Public Student Loan Forgiveness can be great for those who plan to or already work in any public sector. But, many people won't qualify.

In the abstract, Public Service Loan Forgiveness sounds like a dream come true. In exchange for working within the public sector for a set amount of time, your student loan balance is wiped clean. If you work in a qualifying industry, it’s hard to imagine a better repayment option than that.

But the reality of PSLF isn’t quite so rosy. While achieving loan forgiveness is certainly possible, it’s proving to be more difficult than anyone realized. According to the Department of Education, only 96 people have received loan forgiveness since the first round of applicants became eligible in 2017. Maybe 96 sounds like a reasonable number, but that’s out of  nearly 30,000 applicants.

So if less than one percent of PSLF applicants are actually receiving loan forgiveness, is it worth sticking with? For those trying to choose a repayment strategy, is it even worth considering?

What is Public Service Loan Forgiveness?

It’s meant to encourage public service

The PSLF program was started in 2001 as a way to encourage people to work in the public sector where salaries are low and the need is high.

The program forgives any remaining student loans after 10 years of payments. Graduates also don’t have to pay income tax on the amount forgiven, which is different than other repayment options.

No all students get a $0 payment

One of the best parts about this forgiveness program is that graduates can choose from an income based repayment plan with a lower monthly payment than the standard plan.

For example, if you owe $50,000 and make $30,000 as a private school teacher, your monthly student payment under the standard plan would be $575. If you pursue PSLF and choose an income-based plan, your monthly payment would only be $98.

Some people find their payments drop to zero while they’re working on PSLF, because their income is so low and their debt is so high. This is one of the lesser-known benefits of PSLF, that you can make qualifying payments even if those payments are zero dollars.

Not all student loans are eligible for PSLF

Only direct loans from the federal government are eligible, which exclude private loans and non-direct federal loans.

So how do you make the right choice and decide if the program is a good fit for you? Read on to find out.

Why PSLF is still a good idea

The recent news that less than one percent of all applicants qualified for PSLF was a shock to many in the community. Student loan lawyer Adam S. Minsky said that’s partly because many of the people who started paying their student loans in 2007 weren’t actually eligible for PSLF until a year or so later. That’s because income-driven plans, like IBR or PAYE, weren’t around until 2008.

“So I would expect low approvals for another year or two,” he said.

Sometimes loan providers do mess up and reject applicants who are eligible and in good standing. If that happens, you can find a lawyer to contact the provider and file an appeal. If you’re found to be eligible, you’ll have your loans forgiven and receive a refund for any extra payments you might’ve made.

Pros of sticking with PSLF

If you were already going to work at a non-profit

While some people find the public sector limiting, other people see it as a calling. If you’re a social worker or teacher, it just makes sense to try for loan forgiveness.

You’re already going to be working in a qualifying position, so why not take advantage of the benefits?

If you have a high debt-to-income ratio

Doctors, lawyers, and other high-profile positions often graduate owing hundreds of thousands in student loans. Usually, their salaries are enough to cover those debt burdens. Other professions, like teachers, psychologists, and social workers, don’t make as much—even though they often need multiple degrees to practice.

If you’re making $50,000 a year and have $100,000 in student loans, you should consider looking into PSLF. You could significantly decrease your monthly student loan payments, freeing up more money for retirement, a down payment on a home and other savings goals.

Cons of sticking with PSLF

If you want to be self-employed

Currently, you aren’t allowed to qualify for PSLF if you’re self-employed or a business owner, unless you started a 501(c)(3) nonprofit.

If you’re an entrepreneur with a high student loan balance, you’re probably better off focusing on your business idea instead of working toward PSLF.

This situation applied to me. I worked at a non-profit for three years and constantly wondered if I was missing out by not trying for loan forgiveness. At the time, I loved my nonprofit job and imagined staying in the industry for a while. When I started freelancing on the side, I quickly realized that I wanted to switch gears. If I was already committed to PSLF, I wouldn’t be able to leave without forfeiting my chance at loan forgiveness.

If it limits your salary options

PSLF often gets a bad rap because students have to stay in a government or non-profit job for at least 10 years. They don’t have to stay in the same position, but they do have to work for a qualifying employer.

Unfortunately, these jobs almost always pay less than their private sector counterparts. If you could earn a significant amount more working in a private industry job, it’s a good idea to crunch the numbers to see if you’re actually losing money by trying for PSLF.

If you’re not going to save that much

Working toward PSLF requires 10 years of commitment, a decade of making sure your employer always qualifies and consistently and accurately filling out the relevant paperwork.

It’s a complicated system, so unless you’re going to be saving a big chunk of change, it may not be worth the hassle. Look at this loan forgiveness calculator from the Department of Financial Aid to see how much you’d save.

Another way to pay off your student loans

If you’d rather not work toward PSLF, there are other ways to repay your loans quickly.

One of the most popular methods is to refinance your loans and reduce your interest rate. Companies like SoFi and Earnest offer fixed-rate and variable-rate loans.  Earnest’s rates are as follows:

  • Fixed Rate – 3.24% - 7.99% (includes 0.25% autopay discount)
  • Variable Rate – 1.89% - 7.99% (includes 0.25% autopay discount)

Depending on your income and interest rate, you might save more money by refinancing your loans than if you aim for PSLF.

Earnest SLR Disclosure - Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.49% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.14% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

Summary

Public Student Loan Forgiveness can be great for those who plan to or already work in any public sector. But, many people won’t qualify. For those who don’t, refinancing your student loans into one, low monthly payment could save you more than PSLF.

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Zina Kumok
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