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PSLF Overhaul: Does it actually benefit you, and what do you need to do about it?

Updated: Jan 4, 2022

Surprisingly, this overhaul has material impact on a number of borrowers – particularly early applicants – and seems to be a genuine attempt on behalf of the Department of Education to smooth over early poor/"mis"communications.

The Public Service Loan Forgiveness (PSLF) plan is one of the most powerful loan forgiveness programs available in the United States today. It states that loan forgiveness can be achieved [tax free] as long as a borrower follows three simple rules:

  1. Program only applies to Direct Loans (pay attention… this is part of the overhauled)

  2. Borrower must make 120 on-time qualifying payments towards the loan (note: a qualifying payment is defined as one made while on the Standard 10-year plan as well as any Income-Driven Repayment plan (IDR).) (this is also part of the overhaul!)

  3. These payments must be made while working for a non-profit employer.

Thanks to the formulas for all the eligible IDR payment plans, this program can provide for significant savings to those eligible [and educated enough to follow the rules]. However, I can anecdotally attest to the fact that many borrowers are confused, uneducated, and even ignorant about the details of this plan – often owing directly to the lack of education & transparency of the program in its early years! Fortunately, after years of complaints and bad press, the Department of Education is offering to take ownership of their poor communication that has resulted in so many borrowers’ headaches.

On October 6th, 2021, the Department of Education presented an “Overhaul” to the #PSLF program that implemented a number of changes and waivers – some permanent and some temporary. Along with a few additional provisions which we won’t cover here, the changes & waivers in this Overhaul are meant to benefit a few groups of people (if you’re in one of these groups, DO NOT miss the opportunity the Department is providing you in the next 10 months):

  1. Those who made payments on non-qualifying loans (such as FFEL or Perkins) prior to 10/31/2021.

  2. Those who made non-qualifying payments (such as Graduated or Extended repayment plans) prior to 10/31/2021.

  3. Military service members, including those who were ever deployed and had their loans placed on deferment or forbearance during that time.

  4. Those with denied PSLF applications (new resources dedicated to reviewing these cases & correcting errors).

Group 1: Borrowers with at least one FFEL Program Loan, Federal Perkins Loan (or certain other non-Direct Federal Student Loans)

Stipulation number 1 of the PSLF program states that the program ONLY applies to Direct Loans. If a student graduated with any non-Direct Federal Loans – such as FFEL or Perkins loans – they were required to consolidate those loans with Direct Loans before any payments could count towards the PSLF program. Of course, consolidating these loans immediately after graduation is the ideal way to capitalize on this program as any payments thereafter would count towards PSLF.

However, many borrowers missed that window. Some of them eventually learned of their mistake and were forced to consider whether to consolidate months/years after graduation. This presents a difficult decision because to consolidate loans would be to “restart” the PSLF clock on any consolidated loans. Therefore, many of these students missed out on qualifying payments on these loans for a few months (or sometimes years) and some decided to simply exclude those specific loans from PSLF.

This overhaul now extends an olive branch to those borrowers. It states that those who made payments towards this FFEL or Perkins loan balance can now request those payments count towards PSLF. But there’s a couple extra steps and a deadline… Specifically, those interested will need to (1) consolidate their loans and (2) submit a PSLF form (3) before October 31st, 2022. The following is copied directly from the press release on ed.gov (https://www.ed.gov/news/press-releases/fact-sheet-public-service-loan-forgiveness-pslf-program-overhaul):

The waiver will run through October 31, 2022. That means borrowers who need to consolidate will have to submit a consolidation application by that date. Similarly, borrowers will need to submit a PSLF form—the single application used for a review of employment certification, payment counts, and processing of forgiveness—on or before October 31, 2022 to have previously ineligible payments counted. The Department recommends borrowers take this action through the online PSLF Help Tool, which is available at StudentAid.gov/PSLF.

Group 2: Borrowers who made non-qualifying payments (such as Extended or Graduated)

Stipulation number 2 on the Public Service Loan Forgiveness plan requires that a borrower must make 120 on time, qualifying payments. Credit to the Department of Education, they have done a fairly good job over the last 5 or so years of educating on “what is a qualifying payment?” The answer is simple: one made according to the minimum payment on the Standard [10-year] Plan or any Income Driven Repayment (IDR) plans (such as ICR, IBR, PAYE, and RePAYE).

However, they haven’t always been so clear, especially early in the life of the program. As a result, many borrowers elected a Graduated or Extended repayment plan unaware that those were not qualifying payments! The frustrating result was that many times those plans generated similar or even higher monthly payments than the qualifying IDR plans (without qualifying towards forgiveness, of course).

In response, the Department of Education is making a sweeping waiver, essentially allowing ALL previous payments-made to be counted towards the PSLF requirement [of 120 qualifying payments]. To copy directly from studentaid.gov (https://studentaid.gov/announcements-events/pslf-limited-waiver#loan-types-next-steps), the waiver applies to all of the following:

  • Past payments under any plan count for non-consolidation loans through Sept 30, 2021.

  • Past payments made on loans before consolidation count, even if on the wrong repayment plan.

  • Past payments that were made late or for less than the amount due count for non-consolidation loans through Sept 30, 2021.

Group 3: Military Service Member borrowers

While military service has always met the requirements for “non-profit employment” as stated in stipulation 3 of the PSLF program, many active duty servicemembers were frustrated to realize that placing their loans on deferment or forbearance while on active duty meant those payments would not count towards the 120 qualifying payments required for PSLF. The Department of Education is taking a simple stance: those months spent in deferment or forbearance while on active duty will now (automatically) count towards PSLF. In their words, “This change ensures that members of the military will not need to focus on their student loans while serving our country.” (https://www.ed.gov/news/press-releases/fact-sheet-public-service-loan-forgiveness-pslf-program-overhaul)

Group 4: Borrowers with denied PSLF applications

Okay there’s no promised outcome to those with denied PSLF applications – I.E. the Department of Education isn’t promising that every denied application will now be approved… But for those who have had an application denied or payments miscounted, there has been little-to-no support, and the Department has yet to implement a clearly defined process for subsequent review of those applications.

This overhaul offers change to that support system. Expect better oversight of the loan servicers, improved reporting of the application process, and an interim reconsideration process to receive a second individual review next year (for those who believe their application was wrongfully denied)

Overall: This is a very effective overhaul for those early-adopters (those who elected PSLF sometime 2007 - 2015, let's say) into whom the Department of Education hasn't historically invested.

While I’m rarely one to make a political statement about government efficacy, I will say this about the the #PSLFOverhaul: it is clearly an attempt to bring the actions, rules, and procedures of a program in line with its original intent. While the Department of Education has been busy over the years streamlining front-end participation (ensuring all public loans are now Direct Loans, clearly communicating about the qualifying IDR payments, etc.), their actions were mostly focused on helping new borrowers and left prior graduates to fend for themselves. This overhaul greatly reduces the cost of bureaucracy that has historically been placed on those public servants – particularly those who graduated before the Department streamlined the process so much. For those who were affected by the Department’s early lack of infrastructure, you now have support! Be sure to capitalize [by 10/31/2022].

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