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New Public Service Loan Forgiveness (PSLF) Rules: A Primer for Financial Advisors

New Public Service Loan Forgiveness Rules

Public Service Loan Forgiveness (PSLF), established by Congress in 2007, is designed to recruit and retain educated public servants (think teachers, doctors, and social workers) by forgiving student loans after 10 years of full-time public service employment.

Now, PSLF is getting a much-needed overhaul.  On July 1, 2023, following a negotiated rulemaking process, new PSLF regulations took effect.  Highlights include new payment credits on consolidated loans, an improved definition of “full-time”, credit for certain deferments and forbearances, and a “buyback” provision. 

The Basics: Public Service Loan Forgiveness (PSLF)

To earn PSLF, a borrower makes the equivalent of 120 qualifying monthly payments under an Income-Driven Repayment plan, while working full-time for a qualifying employer (such as a nonprofit or governmental organization).

All types of federal Direct Loans, including Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans, including those made to parent borrowers, qualify for PSLF.  

Direct Parent PLUS loans are eligible for PSLF but cannot be paid under a qualifying Income-Driven Repayment (IDR) plan unless first consolidated into a Direct Consolidation Loan. Older and campus-based federal loans, such as FFEL and Perkins loans, may become eligible for PSLF but must first be consolidated into a Direct Consolidation Loan.

Private loans are never eligible for PSLF.

NEW: PSLF Qualifying Repayment Plan

Qualifying repayment plans include all income-driven repayment (IDR) plans, including the new Saving on A Valuable Education (SAVE) Plan.

NEW: Certain Deferments and Forbearances Now Count As PSLF Qualifying Payments

Normally, borrowers can only make a qualifying monthly payment during periods when are enrolled in a qualifying repayment plan and they pay the full amount due; however, under the new regulations, borrowers can be credited towards forgiveness when they are in one of certain accepted types of deferments or forbearance.

When borrowers are in any of the following deferments or forbearances, that month will count as a qualifying payment if they also certify employment for the same period:

  • Cancer treatment deferment;
  • Economic hardship deferment;
  • Military service deferment;
  • Post-active-duty student deferment;
  • AmeriCorps forbearance;
  • National Guard Duty forbearance;
  • U.S. Department of Defense Student Loan Repayment Program forbearance; or
  • Certain administrative forbearances related to local or national emergencies or military mobilizations and or
  • Mandatory administrative forbearances provided to borrowers for collecting supporting documentation.

Note also that the months from March 2020 to September 2023 (the COVID “payment pause”) will count as payment equivalents toward PSLF assuming the borrower certifies employment.

NEW: Public Service Loan Forgiveness (PSLF) Buyback

A new “buyback” opportunity is available to borrowers after they already have 120 months of qualifying employment if buying back months in forbearance or deferment would result in forgiveness.

Borrowers can buy back months only when:

  • they still have an outstanding balance,
  • they have approved qualifying employment for the months in forbearance and deferment, and
  • buying back these months will complete their your total of 120 qualifying PSLF payments.

Borrowers may not buy back months during which the loan was in In-school or In-origination status, grace, default, bankruptcy, or total and permanent disability monitoring statuses.

How is the PSLF buyback amount determined?

The buyback amount depends on documentation of what the payment would have been during the deferment or forbearance.

If a borrower was enrolled in an IDR plan immediately before or after a deferment or forbearance of less than a year in length, they will pay the lower of the two monthly IDR payments for the months before or after the time in deferment or forbearance.

If the borrower was not in an IDR plan before or after the months they are buying back, they will be asked to providetax information that will be used to determine the amount they would have paid under an IDR plan.

CAUTION: Advisors should note that requested tax and family size information must be provided within 30 days, or the buyback amount will be set at the 10-year Standard Plan amount.

Borrowers may not buy back months from loans included in a consolidation loan or for any period prior to the first disbursement date of a consolidation loan.

When buyback payment amounts are determined, a buyback agreement will be issued and the total buyback amount must be paid to the loan servicer within 90 days of receiving a buyback agreement.

NEW: PSLF Payment Credits on Consolidation Loans

The Department of Education is concluding a one-time “payment count adjustment” in which it will allow qualifying payments from all loans included in a Direct Consolidation Loan, including FFEL and Perkins loans, to contribute toward the qualifying payment count on the Direct Consolidation Loan.

After the payment count adjustment, if a borrower consolidates their loans, the qualifying payments made on Direct Loans included in the consolidation will be credited to the consolidation loan using a weighted average.

For example, a borrower having 20 qualifying payments on a Direct Loan with a balance of $20,000 who consolidates that loan with another Direct Loan with a balance of $20,000 having zero qualifying payments will end up with a qualifying payment count of 10 payments on the new consolidation loan.

NEW: PSLF Qualifying Employment

The bulk of qualifying employment for PSLF remains the same—all full-time, paid work for:

  • U.S.-based government organizations at any level (federal, state, local, or tribal) including the U.S. military, and
  • Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code

New employment definitions clarify that also qualifying are:

  • Other not-for-profit organizations that devote a majority of their full-time equivalent employees to providing specific qualifying public services, and
  • Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program

Typically, borrowers must be “direct employees”–receiving a W-2 from the qualifying employer–however, new PSLF rules allow some 1099 contractors to qualify.  Borrowers in positions or providing services that, under State law, cannot be filled or provided by a direct employee (like doctors positioned at hospitals in Texas and California), can certify their employment as if they were direct employees of the qualifying employer.

NEW: PSLF Definition of “Full-time”

For PSLF, full-time employment is working for a qualifying employer for a weekly average of 30 hours or more during the period being certified. No longer do borrowers have to consider their employer’s full-time policy.

The new PSLF regulations set out that in the case of non-tenure track employment at an institution of higher education, full-time status is determined by multiplying each credit or contact hour taught per week by 3.35.

As before, borrowers are credited for a full year of employment throughout a contractual employment period of at least 8 months (such as in the case of teachers working an academic year).

When determining full-time status, paid vacation and leave time provided by an employer, and leave taken under the Family and Medical Leave Act count as work.

About the Author

Heather Jarvis

Heather Jarvis is an attorney and a nationally recognized expert specializing in student loan law.  She has provided award-winning student loan education and consultation for universities, associations and professional advisors since 2005.  Heather recently completed service as Public Service Loan Forgiveness (PSLF) Advisor to the United States Department of Education’s rulemaking committee.  Heather graduated cum laude from Duke University School of Law and is co-founder and Executive Director of the nonprofit Fosterus.  Heather serves as a Lead Instructor for the Certified Student Loan Advisor (CSLA) Board of Standards.

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