Does PSLF really work? [Success Rates & Program Changes]
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Public Service Loan Forgiveness, or PSLF, is the well-known holy grail of loan forgiveness programs. Unlike most other loan forgiveness programs, PSLF offers tax-free loan forgiveness AND no cap on the loan amount forgiven.
Any borrower who has the opportunity to work at a nonprofit organization should definitely consider the program, even if you’re earning more than you borrowed for college. Yes, we’ve all seen the multitude of articles protesting the dismal success rate and subpar loan management that have supported the program. But with recent changes to the program, there’s a significant dynamic pushing the success rate up, and it should be on more people’s radar.
In this post, we will discuss how the program works, its origin, its success and some speculations/predictions for the future.
Public Sector Loan Forgiveness Program
The PSLF program was created as part of the College Cost Reduction and Access Act of 2007 to provide tax-free loan forgiveness to indebted professionals working in the government sector. It was established to benefit nurses, teachers, military, law enforcement, government employees and others employed by nonprofit organizations.
PSLF can help encourage borrowers to pursue careers in lower-paying jobs than would otherwise be the case if they entered the private sector.
What is Government Loan Forgiveness?
Government Loan Forgiveness is a student loan forgiveness program that offers tax-free loan forgiveness.
PSLF has four requirements:
- Qualifying Federal Student Loans – Direct Stafford (unsubsidized and subsidized), Direct Plus Graduate, and Direct Consolidation Loans
- Qualifying Repayment Plan – IBR, PAYE, REPAYE, ICR or the standard 10-year repayment plan
- 120 on-time, qualifying monthly payments – doesn’t have to be continuous
- Full-time employment with a qualifying employer such as a non-profit organization or 501(c)(3)
How to Apply for Government Loan Forgiveness
The only mechanism to apply for government loan forgiveness is the Employment certificate form (ECF). This form must be completed by any qualifying employer to receive PSLF credit.
Although you could wait until you have achieved 10 years of qualified employment, we recommend borrowers complete the ECF form annually. The ECF form is used to receive a credit for past payments and to apply for loan forgiveness once you have reached 10 years of payments. We advise you to keep an eye on the ECF forms and the corresponding payment documents.
Expect the service provider to come back with some errors. But if you’re certifying regularly, it’s a lot easier to fix their mistake from two months ago than it is to go back eight years and two jobs and fight them over payments to a now-defunct servicer.
Please note: Borrowers must still be employed by a 501(c)(3) nonprofit organization at the time of waiver.
Changes in government loan forgiveness
Government loan forgiveness has seen some changes over the years. The first change or adjustment was the addition of the Employment certificate form in 2012. For the first few years, borrowers had little to no understanding of the program, and if you didn’t have a buddy who followed the student loan law to the letter, you would have heard from your financial aid officer that the program wasn’t counting .
Temporary Expanded PSLF (TEPSLF) was added in 2018 by the Consolidated Appropriations Act of 2018. This happened when the first group of borrowers became eligible for PSLF in 2017 and about 99% of the applicants were rejected. TEPSLF has slightly different requirements than PSLF and has a limited amount of money to cover. So the program is first come, first served. Also in 2018, the Federal Student Union published the PSLF help tool to assess your employer’s suitability for PSLF.
The most recent change is the limited PSLF waiver released in October 2021. The limited waiver has a huge impact on borrowers but is most helpful to those with FFEL loans. If you have FFEL loans and have worked in the public sector, this is something to look into. All you have to do is consolidate your FFEL loans into direct loans and submit a PSLF certification form. However, we encourage you to read the WCI interpretation of the limited waiver of PSLF. Also, this is a limited-time waiver that expires in October 2022.
Is Government Loan Forgiveness Legitimate?
Yes, PSLF is real and many white coats have received it. WCI has a podcast called Milestones to Millionaire dedicated to financial milestones and host Dr. Jim Dahle has interviewed a number of people who have actually received PSLF. Not all have had the smoothest process of obtaining PSLF, but the financial benefits have outweighed the extra paperwork and headache.
There is a significant proportion of StudentLoanAdvice.com Customers who are also on their way to get PSLF. The added value of pursuing PSLF versus a refinance or taxable loan forgiveness is real and can be life-changing in certain circumstances.
PSLF success rate
Ah, the number we’ve all been waiting for it. . . Here is a report from the Department of Education (ED) over the years. We have taken TEPSLF and PSLF and combined them in the following coverage.
Figures prior to September 2019 indicate that only about 2% of applicants had received PSLF. Reporting began to improve in 2019. Here are some numbers:
As of September 2021, only 16,119 officers had received PSLF, with a still fairly low 4% success rate. It is important to note that the above application numbers are totals going back to when the loan forgiveness began in October 2017. For example, there weren’t 16,119 borrowers who had their loans forgiven from September 2020 through 2021; there were 10,619.
But as of December 15, 2021, there were an additional 38,000 borrowers who have now received PSLF. Data on how many applicants applied in the last three months is yet to be released. If we rolled a hypothetical 100,000 applicants over the last three months, from December 2021 to February 2022 (when this article was published), we would see a pretty significant increase in the success rate.
The reason for the surge in approved applications is the recent PSLF waiver, which primarily benefits those with FFEL loans. We expect that number to continue growing throughout 2022, but still lagging behind as FedLoan will shift its 9 million borrowers across multiple loan servicers. All those on the way to PSLF will move to MOHELA in 2022.
With the positive momentum of borrowers having their loans tax-free, now more than ever is the BEST TIME to consider PSLF.
The future of the PSLF
Our crystal ball on the future of PSLF is cloudy, but we believe the success rate will continue to rise – and not just be a one-off bump with the recent release of the PSLF waiver.
In our deliberations, many customers express concerns about future changes to PSLF.
- “What if the loan forgiveness becomes taxable?”
- “What if they cap the amount of loan forgiveness?”
- “What if they phase out high earners?”
Each of you signed a principal promissory note (MPN) to hold your federal student loans. If the federal government follows its normal process of amending federal student loans, those currently in the program would be carried over into the old one. If you have a federal loan now, you can essentially continue with the program.
You are not alone if you have thought deeply about doing PSLF. At Student Loan Advice, we’ve met hundreds of borrowers just like you who are facing similar challenges. We can help you weigh the pros and cons of the different options and find the optimal outcome for fighting your debt and on the path to financial freedom. Contact our experienced team at studentloanadvice.com today!
Have you successfully obtained PSLF? How was your experience? Do you think the new changes will improve applicant success rates? Comment below!