Public Service Loan Forgiveness: A great way to NEVER pay off your student loans

Public Service Loan Forgiveness. If there were ever a more apt subject to conjure a wolf in sheep’s clothing, it would be Public Service Loan Forgiveness. Each year thousands of college graduates apply for student loan forgiveness through the Public Service Loan Forgiveness program. And why not, right? For more than a decade, the Public Service Loan Forgiveness program has been touted as a solution for the $1.6 trillion in student loan debt that we have collectively amassed in the United States. So why shouldn’t you pursue the Public Service Loan Forgiveness program if the government will wipe your student loan debt clean? Let me tell you why. 

If I told you that you could pay on your student loans for 10 years and at the end of those 10 years there was a 98.5% chance that you would owe MORE money than when you started paying a decade earlier and a 1.5% chance that the debt would be wiped clean, would you take that bet?

No friggin way. 

But if you plan on the government paying off your student loans through the Public Service Loan Forgiveness program that is the exact bet you are taking. Let’s go over what the Public Service Loan Forgiveness program is, how to qualify for it, and the problems that have ensued with it.

What is the Public Service Loan Forgiveness Program (PSLF)

The Public Service Loan Forgiveness program was enacted by President Obama in 2007 as part of the College Cost Reduction and Access Act of 2007 to help alleviate individuals from their student loan debt. 

Basically, with the Public Service Loan Forgiveness program, an individual with Federal Direct loans (here is link to the different kinds of student loans) can work for a government, 501(c)(3) organizations, or a few other different not-for-profit organizations for 10 years and have their student loans forgiven. (Once again, this is for Federal Direct loans, not private loans.) The borrower must also fulfill some other requirements as well, but I’ll get into them in just a minute.

The Public Service Loan Forgiveness program has been around since 2007. This means that since the timeframe to be eligible to apply for forgiveness is 10 years, the first wave of borrowers applied in 2017. As of April 2020, there have been 150,545 applicants for PSLF. Of those, 2,215 have been approved. 

2,215 out of 150,545.

1.5% have been approved.

You’ve got to be kidding me.

How to (Supposedly) Qualify for Public Service Loan Forgiveness

If someone wants to apply for the Public Service Loan Forgiveness program they have to check a few boxes.

1. Work full-time for the federal government, state government, local government, or a 501(c)(3) not-for-profit organization.
2. Have Federal Direct loans.
3. Have the loans on an income-based repayment plan.
4. Make 120 qualifying payments.

That sounds simple enough, right? Wrong.

First, you have to make payments on your student loans for 10 years! An entire decade! I personally don’t want to be in student loan debt that long. 

Second, what happens when you are working for a qualified employer and you decide to switch jobs to a non-qualified employer? You will have to then pay back your student loans after having made not even a dent in the principal balance that you initially had because you are paying back in an income-based repayment plan. You don’t want to be shackled to an employer making less money than you would for another because you have five or six years left to have your student loans (hopefully) paid off. Nor do you want to stay shackled to a toxic job and work environment for the same reason.

Third, the rules for the Public Service Loan Forgiveness program are ever changing. President Obama toyed with the idea of limiting the maximum amount to be forgiven to about $57,000 per student and President Trump toyed with the idea of eliminating the program altogether. Also, the program is intentionally confusing and at times intentionally deceptive.

When you add all this up, do you know what you get? A 1.5% rate of forgiveness. That’s it. 

Major Problems with PSLF #1: Qualified Payments

Under the Public Service Loan Forgiveness program, you must make 120 consecutive qualified payments. The word qualified is very important here.

To be considered a qualified payment, the payment must be

1. On time
2. The correct amount
3. Paid on a Federal Direct student loan
4. Paid under an income-based repayment option

There are a couple issues with this though.

First, this is for ten years. The chances of a borrower having a financial hardship or otherwise missing or being late on a payment is pretty high. There is a good chance that in the next ten years, most people reading this will have a hospital stay, a health concern with a close family member, a job that ends abruptly, or an issue with their bank. If any of those happens and you miss a payment or are late on a payment your clock starts over. You have to start the ten-year period all over again.

The next (and even bigger problem) is that some of the student loan servicers have been known to:

1. Give the wrong advice on which payment plans to choose from
2. Miscalculate the amount that the borrower is to pay each month
3. Mishandle or misapplied payments
4. Or outright illegally mislead borrowers so that they would not qualify for Public Service Loan Forgiveness. 

Seriously, check out the report here.

The worst part about this is that if you miss a qualified payment, the clock starts over. So even if you are 9 years and 11 months into your repayment time and you miss a payment, you start over.

Another 10 years of student loan hell.

Major Problems with PSLF #2: Only Federal Direct Loans

This issue isn’t as big but it still needs to be addressed. The Public Service Loan Forgiveness program only applies to Federal Direct loans. If you have any private student loans, just plan on paying those off yourself ASAP. There is likely no hope of forgiveness for them from the federal government for private student loans.

Major Problems with PSLF #3: Not Being in the Correct Repayment Program

A large number of the people who were denied repayment under the Public Service Loan Forgiveness program over the first few years were because they were not enrolled in the correct repayment program to begin with. The problem was, that when they started their ten-year schlog toward student loan forgiveness, the payment programs needed weren’t even available to all borrowers. 

Think about that. You pay on your student loans for ten years. At the end of the ten years, you apply for forgiveness through the Public Service Loan Forgiveness program only to be denied because you weren’t enrolled in the correct repayment program.

And why weren’t you enrolled in the correct repayment program? Because it didn’t exist when you started.

Seriously.

Also, as discussed before, some of the student loan servicing companies (the actual companies that you make your student loan payments to) have actively misled borrowers to enroll in non-qualified repayment options in order to keep them in debt and paying interest and fees.

The last issue with not being in the correct repayment plan is that if you are denied student loan forgiveness (for any reason) you will owe MORE on your student loans in most cases than when you started. 

Let that sink in. You make payments for 10 years and then at the end of the 10 years you owe MORE money than when you started. 

This is because for most people, the income driven repayment options don’t even cover the accrued interest. That means that your balance goes up. 

Major Problems with PSLF #4: Employer Verification

In order to qualify for Public Service Loan Forgiveness, you have to work for a qualified employer (discussed above). The employer that you work for has to certify with the Department of Education that they are a governmental agency or 501(c)(3) organization. There are a ton of problems with this.

1. Some employers are certified as eligible only to later be certified as non-eligible.
2. Some borrowers of an organization have their employer certified while others who work for the same organization have the employer denied certification.
3. There is no standardized process for certifying employers.
4. There is poor recordkeeping of employer certification.
5. Borrowers oftentimes are not allowed to appeal decisions of declined student loan forgiveness based on employer verification/certification.

This means that the Department of Education can say that someone who works for a particular employer is eligible for student loan forgiveness through the Public Service Loan Forgiveness program and then later change their mind about that particular employer and exclude them from being a qualified employer. 

And if that happens and you are denied, can you appeal? Nope.

Also, if you are working for an employer all the while thinking that they are a Public Service Loan Forgiveness employer and their status is changed, the company, nor the Department of Education, nor your student loan servicer is required to notify you. That means that you can go along paying on your student loans and working for a company that does not qualify for Public Service Loan Forgiveness and then apply for forgiveness after 10 years only to be denied because the status of your employer changed. But no one told you because no one is legally required to tell you.

How Can You Pay Off Your Student Loans?

This is the ultimate question that we are all asking. The answer is really pretty simple. Although admittedly more difficult to actually do.

There are three ways that your student loans actually get paid off.

1. You die.
2. You become permanently disabled.
3. You roll up your sleeves and hammer on them until they are done.

None of those sound particularly exciting. 

But let me tell you, at the end of the day, the only one that you can count on to pay off your student loans is you. 

You are the captain of your ship. 

You are the master of your craft. 

You are the hero of your story.

You are the only one that you can depend on. 

You can do it.

I know it can sound overwhelming. Especially if you have a ton of student loans (as my wife and I do). But if you depend on another party (be it the government, an employer, an inheritance, or the lottery) to pay off your student loans, you are wasting your time. The only one that you can depend on is you. 

It will be difficult. But you can do it. Get a second job or a side gig, change companies, apply for a promotion, do a budget every month, cut back on spending, and (for a short period of time) work like a mad man/woman and get them out of your life.

Your student loan balance will go away. But not through the Public Service Loan Forgiveness program. 

At least not for 98.5% of people who try to get it.
If you have learned anything else today. Just pay off your student loans. You.