amount from your last job will they disqualify you?
Also, when you reapply for the next year and you let them use your last year’s tax return amount to figure out your payment will they disqualify you next year when they see the next year’s tax return and realize that you’re making way more than they thought?
Under current rules using the last year’s tax return is a legal way to verify. And I don’t expect they’ll be as diligent auditing everything as some expect. As long as you’re making an attempt to follow the rules, you should be fine.
I have one burning question that wasn’t addressed:
Should I wait to submit the PSLF Employment Certification Form if I’m still taking future loans for graduate school?
There’s never a disadvantage to submitting the form as soon as you’ve made a qualifying payment on Repaye or Paye. Just will move it to fedloans if it’s not there already.
Right now there’s a big debate as to pslf for loans taken out post fall of 2018. Some folks think that all loans taken out for a course of study that begins then will be eligible. I’m skeptical as I think they could change the promissory notes. It’ll be hard to differentiate those documents for up to 4 years after enrolling in med school for example.
That’s what I’m thinking about most right now. If you’ve already got direct loans you should be grandfathered in.
Does that mean that once submitted, no future loans can be considered for forgiveness? I have $80k in Direct loans now, but one more year of Graduate school loans to take out. I am a full-time community college professor.
There isn’t a point of submitting the form until you’ve made at least 1 payment on either REPAYE, PAYE, or IBR. It doesn’t affect eligibility to submit the PSLF form ever.
Hi Travis, glad I found your site. I just got a job with a nonprofit hospital and have a payment due for my direct loan on October 3rd. I am currently in IBR. Would it be better to be switched to REPAYE before submitting an application to be in PSLF or can I transfer once my loans transfer to FedLoan Servicing? Does your repayment plan just transfer over to FedLoan Servicing or do they do their own assessment of which program is best for you?
You can do either one but I suggest getting on REPAYE asap. Dont ever believe or rely on info from FedLoan Servicing as someone who experienced them first hand with my fiancee’s loans
So if my loans are with navient rather than fed loan, none of the time thus far has counted toward pslf?
Not necessarily. If they’re Direct loans and youve been paying on an income driven repayment program with Navient, then it should count. You just need to send this ECF form asap and get them transferred to Fedloan. Make sure you document your payments with Navient to challenge FedLoan if needed: https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf
Hi Travis,
I read more about REPAYE and am interested in applying for it, however the nonprofit organization I work for is only for a year since I’m a resident. I graduated Dental school so my debt is pretty significant. I’m hesitating on applying for PSLF because sites are limited and Fedloan servicing does not sound great to deal with. I’m currently in my Grace period now though but if I apply for REPAYE would that be better to take care of the interest accruing? Also if I feel limited with the PSLF sites and If I opt out of the REPAYE, would the interest forgiven be added back?
Hey Sarah it wouldn’t be added back. I’ve only seen a couple dentists who have persisted in going for PSLF bc of the tough volume based environment of community health centers. So Id say going for PSLF isn’t that realistic for you. If you want to eventually refinance, then depending on your debt to income ratio paying down interest could make a lot of sense.
Hi!
I have a question about managing my PSLF. I submitted my employer certification form last year and was certified for PSLF (I work full time for a community college) and entered into REPAYE. Does Fedloan add each month or do you have to recertify your employer every year to see the payments towards PSLF increase? Also, as I understand it, in REPAYE the government pays all or some of the interest for direct loans while in the plan. But, my statements are showing that interest is continuing to accumulate although it has not yet been capitalized. What is going on here? I tried to get information from Fedloan and they just directed me back to their website information on REPAYE. Very unhelpful! Any advice or insight you can give is much appreciated!
Hey Heather thanks so much for commenting! This calculator shows in the 3rd tab ‘Calculations’ in column Q exactly what your REPAYE interest subsidy is. Only catch is entering your email to get it: https://www.studentloanplanner.com/free-student-loan-calculator/
Yes you need to submit the Employer Certification Form once a year at least to keep tabs on them. The interest is growing bc your subsidy w REPAYE is not 100% of interest but maybe some number between 0% to 50% of the stated rate, hence the growth.
It looks likely that PSLF will end going forward for any new student loans issued after July 1, 2018, but it will remain in effect for all student loans disbursed before then. How will that affect a consolidation loan disbursed after July 1, 2018 that consolidated loans that were eligible before consolidation. Will the new consolidation loan be eligible for PSLF?
Great question Michael. As of now I’m not going to be recommending any consolidations starting May 2018, which could carry over after this new July 2018 date. I want to see the promissory notes. My assumption is that all consolidation loans would be non-PSLF eligible after this date as well.
This question is worth an update. I assumed this post was in relation to proposed legislation (PROSPER Act) that didn’t pass, or should I say, hasn’t passed YET. I believe that midterm elections will have an impact on the outcome of the bill.
Is this in relation to something else?
Really great info!!
Good point it is worth an update. I’m comfortable with folks consolidating right now as the Prosper Act has stalled after it passed the House HELP (Health Education Labor and Pensions) committee. The Senate does not look poised to take this up until after the 2018 midterms, when we could have a very different looking Congress. Status quo for now, so folks should continue consolidation bests practices.
I’m one of the many that was Sallie Mae – then Navient – then FedLoan. I certified for PSLF every year with Sallie Mae and Navient, but Fedloan when I went over to them, advised me to consolidate and that they will not honor my 3.6 years of payments with Sallie Mae/Navient. Do I have any recourse?
Unfortunately no Jennifer, so sorry to hear that. You just have to look at it as glass half full and move forward. At least the program still exists.
Every year FedLoan took months to recertify me for income-dependent repayment (rejected the pa ystub it should have accepted as alternate documentation of income) and stuck me on forebearances I didn’t ask for. I still made payments during these forbearance periods, and the payments I made were for an amount that exceeded the income-based payment amount that FedLoan ultimately calculated, albiet belatedly. Therefore these payments I made were still qualifying PSLF payments since all requirements were met 1. correct payment amount (based on disposable income and the formula), 2. qualifying employer, 3. on-time payment, 4. in a qualifying payment plan (REPAYE), with a qualifying federal direct loan. The fact that FedLoan erroneously stuck me in a forbearance despite having adequate income documentation is its own error, and violates the PSLF regulations and, by extension, likely violates FedLoan’s obligations under its servicing contract with the Department of Ed. Are you aware of anyone that’s gotten FedLoan to acknowledge payments during forbearance as qualifying PSLF payments. It seems a clear case of this contractor not following the law.
Unfortunately I’ve never heard of anyone getting that recognized. I agree with you and there is basically no accountability for them right now.
What do you think about just applying after 10 years. US DOE has already said that it doesn’t have to honor the servicer’s PSLF decisions (ABA v. USDOE), so it should be able to certify all payments at that time.
If I leave my 501(c)3 job to work in the private sector, with the hope of returning at some point to a PSLF-qualified position, how do I manage my loans/payments while I’m working in the private sector so that I can pick up where I left off when I return to a non-profit job?
Depends on the probability that you’re returning, but if it’s 100% then I’d use my 3 years of economic hardship forbearance during the away period to maximize forgiven amounts. Otherwise I’d stay on something like PAYE / REPAYE until the point you return.
Hi Travis. I have a few different loans with Fedloans, but none of them are direct. This means I need to consolidate them first. I’m worried, because it will make the total interest rate at 8%. I have some that are 6.5% and others at 8.5%. Apparently, fedloan takes the average at time of consolidation. Is this something I should do? I have already been in repayment for 7 years now, but I still have $87,000 left to pay. I just got a job with the Federal Government. What would my first step be?
I would call the Dept of Education consolidation group first. Their phone number is 1-800-557-7392. Tell them the goal is to get your loans set up for PSLF. The weighted average interest rate they take on the consolidation shouldn’t really increase the total interest you’re paying much. I would focus on if the math will allow you to have a significant balance forgiven in 10 years or not. If the leftover projected balance is less than $20,000, I wouldn’t mess with it and would just refinance to a lower interest rate. Most likely if you manage your AGI well you’ll be able to get a nice benefit though.
I work over 30 hours a week for a startup 501c3 nonprofit. Nobody draws a salary yet. Do I qualify for PSLF?
Probably not unless you’d meet the legal definition of employee. My guess is that if you’re not getting any compensation then you’re legally a volunteer.
This is a great list of tips. I wish I had this years ago!
I just wanted to add a tip of my own based on my horrific experience with FedLoan Servicing.
For anyone who has been on the receiving end of an error by FedLoan, consider opening a file with the Consumer Financial Protection Bureau. When my student loans were transferred from Nelnet to Fedloan, the number of qualifying payments I’d made towards PSLF were way off. I requested the manual review and checked in once a month for 7-8 months with no progress. In parallel to this fiasco I was going through a messy transition from IBR to REPAYE, also thanks to the inconsistent and frequently inaccurate advice from their customer service. Feeling helpless, I opened a file with CFPB as a “hail mary”. Within a month, everything was fixed and as it should be! Of course I can’t promise everyone will have the same results, but certainly worth trying for anyone that finds themselves in a similar situation.
My greatest concerns about sticking with PSLF are
1) Regarding news about employment certifications being rejected as qualifying employment in the final year of the 10-year forgiveness term. I believe I remember reading earlier in the year about a 501c3 that employs lawyer to represent veterans? I work for a hospital that is a 501c3 as a primary care physician and it concerns me that if an employment as noble as the one above gets disqualified, how likely is it that a hospital in a relatively affluent area will viewed.
2) I am worried that my income will eventually disqualify me for one of the IBR plans. Over the course of the next 6 year (already 4 years of IBR repayments) my income has the potential to grow to $350-400K, yet the current balance of my medical school loans is $300K and we have a family of 4. As I pay more and more doesn’t it seem likely that 10% of the remaining balance on my student loan in a standard repayment plan will no longer exceed 10% of $350-400K minus roughly 37,500 after accounting for discretionary income? This is an awfully individualized question but I’m curious what you have seen in similar circumstances.
Thanks for you help, the article was thought provoking.
Hi Travis,
Thank you so much for putting this together and giving back to the community and us.
My wife and I currently file our taxes separately to reduce our loan payment, can we amend our filing a year or two later to MFJ?
basically to have our cake and eat it too :))
BTW: I think the material you have on the blog is ready for publication on Amazon as an ebook
Haha I could do that but in my experience ebooks arent really worth the effort from a financial perspective unless you have a publisher. You can amend and yes you could probably have the cake and eat it too. It’s a big loophole that would probably be shut down at some point
Hi Travis,
Short and long versions of a question – short version: if you’re in qualifying employment and on an income-driven repayment plan under which your monthly payments are $0, do those payments count toward your 120 required for PSLF?
(I’m pretty sure the answer is yes, as implied here https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service/questions#qualifying-payments – but maybe I’m missing something?)
Long version: I was unemployed for some time after graduation, long enough to run out of grace period. I started on an income-driven repayment plan (REPAYE), since my income of $0 meant my monthly payments would be $0 anyway. A couple of months into the repayment, I started qualifying employment with the Federal Govt. On starting employment, I immediately submitted a PSLF certification form. However, since income certification for REPAYE is only -required- annually, I haven’t re-certified income yet, so monthly payment is still $0. FedLoan being FedLoan, it took about 3 months before my loans finished transferring to them. During that time, I made 3 monthly payments of $0 under REPAYE (a qualifying repayment plan), while in qualifying employment. Despite that, I just got my first bill from FedLoan, which claims my PSLF qualifying payment count is at ZERO.
I think this is a mistake on FedLoan’s part, as I have made 3 payments on a qualifying repayment plan while in qualifying employment, even though those payments were $0. Am I right about that?
Yes you’re right those 3 payments should count since the certification is required annually. You should challenge that.
Good to know, thanks! I will do so.
[puts on body armor and crash helmet] Wish me luck as I wrestle with FedLoan!
Hi there!
Question about the “pay ahead” setting. If each month we were still making payments at the proper direct debit IBR amount, but “pay ahead” was not disabled, will those payments still qualify for PSLF? FedLoan is the literal worst so thanks for this.
SD it depends if you were not making payments for a while because you made extra payments that put you into paid ahead status, then those payments would not count. If you continued making IBR payments and weren’t put into a pause then you should be good. Depends on your situation.
Hi Travis,
I just graduated from pharmacy school in May 2018 and have approximately $200,000 of debt. I am currently single making less than $50,000 for the first two years of my career working for a qualifying non-profit. During year #3, my personal income will likely increase to approximately $90,000, and I will be getting married, and my spouse will make approximately $200,000. Therefore, our combined income will be approximately $300,000 starting in year three of the program. Right now, I know that I will qualify for the PAYE repayment program. However, I am uncertain if I will qualify for this program starting in year 3. Your update to point #8 (see copied below) states that I cannot be kicked out of the PAYE program part way through even if my income increases significantly. Is this still true as of 7/2018? I spoke to Fedloan servicing today, and they seemed to indicate that I would not be eligible for PAYE as of year 3, so I am a little confused.
“*Update: FedLoan has been messing up lately by sending out letters to high income borrowers telling them they’re no longer eligible to make payments based on income. That causes panic and borrowers will call and ask what to do now that they aren’t eligible and the clueless phone rep tells them to switch onto something else. That is a mistake. You never get kicked off of IBR or PAYE, you merely have your payments capped. You need to ignore the letter and your payments should be capped. If they aren’t then you need to escalate to a supervisor.”
Thank you so much for your help!
Correct FedLoan is spewing misinformation. You can remain on PAYE but your payments would be capped at the standard 10 year plan, even if it’s a consolidation loan though the language in the promissory note is very unclear. Essentially the payments get capped and should leave you with a healthy balance left to forgive. If you decide to file taxes separately you might have a lower overall student loan plus tax cost. You really have to run the numbers to decide what’s best for you. Of course we do that for clients as well.
Hi Travis,
I found this blog and the information has been extremely helpful.
I’m in residency making around 50k and my husband works for a private company making around 70K. . I’m in the IBR and my payments were very $80 per month. However, I recently got married and filed a joint return and I received a letter from the Fedloan stating my payments would go up from $80 per month to $800 per month.
If we amend our tax to filling separately, would they only look at my individual AGI?
Would they reverse the payment to a lower monthly amount?
Which Repayment options would be best?
Thank you for your advise
This is a classic case where you’d want to compare filing joint w REPAYE vs filing separate w IBR or PAYE and decide if the payments and tax penalties of filing separate make sense. The calculator is the best way to do that and it’s free: https://studentloanplanner.com/free-student-loan-calculator/
Thank you for this informative article. It was not only helpful but easy to understand. I have a question and hoping for reassurance I’m on the correct path. This month (July 2018) I started my grad student loan repayment. I am pursuing public school loan forgiveness and my employer and I just completed the certification form and I received verification from FedLoan Servicing that it was received. I am on standard repayment, and understand that I need to get on one of the income-based plans so there is an amount left to forgive at the end of a decade of on-time payments. From your article, it sounds like PAYE is the way to go. I’m married, file jointly, and have $53,000 in student loan debt. I’m a bit confused about the clock resetting. If I switch to PAYE, do I ‘lose’ a month that would count toward my 120 payments? Thank you in advance for your expertise. Wendy
You won’t lose any credit that already exists to PSLF. Main risk is that you “only” owe 53k and that you might not get a ton forgiven.
Thank you for your prompt reply. That is reassuring. Wendy
Hi. What is the effect of deferment or foreberance on your qualifying payments. Does taking either start your qualifying payments over? What happened to the principle that your payment did not have to be consecutive ?
It does not have to be consecutive Anthony. You can resume payments without losing any built up credit on PSLF so this is something you shouldn’t have to worry about.
I found out that with my employer, I can qualify for PSLF (work in behavioral health for a non-profit hospital system). I am currently in year 4 of IBR (graduated grad school in 2013 and my annual re-cert was just approved). I do have some FFEL loans that would need to be consolidated from what I’ve read. Can I consolidate while in IBR? I am currently with Navient and they are no help on which loans would needs to be consolidated. They list my loans as consolidation(x2), Stafford(x7) and direct loan (x5). My coworker who is enrolled with PSLF has been knowledgeable, but any advice is appreciated. I know I am going to have to reset the clock (and that is fine), just any advice as this is nerve-wracking!
Thank You!
Ryan you can consolidate only the FFEL loans by calling the federal govt’s hotline number at 18005577394. Then you check only the FFEL loans and have them guide you on it. You can also see your info if you login to nslds.ed.gov.
Does my payment increase with consolidation? My friend told me it would jump up a lot? But I plan on staying on IBR.
It would only go up if your prior year tax return showed a big increase from the year before that. Then it would go up but it should’ve gone up anyway.
Thank you. My returns are round about the same every year. I am going to meet with my HR rep Thursday
Hi Travis,
Thank you for this excellent article and for all of your responses in the comments section.
One issue that I cannot find a straightforward answer to is regarding the family size question in the annual income re-certification form for IDR plans. Both my husband have $125K+ each in Direct loans. He is in REPAYE, and I am in PAYE. We file our taxes separately and have 2 children together that I claim as dependents on my taxes.
The form asks “How many children…are in your family and receive more than half of their support from you?” First, how do couples who file jointly each in IBR plans answer this question separately? Second, how do my husband and I, who file separately, each answer this question when recertifying our incomes? Can we both put 2 dependents or should it align with the dependents listed on our taxes? (It does not ask how many dependents we claim on our taxes…) If my husband puts 0 dependents on his form his payment will increase significantly.
Thank you!
If you’re on PAYE and he’s on REPAYE, then I do not understand why you’re filing separately. It makes no sense to me as they’d count both of your incomes on REPAYE and since you both have debt there’s really no benefit to filing separately probably. You’re only creating additional revenue for Uncle Sam.
Just be careful because they love to forget to calculate your payments taking into account your spouses loans. Happens to use every time we re-certify. I calculate what our payments should be myself and call them to let them know they messed up again.
On a side note, thanks for all the info, Travis. I’m in a dilemma that involves a student loan assistance program. My employer will give 10-20k a year plus 2.5-5k (tax assistance) for student loan assistance. I’m in my 5th year of payments, and have somewhere in the neighborhood of 47 certified payments so far. I don’t have to take it but it seems stupid not to?
Really you should argue with the employer that this money should be salary or a bonus and not required to go to your loans. After all they don’t receive a tax deduction for it, so why should they care what you do with it?
I agree, but this has been tried and the program was set up to reduce the burden of student loans and thus, must be used for that. It has to be paid in one lump sum to the creditor (would be nice to just have 12 monthly payments covered instead!). It obviously will affect my income and thus my monthly payment under REPAYE but it seems stupid not to take it?
Hi Travis,
Thank you for your extremely helpful tips. I graduated from grad school in May 2018, with approx. $66K in direct unsubsidized and PLUS loans and approx. $5K in interest. I am in my grace period now. I am in a position to pay $5K toward either paying off the interest before capitalization or paying off a few of the smaller, higher interest rate PLUS loans. 1) If I plan to do PSLF and am very confident I will be working for a government employer for 10 years, should I save my $5K and put it toward something else (retirement) if I know my loans will be forgiven? Or should I pay what I can now, in case something goes wrong or I get screwed by PSLF down the road?
2) My loans are all with one servicer right now. What is the order I should do things? Should I get them transferred to FedLoan first, then apply for PAYE? Or apply for PAYE, then get them transferred? I don’t want anything messed up if I try to do two things at once.
Thanks!
If you havent made any payments yet then I’d consolidate first and move it to FedLoan and apply for PAYE as part of that. Prevent any payments with the old loan servicer as things are being moved. Take the 5k and put it in retirement.
Thank you. I have not made any payments yet. I know all my loans currently have PSLF in their promissory notes. Does the current consolidation loan promissory note include PSLF language? Is it still safe and advisable to consolidate? If I *don’t* consolidate, but still transfer my loans to FedLoan, does FedLoan still use my total loan balance to determine eligibility and monthly payment under PAYE? For example, I have 3 PLUS loans under $5K, but I want those factored into the grand total that I owe, so that I qualify for PAYE and my monthly payment is as low as possible.
Yes they should take it into account. Only Parent Plus loans could complicate things, so be cautious if you have any of those. Otherwise you should be ok
Hi! I am currently enrolled in PSLF, yet have placed my loans in forbearance until I begin my new job in two weeks. I will be making significantly more money than I previously made — by about $70,000 per year, so I expect my bill to increase significantly as well. I’m wondering if the repayment options such as PAYE and REPAYE bill for a percentage of your salary before or after taxes are taken out. Meaning, do I pay 10% of my actual paycheck or of my overall salary?
Thanks!
Hi AM it’s actually 10% after you deduct 150% of the federal poverty line for your family size. Keep in mind that you can cap your payments on the PAYE plan no matter what you earn. That might be the better option if you’re worried about breaking through the 10 year standard cap.
Hi Travis: I am on the PSLF program and about 30 qualified payments in. Initially, with my single status filing and lower starting salary, I was making more affordable payments under the REPAYE program. Then I got married, had a wedding, traveled, etc. and my consumer debt ballooned to about $50K. My spouse and I each enjoyed a good salary increase, but with the joint income and newly married status, my student loan payments shot up. The recalculated REPAYE payment was unaffordable so I switched over to IBR and filed married filed separately. (The IBR switch was not great, but necessary, as my loans don’t qualify for PAYE).
My question is this- my priority right now is to kill my debt as quickly as possible. I cut our expenses drastically, BUT we also save 15% to my 401K to keep our AGI low. It feels good to save but it doesn’t leave a lot to pay down the debt aggressively. Conventional wisdom says to decrease retirement savings until the debt is paid off, but I want to keep my AGI low to keep my student loan payments reasonable.
Should I minimize my savings, pay off my debt, and just deal with the huge student loan payment for 1-2 couple years? Or would I save money with the lower student loan payments? I feel like PSLF applicants are in a unique situation because they are so AGI sensitive. Anyone else have this problem? Appreciate any help you can provide Travis!
I would limit your retirement contributions to your match you get at work (4% for example). Everything above that goes to the consumer debt. I would avoid forbearance since PSLF is in the picture, and would drastically cut lifestyle expenses until you have no consumer debt and 10k in the bank. You’ll need to say no to some things that you’d rather not say no to. On top of that, pick up additional work or side hustles and devote this extra money to the debt. I’ve found if you can house hack or sell your car if it’s newer and swap for an older one, you’ll get out of debt in no time. Low AGI for PSLF isn’t as important as getting rid of the consumer debt.
Hi Travis,
I currently have about $94000 in federal student loan debt all with nelnet. I’ve been making payments on an income-based plan for 3 years under a qualified non-profit employer however $35,000 of my loans are FFPL loans. All the rest are direct loans.
1) If I consolidate the FFPL loans to direct loans, will that restart the payment clock on all my loans or just the consolidated ones?
2) If I submit the employer certification form without consolidating those loans first, will it be rejected because some of my loans do not qualify?
Thanks!
Sarah
I think you’re referencing FFEL loans. For 1), only the consolidated FFEL loans would have their clock reset. The rest would retain your 3 years of credit. For 2) you should have the form accepted with 36 mos of credit towards PSLF on the eligible debt, and they would transfer you to FedLoan.
Correct. I was referring to FFEL loans. Is it best to consolidate the FFEL loans before or after submitting the ECF? Thanks!