I’ve received many emails from borrowers in a panic that they won’t qualify for Public Service Loan Forgiveness (PSLF) because they are on the wrong repayment plan. They fear that years worth of eligible work will be wasted due to an ineligible plan selection.
The good news is that this particular problem is so common that Congress tried to fix it with special legislation.
The bad news is that there still might be other issues. Additionally, the fix is temporary. Borrowers can’t afford to delay taking action when addressing a repayment plan mistake.
Repayment Plans Ineligible for PSLF
Two plans have caused significant borrower confusion for Public Service Loan Forgiveness eligibility. In some cases, loan servicers even told some borrowers that the following plans were PSLF eligible.
Sadly, these plans do not count towards Public Service Loan Forgiveness under the standard rules:
The Extended Repayment Plan – This plan stretches borrower payments out over a 25 year period. Many borrowers looking for lower payments selected the extended repayment plan.
The Graduated Repayment Plan – This plan works in two-year chunks. It lasts for ten years. Rather than making the same payment for 10 straight years, the borrowers monthly payment goes up every two years until the balance is zero. The idea is to help borrowers ease into repayment during the early stages of their careers. There is also a 30-year version of this plan called the Extended Graduated Repayment Plan.
Borrowers making payments under the Extended Plan and both versions fo the Graduated Plan cannot get the payments certified toward PSLF.
The Fix from Congress
When the first round of PSLF application results were announced, the numbers were ugly. Over 99% of applications were denied. The news devastated applicants and terrified those counting on PLSF in the future.
Then something surprising happened. Congress saw a problem and fixed it. They created Temporary Expanded Public Service Loan Forgiveness or TEPSLF. Under TEPSLF, a borrower who was on the wrong repayment plan can still get their student loans forgiven.
However, there is a significant limitation to the program: it is temporary. Congress allocated $700 million. When the money runs out, the program ends. As of the last status update, borrowers already claimed $95 million of funds. Unfortunately, Department of Education records haven’t been updated in over six months, so we really don’t know how much funding remains.
Two Cents from the Sherpa: If the TEPSLF funding dries up quickly, Congress may allocate additional resources to help more borrowers. TEPSLF passed through Congress with bipartisan support, and if there was a need for the program to continue, further legislation could happen.
Other Issues That Might Remain
Selecting the wrong repayment plan isn’t the problem for people chasing PSLF.
The following issues have also caused problems for many borrowers:
Ineligible Loans – Not all federal loans are eligible for PSLF. Some loans, like FFEL loans or Perkins loans, may be consolidated into a federal direct consolidation loan to gain eligibility. Unfortunately, consolidation also restarts the loan forgiveness clock.
Ineligible Employers – Many borrowers think their employer counts as a PSLF employer. Sadly, many borrowers are wrong about their employer’s eligibility. The Department of Education’s PSLF Help Tool is a great resource to help borrowers determine employer eligibility.
Unfortunately, TEPSLF does not fix either of the above issues. Worse yet, there isn’t a program like TEPSLF to help borrowers fix ineligible loans after the fact. As a result, borrowers with employer or loan-type issues likely have to fix their mistakes and start from scratch on the path to PSLF.
When Loan Servicers Give Bad Advice About the Wrong Repayment Plan
Over the years, I’ve received many heartbreaking emails from readers who thought they were on their way to PSLF and later learned there was a fatal flaw with their application. In many cases, loan servicers mistakenly assured borrowers that they were on their way towards loan forgiveness. Put simply, borrowers got lousy advice.
This situation is especially devastating because the wrong information came from federal loan servicers — companies paid by the government to oversee student loan repayment.
Further complicating the situation is that few options exist for misled borrowers. Hiring an attorney is expensive, and I’ve never heard of a borrower winning forgiveness in court on these grounds. Many borrowers have to start PSLF from the beginning or pay off their loans in full.
Applying for Temporary Expanded Public Service Loan Forgiveness (TEPSLF)
Because funding is limited, it is crucial for borrowers to apply as soon as possible to TEPSLF.
Borrowers can complete the required paperwork in one of two ways:
After completing and signing the documents, borrowers submit it to FedLoan Servicing, the federal servicer that administers the PSLF program.
The form can be mailed to this address:
U.S. Department of Education
P.O. Box 69184
Harrisburg, PA 17106-9184
Those that still fax can fax their application to 717-720-1628.
Finally, the document can be uploaded directly to FedLoan Servicing through their website.