Watch Out For These “Public Interest Loan Forgiveness” Pitfalls

As many of you know, Public Service Loan Forgiveness (“PSLF”) is a fantastic program designed to incentivize public service work. Eligible borrowers can get their loans forgiven after 10 total years of payments (or, more accurately, 120 individually qualifying payments, which might actually take longer than 10 years).

The tricky aspect of PSLF is determining what counts as a “qualifying payment.” This is not a program whereby you simply work for a nonprofit organization or government entity and your loans just get magically forgiven. Unsurprisingly, the U.S. Dept. of Education does not make this easy. Each payment you make will be scrutinized to determine if it qualifies as a “qualifying” payment that will count towards the PSLF program. If any element of “qualifying” is missing, it won’t count. Here are some things to be mindful of:
The program only applies to “Direct” federal loans, which are loans lent directly by the U.S. Dept. of Education. Payments made to non-Direct loans (such as FFEL loans, HEAL loans, or Perkins loans) don’t count.
Not every repayment plan will count towards PSLF, even for Direct loans. For example, are you on the Extended or Graduated plan? Sorry, you’re out of luck, even if you work for a qualifying employer.
For a payment to count towards PSLF, it must be made “on time.” That obviously means you can’t be late. But it also means you can’t be too EARLY. If you jump the gun and make your monthly payment before your monthly bill is generated, it might not count.
Forbearance and deferment periods do not count towards PSLF, even if you are making voluntary payments while working in qualifying employment.
Not all nonprofit organizations will be considered qualifying employers. Don’t just assume that because you work for a nonprofit organization that it qualifies as eligible employment. Certain types of nonprofits (such as partisan political organizations) are ineligible.
Under current regulations, you have to remain in qualifying employment, and continue making monthly payments, at the time that you submit your application for PSLF. You also have to be in qualifying employment and be making regular monthly payments at the time that your loans actually get forgiven. I recently wrote about this.

Just some things to be aware of. Don’t ever assume that the U.S. Department of Education has made things simple for you (do they ever do that?).

About Adam S. Minsky, Esq.