As a way to help with this large debt burden, the government created the Public Service Loan Forgiveness Program or PSLF for short. If you research PSLF to get an explanation on how the program works, you will get the following summary according to the Federal Student Aid website:
“The PSLF Programs forgives the remaining balance on your direct loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full time for a qualifying employer”.
While it may seem easy on paper to meet the requirements–work for ten years, make payments every month, and the remaining loans are forgiven–there are common mistakes in qualifying for student loan forgiveness that can undo years of hard work and faithful on-time payments.
Make no Assumptions
The most common mistake we see is assuming the loan is eligible for PSLF. Only direct loans are eligible for forgiveness.
For people who have Federal Family Education Loan (FFEL), they must first be consolidated into federal direct loans before qualifying payments are made.
This also means, if you refinanced your loans, they may no longer be eligible.
You must also make 120 qualifying payments under a qualifying repayment plan. You must be in an income-based repayment plan, rather than a longer-term, graduated or extended repayment plans.
Beware of Paid Ahead Status
One detail to be wary of when it comes to the qualifying payment requirements is what is called pre-pay or paid ahead status. You haven’t given instructions to the student loan provider to credit any additional amount paid each month to the principal balance. Instead what can happen is that your prepayment only delays when the next payment is due. You as a faithful payer continue to pay on time the following month, but in the eyes of your student loan provider, the bill’s due date has changed and isn’t technically due on that date any longer. Thus, not counting as a qualifying payment.
The best advice is to not pre-pay. I understand the goal is getting rid of the debt, but if you paid off the whole balance prior to 120 qualifying payments then there is nothing left to forgive! If you still are going to pre-pay, verify that it is contributing the extra payments to your principal and not to delaying the next bill.
Maintain Full-Time Status
Finally, you must be working full-time for a qualifying employer to be eligible. The most notable qualifying employer is a 501©3 organization or certain government employment positions. But be careful to see how your employer defines full-time employment status. Remember qualifying employment is required when the application is submitted and granted.
These are some basic rules for qualifying for PSLF but unfortunately, there is always a potential for change.
If you have questions or would like a more detailed personalized plan for your student loans please contact Accruent Wealth Advisors for a complimentary consultation Please call (336) 760-4829 or email us at info@accruentadvisors.com
