Does Public Service Loan Forgiveness Really Work?

Were you told upon graduating from college that there was an option to have your student loans forgiven?

Chances are if you were looking to become a teacher, cop, firefighter, social worker or even someone who worked in the medical field – you may have heard of something called PSLF or Public Service Loan Forgiveness. 

But the question remains…

Does PSLF Really Work?

Note: What are you reading here? In this quick read I aim to share some facts and issues that have popped up with the PSLF program as well as some personal experiences as to why student loan borrowers should consider other options.   

Created in 2007, Public Service Loan Forgiveness (PSLF) was a program designed by the Federal Government to “Forgive” the student loans of those who worked in public service industries after 120 qualifying payments (10 years worth). 

The teachers, cops, and social workers of the world could go to school, make qualifying payments (minimum payments) and after 10 years have the remaining balance of their student loans forgiven. 

In 2017, the first batch of eligible PSLF applicants were expecting to finally see the zero balance on their student loan statements. However, instead of a zero balance, more then 50% received a letter that stated something along the lines of: 

“Borrowers must have a specific type of federal student loan to be eligible for forgiveness and you have a different kind.” 

Problem #1 with PSLF: You must have direct student loans to qualify. 

Part of the issue was that in 2007 many borrowers were unaware if they qualified or not – and the process of checking wasn't readily available.

So in 2017, according to this CNBC article, 1 in 3 PSLF applicants were denied loan forgiveness, with even more to denials to be expected. 

What many thought would be student loan forgiveness, quickly found out that PSLF isn’t so forgiving after all.

Public Service Loan Forgiveness is Confusing.

For starters, the PSLF program is confusing.

Go to the Federal Student Aid website and check out their PSLF page (At first glance I am immediately overwhelmed). Where does a borrower start?

Click the PSLF Help Tool and borrowers find more links to fine print. Student loan borrowers must become student loan experts to understand if they even qualify. 

Problem #2 with PSLF: The program is confusing as to whether oR not you qualify. 

People who think they qualify for PSLF are quickly finding out they actually do not. Take for example this music teacher from Oklahoma.

Her story was on CNN, but she thought she qualified for loan forgiveness so she paid the minimum over 10 years only to see her student loan balance of $35,000 at 7% interest balloon to over $75,000. Then she was told she didn't qualify. 

Public Service Loan Forgiveness Programs Could Be Cut

I recently came across an article in the Washington Post that was discussing the future of student loans.

The headline read, “Trump Devos Discuss Massive Student Loan Cuts.” 

What sort of cuts were on the table?

Cuts that included programs such as Public Service Loan Forgiveness. The budget proposal included cuts to income based repayments and billions in grants according to, Student Loan Hero. 

Problem #3 with PSLF: The program could be cut or adjusted. 

For this exact reason, many student loan borrowers simply do not trust PSLF.

What happens to college graduates who go to apply for forgiveness at year 10, after making 120 qualified payments, only to find out the program has been cut?

They now have a student loan balance that is much higher then expected and in some cases even doubled. Which is another reason to thoroughly vet all student loan advice and always have a back up plan.

There are many people who simply don't understand how student loans work. Just check out some of these student loan myths from Forbes.

Colleges Market PSLF

Ever been out shopping at the mall and seen a college banner scroll across a screen above the escalator?

Or maybe you have just seen the happy smiles of students sitting in the grass of a college quad on some poster on the metro. Either way colleges market like crazy. 

One of their marketing tactics is to promote student loan forgiveness to prospective students especially in the fields of criminal justice, education and even nursing. 

Problem #4 with PSLF: Colleges market public service loan forgiveness. 

This was the exact advice my wife received upon graduation from a program meeting for “Dealing with Student Loans:”  

Work 10 years in non profit and have them forgiven, or do 20 years of service while paying the minimums and have your student loans forgiven and pay a tax on the gifted payoff amount. 

Sounds like a guaranteed plan for success right?

However, as stated before many are finding out that what they thought was a sure fire way of making sure their student loans were taken care of, are quickly finding out that PSLF has a higher chance of NOT happening for them. 

A simple way to figure out if waiting around for forgiveness options is to do the math when it comes to your student loans.

Should you wait for loan forgiveness?

Advice isn't always correct.

Using the Income Based Repayment program, borrowers could make payments for 20 years then have their balance forgiven. Or of course, if they work in the public sector after 10 years could have their balance forgiven too. 

Except for that is not 100% correct.

For borrowers who were issued their first loans before July 1, 2014, IBR limits payments to 15% of discretionary income. These borrowers will be eligible for loan forgiveness after 25 years of repayment.

In other words, so while my wife was told it was 20 years IBR or 10 years PSLF, it would actually be 25 years of IBR repayments or age 51. The income-based repayment plan doesn't even make sense financially over time factoring interest.

This is why just doing some simple math might mean PSLF is not even worth the wait. 

Calculate your student loans:

Take your monthly minimums multiplied by 120, the required number of PSLF payments, to see how much you would pay over the course of 10 years. 

For example:

$350 x 120 = $42,000. 

If your student loan minimum multiplied by 120 is close to your actual balance it is might just be worth refinancing and paying off your student loans instead of waiting around.

Why waiting on PSLF might actually work – it isn't a a crash and burn program – retirement, starting a family, kids college, savings, security, options, travel, could all be in jeopardy if PSLF doesn't work out because of the interest accrued over 10 years. 

Other options to PSLF.

Recently, on Student Loan Hero, I was quoted for providing this alternative to public service loan forgiveness: 

“Borrowers should have a backup plan when it comes to using PSLF. If you are hell-bent on paying the minimum and waiting 10 years to see if you get your student loans forgiven, realize a lot can change in 10 years.”

Sure, you can invest, save and plan for the future and wait it out when it comes to student loans and forgiveness. But with so many variables and the threat of defunding, just paying off student loans might be worth it. 

This is the biggest problem with PSLF – it is not secure. 

Problem #5 with Public Service Loan Forgiveness: If you do not qualify, your loans just increased tenfold because of interest. 

If borrowers are not awarded loan forgiveness they typically find that their student loan balance is more because of interest then what they took out initially. In order to avoid this consider doing the following if you're going to wait for PSLF. 

1. Open up a savings account and “Make Payments to Yourself,” for the next 10 years. This results in two things. One, you have a fat savings account if PSLF does work out. Two, if PSLF doesn't work out and you now have a huge student loan bill – you have somewhat of a safety net to fall back on. 
2. Use auto investment apps like Acorns to invest the money you would have paid towards student loans. Instead of spending the money investing wisely is a great alternative and safety net in the event PSLF doesn't work out. 
3. Consider refinancing student loans with Penfed. Penfed is the only company that allows married couples to refinance student loans together and instead of waiting for PSLF to take place, refinancing might be a better option. Locking in at a lower rate and new terms can save money over 10 years. 
4. Assess your 10-year outlook. Just think of what you want in 10 years and seriously consider whether or not just paying off your student loans as fast as possible is a better option. See student loan payoff guide. 

What problems with public service loan forgiveness should be addressed?

Here are list of issues and points that might be worth taking up with your local legislation and representatives where you live: 

• Is PSLF going to be around in 5-10 years?
• If using PSLF, should interest rates be capped?
• Colleges should not use federal programs such as PSLF to help recruit students to their programs.
• Colleges are spending more on marketing and administrative positions then they are on education. Student loan tuition really goes where?
• The average graduation rate is 5.1 years. 
• Not all degrees are created equal
• Public service jobs should scale back education requirements

My takeaway when it comes to PSLF.

I will personally tell you that we were not going to leave the fate of our financial future resting in the hands of any sort of person, or shaky program for that matter. 

Built on a house of cards, Public Service Loan Forgiveness though good in thought, has not been treating borrowers well thus far. 

In early 2016 when my wife and I decided that we would rather pay off her student loans, instead of her working in a public service sector and leaving her loans to chance for the next 10 years, we had a few people say things like:

“Why don't you just pay the minimum's and apply for forgiveness?”

I never want to be the person that says I told you so, but it is seemingly becoming more of the case as many are denied PSLF.

However, I do understand why people are mad. The overall student loan industry is not transparent. But on the same hand, my wife and I knew that while we had a chance at having our loans forgiven, we were not about to wait around.

I do feel for the people who will be affected by the shifts and changes of PSLF and IBR over the coming years.

For one, my biggest issue is with colleges who use PSLF and IBR plans as a marketing tool to recruit students. As I alluded to before, my wife had an exit meeting within her Doctorate program to discuss different student loan options – refinancing, consolidating, PSLF and IBR.

Personally, I find the marketing strategies of colleges and the cultural emphasis that you HAVE to go to college to be successful more alarming than politicians and congress slashing budgets.

If you are planning on going back and taking out loads of student loans for a higher education degree – really assess the value of a degree. While college degrees are typically seen as investments, not all investments are created equally. 

Just like investing in the stock market or even real estate – investing has pros and cons – so does taking out student loans. Don't take everything is absolute and challenge conventional student loan wisdom.

Q: What are your thoughts on PSLF?