Public Service Loan Forgiveness: Top 40 Tips to Save Thousands

I started giving advice to friends and family about student loans because of 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 fiancee’s student loans if we had only understood how the Public Service Loan Forgiveness program 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 her loans showed 1 month of payment credit. We ran the numbers, and rather than fight FedLoan Servicing and the government, we just decided to refinance and pay it back as fast as possible.

I don’t want anyone else to become a Public Service Loan Forgiveness 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. These tips below have allowed me to help clients save millions on their student loans.

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. Perhaps you’d rather not be an expert in Public Service Loan Forgiveness. If so, I do flat fee student loan consultations and have helped hundreds of clients. Please read these top 40 tips and do it yourself. Alternatively, hire me to 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 at an employer that definitely qualified for PSLF.
4. What Doesn’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 Tweet If 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. However, most people should be using REPAYE.
8. Don’t forget that IBR and PAYE have payment caps even if you’re a high income earner:Way too many people decide to abandon Public Service Loan Forgiveness because they think they don’t qualify due to their income. I constantly see comments online on abandoning PSLF. Most of these folks received a recent big raise or are marrying someone with a high income but no student debt. This is usually a mistake. Both IBR and PAYE cap your maximum payment at the 10 year Standard repayment plan. That amount qualifies for PSLF. So if you abandon the PSLF program because you suddenly have a big income, you’re probably costing yourself thousands of dollars.
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 can probably save you a lot of money. 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 can prove it, I want to write a blog post about you so please email 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.
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 Public Service Student Loan Forgiveness 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 because 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: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 Tweet
    

    How 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.
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 $18,000 per year into your 403b 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.
24. If you’re eligible for a 457, put another $18,000 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 $18,000 per year in both accounts. That’s a max of $36,000 in pre-tax income you can remove from your AGI. That amounts to $3,600 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 Tweet What 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 into 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 $3,350 to an HSA. Married people can contribute $6,750 for 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 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 into 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 Tweet Place this 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. I get a small referral bonus if you click on that link and set up an account. 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.
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.
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 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 student 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.
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 people 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 with a company like Sofi simply because a friend said you should do it, or you saw the Superbowl ad. Think before you click.
    

    Tip #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. I charge $199 for an individual borrower and $299 for couples who both have student loans. Hit me up at travis@studentloanplanner.com to see how much money we could save on your student loans. I’ve already saved many millions of dollars in projected savings for my clients.

And just for fun, here’s how I analyze the total cost of PSLF for clients. I use the proprietary student loan simulation calculator I built. Get this calculator for free by subscribing below.