I’ve heard from several government contractors who were disappointed with their progress toward student loan forgiveness.
Working as a government contractor doesn’t mean it is impossible to qualify for student loan forgiveness. However, it does make things more difficult.
Today we will cover the eligibility rules as they apply to government contractors and explore the best ways to eliminate debt.
Sherpa Tip: For years, 1099 workers were always excluded from PSLF. However, new regulations issued on 7/1/23 now permit some contractors to qualify for PSLF.
Jump to the contractor exception section for more details.
Do Government Contractors Qualify for PSLF (Public Service Loan Forgiveness)?
The crown jewel of the federal student loan forgiveness program is PSLF. This program allows public service employees to have their student loans forgiven after ten years of certified payments.
Unfortunately, strict rules govern what constitutes an eligible employer. Although the government is an eligible employer, government contractor employees do not qualify for PSLF.
PSLF eligibility is based entirely on who employs you rather than the work you do. For example, if you are a janitor at the U.S. Capitol, you may or may not be eligible for PSLF. If your employer is the federal government, you will be eligible. If a cleaning services subcontractor employs you, you are not eligible.
Due to this limitation, government contractors usually don’t qualify for PSLF. The one exception would be if they work for an eligible nonprofit organization that the government has contracted.
Those who are eager to qualify for PSLF should try to find an employer who meets the PSLF criteria. Alternatively, they may also want to explore becoming an employee of the government rather than a government contractor.
Forgiveness Programs that Apply to All Borrowers
PSLF may be the best forgiveness program, but it is far from the only option.
Borrowers on an income-driven repayment plan can qualify for forgiveness after 20-25 years. This option applies to all borrowers, regardless of who their employer is. Due to the longer forgiveness time frame, this option is especially well-suited for borrowers struggling financially or who have massive amounts of federal student debt.
Some borrowers may qualify for forgiveness programs that cater to their specific profession. Additionally, some employers even offer their own loan forgiveness programs.
The Government Contractors Who Qualify for PSLF
A new regulation may allow borrowers who are self-employed or employed by a for-profit firm to qualify for PSLF.
Some states have laws that prohibit a government entity from directly hiring the individual providing the service. For example, courts will often hire attorneys to represent indigent clients. The attorney may still be employed by a private firm or working on their own, but as long as they manage a full-time caseload, meaning at least 30 hours per week, they can qualify for PSLF.
This handout from the National Legal Aid and Defender Foundation does a great job of explaining how this exception works.
Pivoting Towards Aggressive Repayment
Many borrowers may reach the point where they give up on student loan forgiveness.
If the previously mentioned strategies won’t work for your situation, aggressive repayment becomes a more reasonable solution. The goal behind aggressive repayment is to eliminate the debt as quickly as possible. The sooner you pay off your student loans, the less you spend on interest.
One standard shortcut for aggressive repayment is refinancing. The advantage to a student loan refinance is that it immediately lowers interest rates. However, the risk is substantial. By refinancing, you convert federal loans into private loans, and private loans won’t qualify for student loan forgiveness.
The following lenders currently offer the best refinance rates:
| Rank | Lender | Lowest Rate | Sherpa Review |
|---|---|---|---|
| T-1 |  | 5.28% | ELFI Review |
| T-1 |  | 5.28%* | Splash Financial Review |
| 3 |  | 5.49% | Laurel Road Review |
Those considering a pivot towards aggressive repayment should read this article on developing an accelerated repayment strategy.
