Most borrowers know that only certain repayment plans are eligible for the PSLF program. Many borrowers also know that income-driven repayment plans like IBR, PAYE, and REPAYE are usually the best option.
However, PSLF eligibility extends beyond these plans.
For borrowers concerned about IDR becoming unaffordable or unrealistic due to an increased income, the alternative PSLF plans become an excellent resource.
All Income-Driven Repayment Plans are PSLF Eligible
Before jumping into the lessor known options for PSLF eligibility, it is critical to first cover the basics.
The following IDR plans qualify for PSLF:
- Pay As You Earn (PAYE) – PAYE charges borrowers 10% of their monthly discretionary income.
- Income-Based Repayment (IBR) – Borrowers on IBR must pay either 10% or 15% of their discretionary income towards their student loans.
- Income-Contingent Repayment (ICR) – The ICR plan charges 20% of a borrower’s discretionary income each month. ICR is one of several steps borrowers with Parent PLUS loans must use to qualify for PSLF.
- Revised Pay As You Earn (REPAYE) – Changes to this plan are currently in motion. For now, all REPAYE borrowers pay 10% of their discretionary income each month.
Sherpa Tip: If you have a large balance and a small monthly payment, pay special attention to the REPAYE plan. Unlike the other IDR plans, REPAYE offers borrowers a special subsidy to keep loan balances under control.
The REPAYE subsidy doesn’t make a difference if you ultimately earn PSLF and have your entire balance forgiven. However, if you switch to the private sector before reaching your 120 required payments, using REPAYE could result in significant savings.
Using the Standard Repayment Plan for PSLF
The 10-year standard repayment plan is eligible for PSLF.
This option doesn’t get much attention because it usually isn’t the best strategy for borrowers. If you spend ten years on the standard repayment plan, you will have paid off your debt in full by the time you earn forgiveness.
However, the standard repayment plan becomes an excellent option if your income jumps as you approach the required ten years for PSLF. For some borrowers, a raise may mean that the 10-year standard repayment plan is the most affordable PSLF-eligible option.
The availability of the standard repayment plan as an option means that borrowers don’t have to worry about being in repayment for nine years and then not having an eligible repayment plan available for the final year.
Additionally, because the 10-year standard repayment plan is the default option when repayment starts, some borrowers have PSLF-eligible time from before they signed up for an IDR plan.
The Sneaky ICR Calculation that Helps Many PSLF Borrowers
The Income-Contingent Repayment Plan seems like the worst option for most borrowers on an income-driven plan.
However, charging 20% of a borrower’s discretionary income isn’t the only way to calculate ICR payments.
ICR also offers a 12-year balance-based plan. This alternative ICR calculation method uses a complicated formula that accounts for the borrower’s balance and income.
For borrowers with an income too high to benefit from an IDR plan, the alternative ICR calculation may result in lower payments than the standard 10-year repayment plan.
In some cases, ICR might be the best option for borrowers.
Other Important Details on PSLF Repayment Plan Eligibility
Yes, borrowers can switch between PSLF-eligible plans without losing progress towards forgiveness.
Not all federal student loans are eligible for PSLF. For example, FFEL student loans do not qualify for PSLF. However, if the loans are consolidated into a federal direct loan, the debt becomes eligible for PSLF. The downside to consolidation is that it restarts progress towards PSLF.
Both programs may help borrowers get closer to PSLF. The Limited Waiver program formally ended in October 2022. However, before the expiration of the program, many borrowers had their PSLF counts updated automatically.
Additionally, the one-time IDR count update may also help borrowers get closer to the required 120 certified payments.
The limited waiver addressed this issue, but sadly it has expired. Fortunately, borrowers can still use the TEPSLF program to potentially get previously ineligible payments to count towards PSLF.