Making the Most of the Public Service Loan Forgiveness Program

There has been a lot of interest in the Public Service Loan Forgiveness Program (” PSLF”). In America, a formidable wall has been constructed between doing the work that speaks to workers and the work that covers our $1.2 Trillion student debt obligation. It’s not news that college grads and graduate students wind up taking the private sector job just for a few years while they pay down student loans instead of making the impact that drew them to college/grad school in the first place. It’s also not news how this David vs. Goliath scenario plays out when private sector recruiters tempt graduates with compensation packages dwarfing nonprofit and other public sector offers. While making a difference is a powerful motivator for overextended grads, often survival instincts kick in and being able to pay the bills becomes a definitive rationalization. In these situations, it’s hard to blame the job-seeker.

However, nonprofits have a compelling negotiating tool that pairs employee debt relief with long-term employee commitment (at least to the sector) and doesn’t cost the nonprofit anything. The Public Service Loan Forgiveness program provides an avenue where an employee of a qualified 501(c)(3), other 501 organizations providing qualified public services, or the government (at any level, including tribal) may have their remaining student loan obligation on qualifying loans forgiven upon making 120 qualifying payments on a qualified repayment plan.

A qualifying loan for PSLF is any loan a borrower received under the William D. Ford Federal Direct Loan (Direct Loan) Program. Borrowers may have received loans under other federal student loan programs, such as the Federal Family Education Loan Program or the Federal Perkins Loan Program. Loans from these programs do not qualify for PSLF, but they may become eligible if the borrower consolidates them into a Direct Loan Consolidation. However, only qualifying payments made on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF. Any payments made on Federal Family Education Loan Program loans or Perkins Loans before they were consolidated don’t count.

If borrowers have both Direct Loans and other types of federal student loans that you want to consolidate to take advantage of PSLF, it’s important to understand that if they consolidate their existing Direct Loans with the other loans, they will lose credit for any qualifying PSLF payments made on their Direct Loans before they were consolidated. In this situation, borrowers may want to leave their existing Direct Loans out of the consolidation and consolidate only their other federal student loans.

If borrowers don’t know which types of federal student loans they have, log in to My Federal Student Aid to get that information. Generally, if a loan has  Direct in the name on My Federal Student Aid, then it is a Direct Loan; otherwise, it is a loan made under another federal student loan program.

Nonprofit employers should highlight this benefit to all employees it considers full-time or who work at least thirty hours per week, whichever is greater (and except for time spent on non-secular work), because the employee qualifies regardless of what role they play in the nonprofit. Further, the administrative burden on the nonprofit is minimal since it is the employee’s obligation to demonstrate their eligibility under this plan to their lender.  The Consumer Financial Protection Bureau has published this resource to help employers navigate this benefit with employees.

Because of the ten-year payment requirement, we will not see the first class of debtors eligible for relief under this plan until October of 2017. At that time, the US Department of Education will release an application to apply for forgiveness. For now, all an employee who believes they are eligible can do is submit periodic reports to the US Department of Education to get feedback on whether they are on the right track.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations.  Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.

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