Public Service Loan Forgiveness (PSLF)
What is Public Service Loan Forgiveness?
Public Service Loan Forgiveness (PSLF) is a federal program that can offer loan forgiveness to qualifying federal, state, local, tribal government, or non-profit organization employees of their student loan debt. The program was designed to help encourage students enter lines of work that are considered to be on the lower side of the pay spectrum such as jobs in the government, teaching, firefighters, nursing, religious careers, and the military.
The Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program was created in response to high rates of ineligibility for the PSLF program. TEPSLF differs from PSLF in that it focuses on employees who have made all or some of their on-time monthly payments to a repayment plan that did not qualify for PSLF.
What Qualifies an Employee for PSLF or TEPSL Relief?
To be eligible for PSLF, you must:
- Be an employee of a U.S. local, state, federal, tribal government, or non-profit organization. Military service is included as federal employment.
- Have federal direct loans that are not in default. Loans received through the Federal Perkins Loan Program, the Federal Family Education Loan (FFEL) Program, or other student loans from private lenders are not eligible for PSLF relief.
- Be a full-time employee of a qualified employer.
- Be repaying those student loans under an income-based repayment plan or program.
- Have made at least 120 qualifying payments, or around 10 years worth, toward that repayment plan or program.
To be eligible for TEPSLF, you must:
- Made all payments under a repayment plan that qualifies for TEPSLF.
- Have worked for a qualfying employer full time for at least 10 years.
- Made at least 120 qualifying payments to a qualified program while working for a qualified employer.
- Have made those 120 qualifying payments at least 12 months prior to applying for TEPSLF relief and the last payment made before applying had to at least match the amount you would have paid for with an income-based repayment plan.
For a payment to be qualified, it must have been made:
- After October 1st, 2007
- On time, or no later than 15 days of the due date shown
- For the full bill amount shown
- While employed by a qualified employer full time
Since the program was started in 2007, the first employees became eligible for relief through the PSLF or TEPSLF in 2017. Over 700,000 employees have applied for student loan forgiveness through the PSLF or TEPSLF programs, but les than 10,000 total employees have received forgiveness through one of these programs. In other words, just over 1% of employees who applied for forgiveness through either program were granted it.
Student Loan Repayment Pause During Covid-19 Pandemic
In response to the Covid-19 pandemic, federal student loan repayments were paused until January 31, 2022. Although repayments were suspended, these payments do qualify as part of the 120 payment requirement for the PSLF and TEPSLF as long as the employee meets all other requirements. Applicants will receive credit for payments as though they had paid on-time and in full for their monthly payments during the repayment pause while on a qualifying repayment plan.
Are Loans Forgiven Through PSLF or TEPSLF Considered Taxable?
Unlike a few other types of forgiven loans, the IRS does not consider PSLF or TEPSLF-forgiven loans to be considered as income for tax purposes. In other words, you cannot be taxed for the amount forgiven by PSLF or TEPSLF programs.
What Types of Non-Profit Organizations Count as A Qualified Employer?
Organizations that are tax-exempt under section 501(c)(3) of the tax code are qualifying non-profit organizations. Also, those that are not tax-exempt under the same tax code but do offer a qualifying service are qualified non-profit organizations.
- Public safety services
- Public education services
- School library services and other school-based services
- Emergency management services
- Military service on behalf of the National Guard or United States Armed Forces
- Early childhood education services such as licnsed or regulate childcare, state-funded prekindergarten services, or Head Start
- Public services provided for the disabled and elderly
- Law enforcement services such as crime prevention services, crime reducion services, and law enforcement of criminal law
- Public healthcare services including nurses, nurse practitioners, other health care practicioner careers, health support services, and some qualifying community & social service professionals