Recently, I’ve heard from several student loan borrowers considering leaving a PSLF eligible job for a new position with an employer who isn’t eligible.
Changing jobs is always a high-stakes decision. Add in the possibility of losing out on Public Service Loan Forgiveness, and it becomes even more challenging to weigh options.
Borrowers should consider the potential income from a higher paying job, the possibility the PSLF doesn’t work out, and some of the fine print in the PSLF rules that might reduce the risk of a move.
Make Sure You are Actually Making Progress Towards Public Service Loan Forgiveness
Qualifying for PSLF is notoriously tricky.
Things are not as bad as the 99% rejection rate first reported, but getting the loans forgiven isn’t easy.
Before making any major career decisions based upon loan forgiveness, you should first get an up to the month tally of your progress. The recently created Department of Education PSLF Help Tool is an excellent resource for this task. Borrowers can check if their employer is eligible and get the necessary forms to get an updated count on months towards forgiveness.
I’ve seen many borrowers who assumed they were on their way to PSLF only to learn that their loans were not eligible or that they were on the wrong repayment plan. Making any PSLF assumptions is a huge mistake.
How to Factor Forgiveness When Comparing Two Salaries
The best way to explain how to run the numbers is to show an actual example.
Suppose Bob has worked at a PSLF job for eight years and earns $75,000 per year. He has an opportunity in the private sector to earn $110,000 per year. Bob has $100,000 in federal student loans that would be eligible for forgiveness if he stayed at his current job for two more years.
Because Bob is so close to earning forgiveness, the next two years at his current employer are potentially very lucrative. Even if he doesn’t get a raise, he would make $150,000 total at his job and get another $100,000 in student loan forgiveness over the next two years.
Two years at a new job at a higher salary of 110k per year would not be cost-effective. That being said, borrowers should also consider longer time horizons. After five years, the extra pay from the new position might justify leaving the PSLF eligible job.
Additionally, several variables go beyond the math:
- Taxes – PSLF forgiveness is not taxed. Thus, it is arguably better to have $50,000 in student loans forgiven than it would be to earn an additional $50,000 because a large portion would be subjected to income taxes.
- Job Security – How secure is the PSLF eligible job? What are the long-term prospects for the new position? If one job has far more risk than another, it should influence your decision.
- Future Salary and Opportunities – What is the outlook beyond the PSLF years? Going back to Bob’s example, he might be better off taking a job in the private sector if significant income growth in future years is possible. The new job might include opportunities for promotion or valuable experience.
The Ten-Year Public Service Employment Requirement
One detail in the PSLF requirements that often gets overlooked is that the ten-years–or more accurately stated: the 120 certified payments–do not have to be consecutive.
You can work in public service for seven years, spend the next two in the private sector, then return to PSLF employment to complete the remaining three years. Borrowers going this route should make sure the time with their first employer gets certified before leaving. Getting a certification form completed several years after leaving an employer may be challenging.
In short, leaving a PSLF job does not mean you will have to start over if you return to government or non-profit work.
The Long Term Outlook for PSLF: Many borrowers are concerned that the PSLF program may be eliminated at some point in the future. While the elimination of PSLF is possible, existing borrowers would likely be grandfathered into the program. There are several protections in place for people pursuing PSLF.
Look Beyond Salary When Considering Leaving a PSLF Job
Anyone considering a change in employment should think about more than just a starting salary and PSLF rules.
Some jobs are enjoyable and rewarding. Other jobs are miserable and soul-crushing. You are not obligated to make yourself unhappy just because a job pays a few dollars extra.
If you are happy at work, you will probably be a better employee and have a brighter future with your employer. These factors may transcend the PSLF math.