Why PSLF Is the Smart Way to Pay Back Student Loans

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In a new sweeping makeover of the Public Service Loan Forgiveness (PSLF) plan, President Joe Biden has made it clear that the current program isn’t as straightforward as it should be. Truth is, PSLF has needed a reformation since its inception.

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Types of student loans out there

It’s no secret that the U.S. has the most complex student loan model in the entire world. Making government student loans non-dischargeable and backed by tax-paying citizens has created a tremendous unnecessary burden for Americans. Not to mention the vast plethora of different products and repayment options available for the average, unassuming borrower to find themselves entangled in, including:

Direct Loans
Perkins Loans
FFEL Loans
Graduate Plus Loans
Parent Plus Loans
Direct Consolidation Loan
IBR
ICR
IDR
PAYE
REPAYE

The reality is that most loan borrowers don’t even know the type of loans they’ve got or the difference between all the loan products. They shouldn’t have to memorize such a complicated list of acronyms, either. After all, these loans are usually used to acquire an education that’ll hopefully help them earn a living, and that’s already a full-time commitment. It’s understandably daunting to have to think about all these repayment options on top of all that.

What is the PSLF program?

It’s a program that allows you to work in a government or non-profit organization, and after ten years, get the entirety of your loans forgiven. The program was created under the College Cost Reduction and Access Act in 2007, so the first batch of borrowers to be able to request loan forgiveness occurred in 2017. In that year, the program approved less than 1% of all applicants.

What’s wrong with the PSLF program?

There’s so much distrust and uncertainty regarding PSLF due to its history. Because the qualifications were so complex and limiting, you could have been working in an entirely qualified organization for ten whole years, only to find out that you screwed yourself all these years due to a single little detail you overlooked.

Was the program intentionally created to be frustrating so as to deter borrowers from applying? Why even bother to commit yourself for ten years if you’ve got less than a 1% chance? And that’s not a one-off. In the years since, the PSLF administration has consistently rejected over 97% of applicants due to missed technical “qualifications.” The odds really aren’t in your favor. This looming uncertainty in getting your loans ultimately forgiven has been an oft-debated topic among borrowers, and nobody is ever ecstatic about the program.

Was the pre-Biden PSLF program worth it?

Truth is, if you’re working in the public sector or a non-profit, you’re usually giving up a higher salary elsewhere for the promise of loan forgiveness. You’d want to make sure you’ll get what you think you’re getting. Any uncertainty or doubt and the risk-to-reward just isn’t as appealing anymore, considering a ten-year time frame.

Prior to all these changes, no, it wasn’t worth it for the average person to get into the program, due to its complexity and nuances. You could go ten years working towards PSLF and get screwed over in the end for one little minutia.

What’s New with the latest PSLF Program?

With the changes recently implemented, it may actually be worth looking into now. The qualifications are now much more widely encompassing.

PSLF before the Biden administration changes

Let’s take a look at the criteria to qualify for PSLF prior to the new changes:

Direct Loans
120 qualifying payments made on time (consolidation resets the clock)
Payments under an income-driven plan
Full-time employee of a 501(c)(3) non-profit or government organization

Note some of the problems with this. Direct loans only constitute around 20% of all loans. That’s 80% of loans that don’t even meet this criterion. Qualifying payments need to be, well, qualified further. If you’re making payments on an FFEL or Perkins loan, those payments don’t count. Even if you make payments on Direct Loans, are you making them under an income-driven repayment plan? You might want to check on that. And if you’ve made 100 payments and recently consolidated in the last couple of months, well, you’ve got to start over on counting to 120.

PSLF after the Biden administration changes

Take a look at the criteria to qualify after the new changes:

Direct, FFEL, Perkins, Graduate Plus Loans all qualify
Payments can be made under any repayment plan, not just income-driven ones
Consolidation no longer resets the clock
Military participants get to count active duty months towards the 120 payments (even if they were in deferment or forbearance)

These changes potentially allow over 500,000 more borrowers to qualify for PSLF. No more worrying about whether you’ve signed up for a non-income-based repayment plan or whether you’ve just consolidated in the recent past. Life just got a bit simpler. The great thing is that all these changes apply retroactively.

Here’s a heartwarming story of Kevin Nadal who was able to successfully implement these positive PSLF changes for himself after having messed up on his repayment plan for 5 years.

Deadline to apply for Biden’s new and improved PSLF

Editor’s Note: Deadline has passed.

All of this is happening for a reason, and that reason is COVID-19. COVID-19 has been declared a national emergency up until October 2022. What this means is that these changes may go away after the national emergency is officially over. To qualify for PSLF under Biden’s new changes, you’ve got to apply before October 2022 ends. Any time after that, and there’s no guarantee the program will stick around.

Are Parent Plus Loans eligible for PSLF?

Parent Plus Loans are not eligible for PSLF. This is quite unfortunate due to the high-interest rates that come with these types of loans. However, you can still consolidate these and repay them via an income-driven plan to qualify for PSLF. You just won’t get to retroactively apply payments towards the 120 that are required.

Is the new PSLF program right for you?

There are a few things to check on before determining if Biden’s new and improved PSLF program makes sense for you. First off, it would be wise to check whether your previous or current place of employment truly qualifies you. The changes made by the Biden administration did not in any way directly increase the number of qualified organizations, be it government or non-profit. Remember, the forgiveness only applies to the length of time you are working as a full-time employee in these particular organizations.

You’ll want to check on your employment status before making any consolidation changes. The very act of consolidating your loans may possibly change your interest rate to a higher one. If you prematurely consolidate only to later find out that your place of employment doesn’t qualify, you’ve only hurt yourself in the long run, especially if you still owe a hefty amount.

Also, if you’re able to secure a job with pay that is much higher than its counterpart non-profit or government position, it may not be worth it either. It’s generally better to pay off loans early and terminate any interest payments as soon as possible, considering that student loan interest rates are at 6% and beyond. But if you’re the type to work in a non-profit regardless, you might as well apply for PSLF. You lose nothing but a bit of time even if you get rejected at the end of ten years.

In conclusion

The changes made to the PSLF program have been majorly positive and long overdue, and whether you choose to apply, that’s your choice. It can work out well for you, but it won’t be suitable for everyone.

Generally, you are foregoing higher salaries in the private sector, so be sure that going into the public sector is something that you specifically want for yourself. Perhaps it’s the culture, the vacation time, or even the stability and benefits of the job itself. Only you can weigh the cost and benefits of your own situation. Have you had any experience with the new PSLF process? If so, let us know! We’d love to hear all about it.