Student loan debt continues to be a plague on our society and economy. And for those who are neck deep in educational obligations, it means ongoing financial stress. This is what makes programs like the Public Student Loan Forgiveness Program (PSLF) so appealing. You’ve got to work anyway, so having a job that redeems your debt at the same time seems like a two birds/one stone financial opportunity. But it’s important that you don’t make any missteps that can cancel or complicate your PSLF plans.
Here are three critical missteps that could cost you your Public Student Loan Forgiveness:
#1 Not making “qualifying payments”
Part of the fine print of PSLF is that you must make 120 “qualifying payments” to have the balance of your loans forgiven. But what’s a qualifying payment? That’s the big question. To be considered a qualifying payment, your payments must be:
– A full monthly payment (not a partial or lump sum payment)
– Made on time (or within 15 days of due date)
– Made under a qualifying payment plan
– Made while you are working full time at a qualifying public service position
– Made while you are in good standing (i.e. not in default)
Think of the 120 PSLF payments as a countdown. If your countdown stops for any reason at all – like if you take a leave of absence or drop down to part time – the count will resume where it left off once you get back to a qualifying full time position. And it’s best to not wait out the decade of payments before submitting your certification. This federal site has all the forms you need to stay on top of your tracking.
#2 Changing to an extended repayment plan
You’ll note above that only payments under a “qualifying payment plan” count. This is a major concern if you’re counting on relief under PSLF. Here are what are considered qualified payment plans:
– Standard Repayment plans (10 year plans)
– Income Contingent Repayment plans (ICR)
– Income-Based Repayment plans (IBR)
– Any other plan where the payment was equal or more than the Standard plan payment
The first and last plans seem counter-intuitive – if you pay 120 payments on the standard plan, there will be no loan left to forgive. That’s not really offering you anything. The ICR and IBR plans are the preferable options (if you qualify) to minimize what you’ll pay monthly for the 120 payments required and maximize the dollar amount you can have forgiven. What you DON’T want to do is enroll in an extended payment plan. These payments will not count toward your 120!
#3 Consolidating your loans
This is an important point to consider. We wrote recently about the pros and cons of student loan consolidation and one of the cons is that it can reset your 120 payment clock. This will not cancel out your ability to have loan balances forgiven under PSLF, but could delay them significantly. If you have already made a number of payments on your loans that count toward your 120 benchmark, avoid a consolidation.
If your loan payment are onerous, instead pursue getting them all placed on either ICR or IBR plans to make them more affordable. If you have just graduated and are basking in the six month grace period window before you start making payments, this is the time to consolidate – but only if you can get lower overall payments as a result. And once you consolidate, still pursue ICR or IBR to minimize your payments and maximize the benefit of PSLF!
Final Thoughts on PSLF
Money blogger Stephanie Halligan, founder of The Empowered Dollar and avid bicycler, contacted us to offer some advice to readers. To return the favor, we are encouraging her to invest in a lighted bicycle helmet to protect that brilliant financial mind of hers while she’s riding in her upcoming 200 mile – two day Seattle to Portland event. As a student loan survivor herself, Halligan feels your pain and has this to say about PSLF:
“The Public Service Student Loan Forgiveness plan is a good strategy for those committed to a career in public service (or at least 10 years of public service). But unless you’re completely committed to working for the government or a nonprofit through your thirties, don’t pass up the opportunity to take a higher-paying job outside the public service sector simply because you want your student loans to be forgiven in ten years. Before signing up for the Public Service Student Loan Forgiveness plan, be sure you’ve evaluated and explored your career choices – not just your student loan repayment options.”
Whether you’re a public servant counting the days until your student loans are forgiven or a regular Joe facing paying your balances off without any help, Tuition.io’s free student loan tool can help you. Our simple dashboard lets you track your loans, keep an eye on your balance, payments and that all important payoff date so you can easily manage and optimize your loans!
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