Millions Missing Out on Student Loan Forgiveness

September 5, 2013

If you work for the government, non-profit, school, library, most any public service organization and many non-profits, you may be eligible for student loan forgiveness. Last week the Consumer Financial Protection Bureau (CFPB) announced that many people who are eligible for this excellent benefit are not unloading their loans. Roughly 25% of Americans work in some form of public service and may be eligible for this program.

Image source: Blog.lib.umn.edu

Why Are Public Servants Not Using the Forgiveness Plan?

According to CFPB it’s a lack of knowledge and complexity of programs that lead to far too many missing out on this great benefit. Roughly 33 million student loan debtors are eligible for tax free loan forgiveness but instead of cashing in, they’re continuing to struggle with debt – and on much lower salaries than the private sector offers while serving all of us. That’s not cool and if you’re one of the 33 million, you need to know there’s a better way for you to deal with your debt!

How CFPB Is Trying to Increase Participation in PSLF

To combat the low participation in this excellent forgiveness program, CFPB is pushing employers to educate employees and more effectively promote Public Service Loan Forgiveness. To achieve this end, CFPB has developed an employer tool kit as well as an action guide for eligible employees. The sad fact is, depending on whether the employer is well informed or misinformed, they may themselves not know enough about PSLF to guide their employees.

What’s In the Employer Tool Kit CFPB Developed?

Officially called the Employer’s Guide to Assisting Employees with Student Loan Repayment, the toolkit seeks to “empower public service employers to serve as a resource for their employees with student debt.” The first piece is an Action Guide with three crucial steps:

#1 Talk about loan repayment benefits – this action item explains how the program works and tells the employer to publicize it to employees to encourage participation.

#2 Help your employees certify – this action item directs employers to teach HR personnel about the employment certification form and to keep them on hand for use.

#3 Check in annually about student loan repayment – this action item tasks employers with reminding employees to certify each year at a set time annually.

The employer guide also includes a sample letter to send to employees and a list of nine well thought out FAQs and answers to educate employers on the benefits and prepare them to deal with employee questions. A sample of a properly completed certification form and contact information for CFPB round out the employer info packet.

Image source: MoneyManagement.org

What’s In the Employee Action Guide CFPB Developed?

Officially called the Action Guide for Public Service Employees, this one pager lays out three steps for public service workers to take advantage of PSLF and unload their loans. Here are the three crucial steps CFPB recommends for employees:

#1 Understand your options – this step gives a quick overview of the forgiveness program, introduces Income Based Repayment as a great strategy and offers some tips and caveats.

#2 Enroll and certify – this step encourages workers to enroll in IBR and then complete certifications annually to ensure tracking is on point.

#3 Follow up with your servicer – this step encourages employees to submit their certification forms annually and follow up with your loan servicer to make sure they are approved and noted on your records.

Image source: PBS.org

What Else Is There to Know?

The CFPB’s drive to promote Public Service Loan Forgiveness is admirable and will hopefully produce results. CFPB director Richard Cordray said, “We estimate that one in four working Americans has a job that meets the definition of public service under this program. Many of these teachers, health care workers and other public servants could be eligible to have their college loans wiped out after ten years.”

Here are a few additional notes we have to supplement the information CFPB has provided on PSLF that aren’t necessarily spelled out in the materials:

#1 Only payments after October 1, 2007 count and 10 years’ worth of payments must be made so applications for forgiveness won’t be accepted until 10/1/2017 but you should be tracking long before then.

#2 If you made payments after 10/1/07 but weren’t tracking them, that’s okay so long as you were working in a qualified position when you made them, you can get the payments acknowledged and hours worked certified after the fact.

#3 CFPB recommends Income Based Repayment as the payment plan of choice to minimize payments but if you qualify, Pay As You Earn can be a better deal. IBR maxes at 15% of disposable income and PAYE at 10%!

I understand why CFPB recommends IBR – because most eligible employees should qualify for IBR, it’s simpler to recommend just the one plan. But PAYE offers even lower payments than IBR but only borrowers who began borrowing after 10/1/2007 and received at least one Direct Loan disbursement after 10/1/2011. For newer borrowers, PAYE will be a better option.

In addition to checking out the new materials from CFPB, we encourage you to sign up for Tuition.io’s free student loan tool to track, manage and optimize your debt to be sure your payments are being properly posted so you get credit for PSLF qualifying payments. Second, check out our blog for strategies and tips on PSLF and our student loan help center for How To’s on tracking PSLF payments and other important topics.