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public service loan forgiveness

Blog: Big Changes For Public Service Loan Forgiveness

Do you want your federal student loans to be forgiven, and have you been working for the government or a nonprofit? If the answer to both is yes, here’s some good news for you. The US Department of Education just announced an overhaul to the Public Service Loan Forgiveness (PSLF) program for a limited time period, you need to act fast.

The PSLF is like the holy grail of student loan forgiveness because your student loan debt can be wiped out in just 10 years, compared to 20 or 25 outside PSLF, and it’s all tax-free. But as you know, there are many hoops and obstacles that you need to go through to qualify for this program. In this blog, I’m going to share the three main changes to the PSLF program. And at the end, I’m going to share the two main things you’ll need to do to qualify for student loan forgiveness, it’s super exciting.


PSLF Change 1

FFEL and Perkins loan payments will now count towards PSLF. Previously, if you had an FFEL or a Perkins loan or a non-Direct loan, and you were making payments towards those, they actually did not count towards PSLF. You needed to consolidate them into a Direct Consolidation loan and only after that would it count towards PSLF. So now what they’re saying is, even if you’ve been beating yourself up because you didn’t know you needed to consolidate and you’ve been making payments towards your FFEL or Perkins loan for eight years now, you just need to roll them over to a Direct Consolidation loan and your past eight years of payments towards your FFEL or Perkins loan will now count towards PSLF.


PSLF Change 2

The second main change is past payments under any plan will now count towards PSLF. What does that mean? Previously, after you’ve consolidated your student loans into a Direct Consolidation loan, you needed to go through one more hoop. You needed to enroll in one of the Income Driven Repayment plans like Pay a You Earn or REPAYE before they would qualify as a qualifying payment. Under this overhaul, if you are making payments into a direct loan, but you’re in the wrong repayment plan, those past payments will now count towards PSLF.


PSLF Change 3

The third main change is about previously late payments, which in the past did not count towards PSLF. Under the overhaul, late payments will now count.


What Didn’t Change:

There are three things that will remain the same under this overhaul that you still need to be aware of. The first one is you still need to work full time to have your payments qualified under the public service loan forgiveness program. Now full-time is actually not 40 hours a week as you might assume, full-time under their definition is actually 30 hours a week. And so even for example, if you have, let’s say you’re working 15 hours a week as an adjunct professor, and you’re also working part-time 15 hours a week as a writer for a nonprofit, total is 30 hours, that will still count as full time.

The second requirement that remains the same is you still need to make 120 qualifying payments in order to have your student loans wiped out.

And the third thing that will remain the same is Parent Plus loans are still not eligible. Private loans are still not eligible. It has to be federal student loans. PSLF loan forgiveness is possible despite what you hear in the news about very small applicants actually getting their student loan forgiveness.

Case in point, if you Google Michael Mitchell, he is a professional musician turned social worker. The federal government wiped out his $170,000 in student loans. It became zero, $170,000 became zero.

So if you’d like to take advantage of the new PSLF loan forgiveness rules, you might want to consider these two things. First, if you have an FFEL or a Perkins loan or a non-Direct loan, you’ll need to call your federal student loan provider, this could be Navient, Nelnet, Great Lakes. etc. Tell them to consolidate your student loans into a Direct Consolidation Loan. You need to do this by October 31st, 2022. According to my sources, it’ll take around 70 days to roll that over into a direct consolidation loan. If you’re planning to apply for PSLF, your loan will most likely be transferred to FedLoan Servicing.

The second thing that you need to think about if you want to avail a PSLF loan forgiveness is if you had previous payments that did not count, let’s say you were enrolled in a wrong repayment plan, well you can now tell them to please count those past payments that you previously did not count and to do so, you’ll need to submit a PSLF form. You’ll need to go to the PSLF website to file that PSLF form.

Finally, if you have made 120 qualifying payments, you’ll need to also submit that PSLF form to get that student loan forgiveness. Hopefully, there will be a day when you wake up, you check your student loan balance and it will be down to zero.

At District Capital, we work with our clients to implement three strategies on how to maximize the value of their PSLF. If you’re looking for an expert to help you maximize PSLF or help you navigate through the new PSLF overhaul rules, feel free to schedule a free discovery call with me or any member of my team, the link is in the description.

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Alvin Carlos, CFA, CFP®

About Alvin Carlos, CFA, CFP®

Alvin Carlos, CFA, CFP® is passionate about helping middle class professionals make smarter financial decisions. He is the CEO of District Capital Management, a financial planning and investment management firm for the everyday people. Alvin is a CERTIFIED FINANCIAL PLANNER™ practitioner and has a Masters degree in International Relations from SAIS-Johns Hopkins. In his spare time, Alvin enjoys swing dancing and Ultimate Frisbee. He also volunteers for Catholic Charities’ new Financial Stability Network, which helps low-income folks with their finances.


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