Student loan forgiveness temporarily easier for public workers

Full-time public employees, including ISU faculty and staff, will have an easier time accessing the Public Service Loan Forgiveness (PSLF) program under temporary rules effective through next fall, changes that could wipe out more than $4 billion in student loan debt nationwide. 

PSLF is a program that Congress created in 2007 to incentivize working in the public sector. Qualifying borrowers who regularly make income-based payments on a student loan through the federal Direct Loan program can be eligible for loan forgiveness in 10 years, after making 120 eligible monthly payments.

Watch out for student loan scams

Borrowers should take care to avoid scams as they explore student loan forgiveness options. Offers that seem too good to be true often don't deliver. Check out the U.S. Department of Education's advice on avoiding student loan scams.

Or that's how it's supposed to work, anyway. It has proven to be a difficult program to navigate. Even after reforms meant to simplify PSLF's intricate paperwork, applications have about a 2% approval rate. At the time the temporary rules were announced in October, only 16,000 people had loan debt discharged under the program since 2017, when borrowers potentially were first eligible.

Under emergency rules allowed due to the pandemic, the U.S. Department of Education announced in October that it temporarily is waiving some of the program requirements that frequently trip up applicants. For applications filed by Oct. 31, 2022, past periods of repayment count toward the required 120 months even if the loan type or repayment plan wouldn't usually qualify. For example:

  • PSLF applicants with loans through the Federal Family Education Loan (FFEL) and Federal Perkins Loan programs typically receive credit only for payments made after consolidating into a Direct Consolidation Loan. The waiver allows pre-consolidation payments toward FFEL and Perkins loans to count for PSLF. Applicants are still required to consolidate into a Direct Loan before applying for forgiveness.
  • Payments won't be disqualified for being a day late or a dollar short. As long as the loan wasn't in deferment, default or forbearance, every month in a repayment plan counts toward the 120-month requirement, even if the borrower paid late, paid less than the amount due or didn't make a payment that month. 
  • The temporary change to the payment rules means that borrowers whose federal student loan payments have been suspended during the COVID-19 pandemic can receive PSLF credit for the duration of the suspension -- which could account for more than one-fifth of the 120 required payments. The suspension period for student loan payments currently is scheduled to expire May 1 after a recent additional extension.  

"I can't emphasize enough how life-changing these limited-time changes could be for eligible borrowers," said Lindsey Clark, director of external affairs for Savi, a service from TIAA that can help Iowa State faculty and staff identify student loan repayment and forgiveness options.

Big impact

The waivers are expected to affect tens of thousands of borrowers. The Education Department estimates about 22,000 will immediately be eligible for loan forgiveness without any additional action on their part, which would eliminate about $1.8 billion in debt. About 27,000 borrowers, holding about $2.8 billion in student loans, could qualify for forgiveness by just certifying additional periods of eligible employment.

Nationwide, about 550,000 borrowers who already have consolidated their loans will see their tally of payment months increase, by an average of 23 months. Those updates will be made automatically for borrowers who previously applied for PSLF and certified eligible employment.

Clark said the federal estimate of how many people will be affected by the waiver is conservative, as it doesn't account for borrowers who haven't applied for PSLF previously but are now eligible under the expanded eligibility requirements.

"The impact is truly bigger than we know," she said.

Employment requirements

The waiver doesn’t change what sort of employment qualifies a borrower for the forgiveness program. Applicants still must have worked at least 30 hours per week for the government or a nonprofit that is tax-exempt under section 501(c)(3) of the Internal Revenue Code, which includes most private schools.

However, there is one change for applications submitted during the waiver period. Applicants will be eligible even if they're not working for a qualified employer at the time of the application or when their debt is eventually forgiven. The PSLF program rules usually require applicants to be employed at a qualifying job both at the time they apply and when forgiveness is granted.

How to take action

The Education Department has an online help tool to learn more about applying for loan forgiveness under the PSLF program and generate needed forms, as well as FAQs about the overall program and the limited waiver.

ISU employees looking for assistance as they consider PSLF or other forgiveness options can sign up for Savi. Available since June 1, the service proposes personalized repayment and forgiveness plans based on income, family size, debt amount and employment history. For a commitment-free assessment, employees need to supply some brief information such as their previous year's income and logins for their loan servicing company.

Employees can use Savi's free level to find the forms needed to apply for the recommended programs. Additionally, at the "essential services" level, which costs $60 per year, Savi acts as a student loan repayment concierge, processing all the application forms, employer verification and annual recertifications on an employee's behalf. Essential services clients also receive ongoing monitoring and one-on-one customer support from student loan experts.

For more information, consider joining one of Savi's twice-monthly online student loan forgiveness workshops. January's webinars are Jan. 12 at 1 p.m. and Jan. 26 at 11 a.m.