Q&A: Public Service Loan Forgiveness

This article was originally written in November of 2018. It discusses a popular news story at that time and uses a government report from September of 2018 as a source. 

Question: Justin: Have you seen the recent articles about Public Service Loan Forgiveness? Sounds like the program is crumbling and we may need to rethink our strategy.

Answer: Yes, I have seen the articles^{1 & 2}, including the one that stated 99% of people who applied were rejected. This caused many physicians with large loans to feel uneasy. However, the conclusions many are drawing from the article title are miscalculated in my opinion.

Almost all the denials happened^{1 & 2}  because the applicants did the paperwork incorrectly, or they did not have the right type of loans to begin with, or they did not work full time for an employer who qualifies, or they were not repaying the loans on a qualifying repayment plan. About a quarter of the denials were due to incomplete paperwork, so that does not concern me. About 70% of the denials were due to not meeting the requirements of the program. This means the applicant either worked part-time, did not work for a qualifying employer, used a non-qualifying repayment plan, or had the wrong type of loans. Having the wrong type of loan is the main problem I have seen in my interaction with physicians, but I see it far less now than I did in in the early years. Before June of 2010, many federal student loans were issued through the FFEL program instead of the Direct Loan program. Loans made through this FFEL program are eligible for income-based repayment (IBR) but are not eligible for PSLF. Only Direct loans are eligible for PSLF. This (understandably) led to massive confusion for borrowers using IBR. The rules of PSLF were certainly not widely understood in the early years of the program.

Clients who are following the PSLF rules should not change their plans because of the articles. If you have Direct Loans, work full-time for a qualifying employer, pay your loans on IBR/PAYE/REPAYE, and have had FedLoan approve your employment certification form, you are on a good path. I still recommend the your overall financial strategy have a backup plan just in case something apocalyptic happens to PSLF, but do not give up on PSLF just because of these articles.

_{1 - Stacy Cowley. New York Times. September 27th, 2018. “28,000 public servants sought loan forgiveness, 96 got it”
2 - U.S. Government Accountability Office. September 2018. “GAO-18-547”
5620898 / DOFU 4-2023}