Episode 67 PSLF Reboot

The Department of Education recently announced some significant temporary changes to the Public Service Loan Forgiveness (PSLF) program called the Limited Waiver Program. 

Who? Full time service members and federal employees are all eligible, as well as those of you working full time for state governments and most non-profits.

What is PSLF? It's a Loan Forgiveness program. If you work for a qualifying employer, have qualifying loans, work full-time, and make 120 on-time monthly loan payments, you can apply and have the remaining balance of your student loans forgiven. 

Why? Why has there been a change to the program? As it turned out in practice, PSLF was mostly an unfulfilled promise. Many borrows misunderstood the requirements, were misled by loan servicing providers, or never even qualified in the first place. The recently announced changes to PSLF are supposed to help correct some of these problems and fulfill the PSLF promise.

What has changed? A key requirement for PSLF is that you must have federal Direct Loans to qualify. The Federal Family Education Loans, Federal Perkins Loans, and Graduate Plus Loans are not a federal Direct Loans and don’t qualify. Loan payments under those programs didn’t count toward forgiveness. To meet this requirement and qualify most borrowers consolidated those loans into a federal Direct Loan. If you didn't before, there’s  good news. Now, any payments you made in the past in these federal student loan programs count toward your 120 payments, BUT only if you consolidate to a federal direct loan by Halloween 2022. 

Don’t know what kind of federal loans you have?  Log into your account on StudentAid.gov https://studentaid.gov/fsa-id/sign-in/landing , and go to the My Aid page StudentAid.gov/aid-summary/, then scroll down to the Loan Breakdown section. If you haven’t already, consolidate (DON’T refinance), consolidate into a federal Direct Loan . You’ve got one year. Details here https://studentaid.gov/app/launchConsolidation.action Once consolidated into a Direct Loan, your previous monthly payments made before October 31 this year, 2021, in those other federal loan programs will count toward PSLF retroactively. 

Change #2. Past payments under any repayment plan now count toward loan forgiveness. Up to now, you had to enroll in an Income Driven Repayment (IDR) plan like ICR, IBR, PAYE, and REPAYE or the standard 10-year repayment plan. These payments are supposed to be automatically recounted, but  keep an eye on it.

Temporary Change #3.  Some borrowers missed out because their payments were off by one or two pennies or late by just a few days. As a fix, the Department will automatically adjust PSLF payment counts for payments made on or before October 31, 2021 for borrowers who have already certified some employment for PSLF. This look back is a temporary benefit. So if you have not yet applied for PSLF forgiveness or certified employment do it by October 31, 2022 to get all those payments counted.

Lastly for service members, months spent on active duty will now count toward PSLF, even if your loans are in deferment or forbearance. Federal Student Aid is supposed to develop and implement a process to address this. .

For more information see https://www.ed.gov/news/press-releases/fact-sheet-public-service-loan-forgiveness-pslf-program-overhaul

For tons of helpful information and PSLF application go to the official website at https://studentaid.gov/pslf/

Transcript

Announcer: 0:14

Welcome to the Money Pilot Financial Advisor Podcast, where you team up with Money Pilot founder, former Army helicopter pilot and your host Katie Cannon, you put your money where your heart is. Together, we'll tackle issues big and small so you can take charge and land your financial life.

Kathleen Cannon: 0:53

Hello and welcome back to Episode 67. The Department of Education recently announced some significant temporary changes to the Public Service Loan Forgiveness or PSLF program called the limited waiver program. If you're a military service member, or federal employee Listen up. This may help you or someone you care about. I last spoke about PSLF in Episode 61, after the announcement that the government was expanding forbearance of PSLF loans through the end of the year. If you are already in PSLF, and haven't heard the details, check back to Episode 61. To get up to speed on that. Now the most recent changes to the PSLF program announced last week are something else entirely. And most changes are temporary opportunities for a limited time only. So let's dive right in and start with who the PS and PSLF stands for public service. So our full time service members and federal employees are all eligible, as well as those of you working full time for state governments and most nonprofits, including hospitals, schools, libraries, emergency service, and even public interest law. It's based on the organization you work for, not the actual job you do. Again, if you work for state or federal government or a nonprofit, you likely qualify. What is PSLF? Well, the LF in PSLF stands for loan forgiveness. If you work for a qualifying employer, which we just talked about, have qualifying loans which will cover work full time and make 120 on time monthly loan payments. You can apply and have the remaining balance of your student loans forgiven poof, they're gone. No more debt, no more payments, and you aren't taxed on that loan forgiveness benefit you receive either. This can be a massive value, depending on your circumstances. So next step, Why? Why has there been a change to the program? Well, as it turned out, in practice, PSLF was mostly an unfulfilled promise. It was supposed to provide debt relief to support public servants and others serving their communities by canceling loans after 10 years. But many borrowers misunderstood the requirements. were misled by loan servicing providers, or were never even qualified in the first place. The vast majority of those first applicants for PSLF forgiveness that hit that 10 year mark, were denied loan forgiveness. They're recently announced changes to PSLF are supposed to help correct some of these problems and fulfill the PSLF promise. So what's changed? First, remember, a key requirement for PSLF is that you must have federal direct loans to qualify. Other loans don't count. The Federal Family Education Loans, Federal Perkins Loans and Graduate PLUS Loans are not federal direct loans and don't qualify. Loan payments under those programs didn't count toward forgiveness. To meet this requirement, and qualify, most borrowers consolidated those loans into a Federal Direct Loan. So if you are late to the consolidation party or didn't get the invite in the first place, you may have made months or even years of federal loan payments that didn't count toward forgiveness. But here's the good news. Now, any payments you made in the past in those federal student loan programs count toward your 120 payments, but only if you consolidate to a Federal Direct Loan by Halloween 2022. This is a limited time opportunity. Don't know what kind of federal loans you have no problem, log into your account and student aid.gov and I'll put a link right specifically to that sign in page in the show notes and go to the my aid page, then scroll down to the loan breakdown section. Here you'll see a list of each loan you've borrowed. Even if you've paid off the loan, or consolidated it into a new loan. Direct Loans begin with the word direct. Federal Family Education loans start with f f L. and Perkins loans include the word Perkins in the name, this is huge. If you haven't already consolidate, don't refinance, consolidate into a Federal Direct Loan by October 30 2022. You've got one year, but don't wait. Get all the details for consolidation at student aid.gov to and I'll put a link to that specific part of the website in the show notes as well. Okay once consolidated into a direct loan, your previous monthly payments made before October 31 of this year 2021. In those federal program loans will count toward PSLF. retroactively, you could have your loan balance forgiven months or even years sooner. Just on one note, though, Parent PLUS loans did not qualify before, can't be consolidated into a direct loan and still won't qualify now. Okay, big temporary change number two payments under any repayment plan. Now count toward loan forgiveness. Up to now, you've had to enroll in an income driven repayment plan like ICR IVR, pay repay, or the standard 10 year repayment plan. These were the only payment plans eligible for PSLF. Now past payments made under any repayment plan count toward your 120 months these payments are supposed to be automatically recounted, but you'll want to keep an eye on that. Okay, temporary change number three, the Department of Education found that many previous loan payments did not count toward PSLF. due to technical requirements, like choice of payment plan, timing, and amount of payment. Some borrowers missed out because their payments were off by one or two pennies, or late by just a few days. As a fix, the department will automatically adjust PSLF payment counts for payments made on or before October 31 2021. for borrowers who have already certified some employment for PSLF. This look back is a temporary benefit. So if you've not yet applied for PSLF, forgiveness or certified employment, do it by October 31 2020. To get all those payments counted. The next change is just for our military service members. Months spent on active duty will now count toward PSLF. Even your loans in deferment or forbearance, rather than inactive repayment. Service members on active duty can qualify for student loan deferments and forbearances to help you through periods where your service inhibits your ability to make payments. But too often in the past the same deferments and forbearances did not count toward PSLF. Federal Student Aid is supposed to develop and implement a process to address this and update affected borrowers to let you know what you need to do to take advantage of this change. So watch out for this too. And one more last improvement coming down the pike. The Department of Education announced it will begin automatically giving service members and federal employees credit for PSLF by matching department of education data with information held by other federal agencies. So be on the lookout for this as well in the future. Where do you go for more information? If you'd like to read the entire department of education announcement about the changes, you'll find it at ed.gov in their news press release section. I've got a link in the show notes to that. For help with all things PSLF, including the temporary changes tons, of helpful information and PSLF application, go to the official website at studentaid.gov/PSLF. Okay, to wrap things up, to qualify for forgiveness of your student loans under PSLF, you need to have federal direct loans. If you have other federal student loans, consolidate into a direct loan now before October 2022 to take advantage of the temporary changes. You must work for a qualifying employer which includes state and federal governments and most nonprofit organizations, you must work full time and you must make 120 on time monthly payments. Under the temporary waiver, virtually all past payments, including those for federal student loans that weren't Direct Payments under any repayment plan, late payments, and partial payments will count toward PSLF. This is a major one time redo to get your PSLF on track for forgiveness. So consolidate if you haven't already. And remember certify your employment or if you've qualified, apply for loan forgiveness now. Servicemembers keep an eye out on permanent improvements that are supposed to come down the pike, including counting payments in deferment or forbearance while on active duty. And all federal employees and active duty military automatic credit through matching federal employment data. I hope our public servants out there have found today's broadcast helpful. Thank you for your service and dedication to others. And I'll talk with you next week.

Announcer: 12:13

Thank you for joining today's podcast. Like to find out more? Visit us at www.moneypilotadvisor.com Let's team up and land your financial life.