Association of Military Banks of America

Student Loans – What Borrowers Need to Know About Public Service Loan Forgiveness

With student loan repayment set to restart in October, we’re reviewing what borrowers need to know about the Biden Administration’s new plan to cancel $39 billion in debt for 804,000 borrowers. Last week, we looked at the Income-Driven Repayment Plans, and this week we’re focusing on the Public Service Loan Forgiveness program.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness (PSLF) Program was created by Congress in 2007 to help borrowers who chose to work for the government and non-profit organizations with their student loan balances. PSLF incentivizes graduates to go into the public service sector by promising that if a borrower works in public service for 10 years and makes 120 qualifying payments during that time, the remainder of their debt will be canceled.

PSLF Program Requirements

To qualify, PSLF program participants must satisfy four requirements:

  1. Student loans must be Federal Direct Loans. Federal Direct loans are offered by the U.S. Department of Education and have been the main type of federal loans issued since 2010. There are four types of direct loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS loans, and Direct Consolidation Loans.

Individuals with other types of loans, like FFEL  or Perkins, must consolidate those loans for them to be eligible for conversion into Federal Direct Loans.

  • Must work for a qualifying employer. This includes employment with any U.S. federal, state, local, or tribal government or tax-exempt 501(c)(3) non-profit organization for at least 30 hours per week. This also includes military service.
  • Must have made the right number of qualifying payments. A total of 10 years or 120 qualifying payments must be made to qualify. Payments that would have typically been made during the pandemic payment pause will count toward the 120 payment threshold as long as all other requirements have been met.

Problems with PSLF

Like the IDR plans we discussed last week, PSLF has not been as successful in forgiving loans as originally intended. The plan has suffered from complicated requirements, low approval rates, and a lack of proper oversight. To combat this, the Biden Administration implemented two initiatives designed to correct some of these issues. One was establishment of a Limited PSLF waiver that allowed thousands of Americans to receive forgiveness in 2022. The other is the IDR Account Adjustment Plan that took effect on July 1, 2023.

Income-Driven Repayment Plan Adjustment (IDR) & PSLF

Making payments under an IDR plan while working for a qualifying employer may also qualify the remaining loan balance to be forgiven after 10 years of payments instead of the 20-25-year time frame under normal IDR plans.

To qualify for PSLF, borrowers must consolidate their loans into Direct loans. In the past, any credits that had been received would be erased when consolidating and the payment count would reset to zero. Due to the IDR Account Adjustment Plan, anyone who has loans that are not federal direct loans can now consolidate and keep previous credits. This will allow thousands of Americans to get closer to the 10-year repayment time frame and closer to forgiveness.  

Additionally, Parent Plus Borrowers who were excluded from PSLF in the past can now get credit towards PSLF through the IDR Account Adjustment plan.

How to Get PSLF Credit through the IDR Account Adjustment Program

  • Log in to to review your loan types
  • Use the Loan Simulator tool to determine if consolidating is the right choice
  • Consolidate any non-direct loans before December 31, 2023
  • Submit PSLF forms for all eligible public service work since October 1, 2007

Congress passed a law preventing further extensions of the payment pause. Student loan interest will begin accruing in September and payments will be due in October 2023. Borrowers will be notified before payments restart. Next week, we’ll cover the Fresh Start program that can help borrowers who are in default.