For many borrowers, Public Service Loan Forgiveness is the best path to eliminate student loans. Failing to qualify for PSLF can mean many years of extra payments and thousands of dollars in interest alone.
If you have applied for PSLF and had your application denied, the good news is that there are ways to correct many issues. The bad news is that some problems can’t get fixed.
Today I’ll discuss some common issues with PSLF applications and ways to resolve these issues.
How does a PSLF application denial happen?
The Department of Education and loan servicers have been notoriously difficult on PSLF applications.
Most rejections fall into two basic categories.
A staggering number of applications get rejected because of incomplete paperwork.
A common denial is “missing or incomplete” information. If the fix isn’t apparent based upon the denial paperwork, a simple phone call can often clear up any confusion.
Similarly, sometimes borrowers have issues with their count of eligible payments. This is often the result of a simple math error by the loan servicer or the borrower. Here again, a phone call can usually identify and correct this problem.
Things get far more complicated when there is an eligibility issue.
There are three types of eligibility issues that trip up the majority of borrowers:
- Loan Type – Not all federal loans qualify for Public Service Loan Forgiveness.
- Employer – The rules for employer eligiblity are complicated at times.
- Repayment Plan – Payments on some federal repayment plans do not count towards PSLF.
Some eligibility issues are repairable, while others essentially require the borrower to start from the beginning.
Fixing Repayment Plan Issues
Not all federal repayment plans are eligible for Public Service Loan Forgiveness. Sadly, some borrowers spend years making monthly payments under the mistaken assumption they are making progress towards PSLF.
I’ve personally heard from dozens of borrowers who received bad repayment plan advice from their loan servicer. These borrowers were on an ineligible repayment plan but told they were progressing towards PSLF.
This issue became so severe that Congress had to intervene. To help borrowers on the wrong repayment plan, Congress created Temporary Expanded Public Service Loan Forgiveness. The downside to TEPSLF is that the program received limited funding. Once the money dries up, the program ends.
Fixing Loan Eligibility Problems
Only certain federal student loans are eligible for PSLF. Popular loans that are not eligible for PSLF include Parent PLUS loans and FFEL loans.
A loan eligibility issue is fixable, but it comes with significant risks.
Borrowers can convert many ineligible federal loans into eligible federal loans through federal direct consolidation. The danger in federal consolidation is that the “clock” on forgiveness restarts. When a borrower consolidates, the old loan is paid off in full, and a new loan is created. The advantage is that the new loan gains eligibility for PSLF. The downside is that the march to forgiveness starts from scratch.
This means borrowers on the wrong repayment plan face a dilemma.
If they consolidate, they start making progress towards PSLF. However, they lose the progress that they may have already made toward Income-driven forgiveness. Additionally, if there is a future legislative fix similar to TEPSLF to help borrowers on the wrong plan, consolidation and a new loan may mean that the new program won’t help.
Tracking Progress Toward PSLF
All borrowers considering Public Service Loan Forgiveness should submit an Employer Certification Form (ECF) at least once a year.
ECF forms do far more than just certify employment. When a borrower completes an ECF, it triggers a review of their loans, repayment plan, and employer eligibility. It is the best way for borrowers to verify that they are making progress towards PSLF.
If you are unsure about your employer’s eligibility or confused about submitting the paperwork, the Department of Education’s PSLF Help Tool is an excellent resource.
Abandoning Public Service Loan Forgiveness
Some borrowers may reach a point where it becomes unclear whether or not PSLF is worth the effort.
In some cases, learning that you have to start from the beginning may mean PSLF no longer makes sense. Other borrowers might get a raise and question whether or not there will be any money left to forgive by the time they reach 120 eligible payments.
Some borrowers reach the point where refinancing their loans at a lower interest rate with a private lender is a better option than chasing PSLF.
For borrowers unsure of how to proceed, I suggest a mixed approach. If you think PSLF is even a possibility, keep jumping through the hoops. Complete an ECF each year and keep making minimum payments. Meanwhile, start saving any extra money you can in a Plan B savings account. If you end up moving on from PSLF, you will have a bunch of money set aside to attack your debt. If PSLF works out, you didn’t spend any more than necessary, and you can use the Plan B account for another financial goal.
Dealing with a PSLF Rejection
If you were counting on student loan forgiveness, getting bad news on PSLF is devastating.
Not all PSLF issues are fixable, and when a fix is available, it isn’t always easy.
This situation often means revisiting your student loan plan and making some tough decisions. For many borrowers, it is a good idea to take a step back to consider all of your options carefully. Many PSLF mistakes can be traced back to a mistaken assumption, so it is critical the next phase doesn’t begin with another error.
Finally, unless you have recently submitted an ECF form, the first step in addressing any PSLF eligibility question is to complete an ECF to determine precisely where you stand.