The Public Service Forgiveness Denial

Michael Lux Blog, Mailbag, Student Loans 4 Comments

Yesterday we received a heartbreaking email from a couple in their 60’s who are on the brink of retirement.  The husband dedicated his career to public service, even though he could have made more money working in the private sector.  The two of them believed that his remaining federal loans would be forgiven in 2017, based upon a 2007 law forgiving the remaining student debt for those that make 120 timely payments and work in pubic service for 10 years.  The email did didn’t make it clear why the past eight years of payments didn’t count towards forgiveness, but the likely explanation is that they were on the wrong repayment plan.

Today we will address two critical student loan topics.  First we will cover what to do if you find yourself in the same situation.  Second, we will discuss the things that all borrowers should do to ensure that they don’t run into the same problem.

If you just found out years of payments will not count towards public service student loan forgiveness…

Unfortunately, there is no easy solution.  Federal law sets out the requirements for public service student loan forgiveness, and if you don’t meet them, there isn’t much that you or your lender can do to help.

If there is a bit of good news for the people trapped in this situation, it is the fact that they are not alone.  As we approach 2017, the numbers of people who realize they don’t qualify will only grow.  The sooner the magnitude of the problem is put before the powers that be, the better the odds of finding a solution.  One way to shed some light on this issue would be to file a complaint with the Consumer Financial Protection Bureau (CFPB).  If they get enough complaints they should get with lenders and policy makers to see what can be done to fix the problem.  They may also start alerting consumers about the potential problems if they are not careful.

If you think that your lender made a mistake or mislead you about student loan forgiveness, now is the time to immediately start collecting documents and emails.  IF they did make an error, simply saying so will probably not be enough, you will want as much proof as possible to show that they screwed up.  This is another situation where a CFPB complaint can be very beneficial.  Your lender will be forced to respond to the allegations that you make.

Finally, now that you recognize that this problem does exist, it is time to do what is necessary to mitigate the harm.  The sooner you get signed up for the right repayment plan, the sooner the 10-year clock officially starts.  (You may even find that switching to one of the income based repayment plans results in lower payments, so that may be a pleasant surprise).

Making sure that your student loans are eligible for Public Service Loan Forgiveness (PSLF)…

Get signed up for the right repayment plan.  There are many Federal government repayment plans, but not all of them qualify for PSLF.  Plans like the extended repayment plan and graduated repayment plan are very popular, but not eligible.  Most people will want to sign up for IBR or PAYE.  Not only are these plans PSLF eligible, but they will likely result in the lowest monthly payment for most borrowers.  Other plans such as the standard 10-year plan and ICR are also eligible.

Make sure your loans are eligible for PSLF.  Obviously, private loans do not qualify.  What complicates matters is the fact that certain federal loans are also not eligible.  One such example would be the Parent PLUS loans.  Making things really complicated is the fact that some federal loans are not eligible, but they can become eligible if consolidated into a federal direct consolidation loan.  This site has previously discussed that process.  However, be advised that consolidation is not a magic fix all for you loans.  It can restart your 10-year clock and if you mix in the wrong loans you may lose program and payment plan eligibility.  The best way to handle this situation is to learn everything you can on the topic and then call your lender.  Make sure you are talking with someone knowledgable and then hame them address all of your questions and talk through your plans.  If there is an issue with your student loan plan, hopefully they will be able to bring it to your attention.

Get your payments certified!  This is the only way to be 100% certain that you are eligible.  Your loans are only forgiven once you have made 120 certified public service payments.  The sooner you get your previous payments certified, the better.

In order to get payments certified, contact your lender to get the necessary documents that need filled out.  Forms and instructions are available here.  Part of the process will involve getting your employer to affirm that you are in a public service or not for profit position.  It isn’t an overly complicated process, but is is essential.  It will also bring any potential issues to light.  If there is a problem, you will want to know as soon as possible.  If there isn’t, then you have your first chunk of certified payments on your way to 120.

The Bottom Line

Getting your student loans forgiven after 10 years of public service can provide a huge boost to your finances.  Because so much money is at issue, the federal government has a huge incentive to make the process difficult and complicated.  Use every resource at your disposal to make sure you dot ever i and cross every t.  It may be tedious, but the payoff will be worth it.