Of the $1.6 trillion in student loan debt owed by Americans in 2020, people 50 and over accounted for about $340 billion, up from $47.3 billion in 2004, according to the Federal Reserve Bank of New York.
Such financial obligations can put a damper on retirement savings, says Ben Reynolds, founder of “Sure Dividend,” a newsletter for long-term investors. “People close to or in retirement who are unhindered with student loans don't have the burden of maintaining those monthly payments, freeing up more money for retirement accounts and investments,” Reynolds says.
One way to relieve some of the burden is through the Public Service Loan Forgiveness (PSLF) Program, which lets borrowers who work in public sector jobs — such as government, public education and law enforcement — have their outstanding loans forgiven after they have made 10 years’ worth of payments. Here's what you need to know to take advantage of public service loan forgiveness.
Understanding the requirements
In order to receive student loan forgiveness, you're obligated to make 120 on-time qualifying payments, meaning the payment must be for the total monthly amount owed and paid within 15 days of the due date. Payments don't have to be consecutive; for example, you can pause payments via deferment or forbearance and still be eligible for forgiveness.
While you typically don't get credit for months you don't make a payment, that's not the case during the pandemic. To provide relief to borrowers during the COVID-19 crisis, student loan payments and interest have been suspended until Sept. 30. However, those months will count toward PSLF even if you don't pay a cent.
You'll also need to have an income-driven repayment plan – one in which your monthly payment is determined based on the amount of money you make. However, if some of your payments were not made under a qualifying plan, you may still be able to have your loans forgiven, thanks to an expansion of the program called the Temporary Expanded Public Service Loan Forgiveness (PSLF) Program, passed by Congress in 2018.
There are also requirements pertaining to the type of loans you have and the type of payment plan you are on. Only federal Direct student loans qualify for forgiveness. However, that doesn’t mean you’re out of luck if you have a Perkins Loan or Federal Family Education Loan (FFEL). You can consolidate your loans into a direct consolidation loan, but you’ll have to weigh the pros and cons of doing that first. In addition, Parent Plus loans aren’t directly eligible for forgiveness, either.
Since PSLF is designed to encourage people to explore public service careers, you must work for employers that fit that criteria while making those 120 payments. Generally speaking, you should be fine if you work for a federal, state or local government agency or a not-for-profit organization. However, to be on the safe side, fill out an Employment Certification Form each year or at least whenever you start working with a new employer. Then send it to the U.S. Department of Education either through the FedLoan Servicing website or via fax or mail. You'll be notified if your employer doesn't fit the bill. You must also be an employee of the qualified employer; if you are an independent contractor, your service does not count.
Road to debt forgiveness not always smooth
While the idea of loan forgiveness is likely to appeal to anyone with a lengthy career in public service, reaping the benefits of PSLF may not be as easy as it sounds.
The U.S. Department of Education noted in September 2019 that out of 90,962 borrowers who had applied for PSLF so far, only 845 had been approved, while the rest were either rejected or pending.
Many of those whose applications were rejected weren't clear on the rules governing the program and had made a misstep along the way. For example, about 80 percent of those whose applications were rejected had not made 10 years’ worth of payments and about 15 percent did not have FDLP student loans.
If you're rejected for loan forgiveness and you've completed all of the steps, it may make sense to seek out legal help, says Jonathan Cohen, cofounder of the Cohen & Winters law firm in Concord, New Hampshire. “A student loan lawyer will be knowledgeable about your options and can guide you through your legal rights,” Cohen says.
Tamara E. Holmes is a Washington, DC-based writer and editor. She has written extensively about money, entrepreneurship and careers for more than two decades. Her work has appeared in such publications as USA Today, Working Mother and Essence.