Government employees do a lot for the country’s future. They teach pupils, clean streets, protect the population, and much more. Hence, they deserve much financial aid in return for their hard work. Government Employee Loan Forgiveness is one of the existing federal assistance programs. This option helps public servants to eliminate their whole debt after making payments 120 times. However, during the repayment period, the borrower should continue working for a qualifying employer. Moreover, there exist eligibility conditions for loans, payments, etc.
This guide will discuss the details of the forgiveness program together with expected changes. Even better, it will present solutions if a borrower loses eligibility for this opportunity.
Note: The guide can refer to Government Employee Loan Forgiveness as Public Service Loan Forgiveness, Public Employee Loan Forgiveness, etc.
Before you get familiar with the current Government Employee Loan Forgiveness program, you need to be aware that it can change in the future. Joe Biden involved government employee loan forgiveness in his ‘Plan for Education Beyond High Schools’.
He notes that the current forgiveness option, called Public Service Loan Forgiveness, is broken- overly complex. He wants to simplify this program by granting $10,000 debt elimination per year of service. It would be possible to apply for this program five times which means the maximum forgiveness amount will be $50,000. Besides, prior work will also qualify.
Government Employee Loan Forgiveness
Borrowers employed by federal, state, local or tribal governments, non-profit organizations can eliminate their student debt with the help of this program. The program removes the remaining balance once the borrower makes 120 qualifying payments. Hence it takes a minimum of 10 years to achieve forgiveness. Throughout the whole period, the debtor needs to continue working full-time for a qualifying employer.
When analyzing the eligibility conditions and process of this program, it is understandable why Joe Biden wants to simplify it. The requirements for forgiveness are extensive. There exist conditions for the borrower qualifications, loans, repayment plans, payments, etc. in general, you need to:
- Be a public servant (on federal, state, local or tribal level, or in a non-profit)
- Work full-time
- Have Direct Loans
- Make 120 qualifying payments
- Enroll in Income-Driven Repayment
We will discuss each element in detail in the following sections. Hence, read them carefully to determine if you qualify for the program.
1. Qualifying Workplace
We have already mentioned which employment types qualify for this program. Borrowers in governmental or not-for-profit organizations can apply. However, if you work in a labor union, for-profit establishment, or partisan political organization, you will lose access to this opportunity.
2. Full-Time Service
Besides, borrowers need to serve full-time. Full-time work is a minimum of 30 hours weekly. The employer can define full-time work, too. However, it should still be 30 hours or more.
If you have a part-time position, do not worry. You can still qualify for this program if you can get more than one job. The total working hours per week should be 30, regardless of how many jobs you serve.
In some cases, your work hour might not be counted. For example, in religious non-profit organizations, time spent on worship services is not counted for the 30-hour requirement.
3. Direct Loan Requirement
Not all borrowers working in the public sector full-time will qualify for Government Employee Loan Forgiveness. There also exist requirements for the debt. Only Direct loans qualify for forgiveness which means FFEL or Perkins loan borrowers do not meet eligibility conditions.
Some borrowers think about consolidation to simplify their repayment requirements. It is possible to have several loans simultaneously, and each can be monitored by a different loan servicer. In such a case, student loan consolidation seems like a helpful idea.
However, keep in mind that you will lose your earned credits for the forgiveness program if you consolidate the loans. As mentioned, you need to make 120 payments. Let’ imagine you have made 20 payments, and 100 are still needed. If you consolidate, you will lose your 20 payments and start all over again.
4. Payment Qualifications
The 120 payments have their significant requirements. The borrower needs to make payment in full amount and on time. It is possible to pay the bill maximum of 15 days later than the due date. Besides, the payment should be made on an Income-driven repayment plan. Only if a borrower makes such payment while working for an eligible employer, he/she will get one credit to progress toward 120.
Keep in mind that you do not need to repay the debt under some conditions. For example, borrowers still studying in school can defer the debt till they graduate. Even after graduation, the borrowers have a 6-month grace period when they do not make payments and look for a job.
The best side to this requirement is that the payments do not need to be consecutive. You can make ten payments and leave work. When you find another position as a public servant, you will continue making payments and earn credits in addition to the ten credits gained previously.
5. Income-driven Repayment
The federal government cares about the repayment process and wants to protect borrowers from default. Hence, it provides several repayment options, such as Standard, Graduated, Extended, Alternative, or Income-Driven plans.
Each plan has its requirements. However, only Income-driven plans qualify for the Government Employee Loan Forgiveness. This repayment plan takes income as a base. Hence, if you have a low-income, you will have a low monthly payment. Hence, you can afford payments without much concern.
An income-driven repayment plan has four different categories:
- Pay as You Earn (PAYE)
- Revised PAYE
- Income-based Repayment
- Income-Contingent Repayment
Let’s quickly discuss these repayment options.
Pay as You Earn
Each repayment category has its own payback period, repayment percentage, etc. The borrowers can choose the one that fits the budget level the most.
Pay as You Earn repayment plan allows borrowers to pay 10% of the discretionary income. For some borrowers, the rate will change depending on the family size and remaining debt balance. However, it is usually not higher than what you will get under the 10-year Standard Repayment plan. If you choose this program, you will repay the debt in 20 years. Once you make 120 payments, you will qualify for the Public Employee Loan Forgiveness opportunity.
Revised Pay as You Earn
With this repayment plan, borrowers usually repay the debt in 20 to 25 years. The former applies to undergraduate students, while graduate students get the latter. The payment percentage is again 10% of discretionary income.
Income-based Repayment Plan
The terms of the Income-based repayment plan change depending on the borrower. There exist two categories of borrowers for this plan; new and existing. New debtors are those received on or after July 2014. They pay 10% of discretionary income while existing borrowers pay 15%.
Besides, their payback period is 20 years in contrast to 25 years for other borrowers. Both FFEL and Direct loans qualify for this program, but the FFEL would not qualify for the Government Employee Loan Forgiveness program anyway.
The borrowers can repay their debt in 25 years through the Income-Contingent Repayment plan. The monthly payment amount is either 20% of discretionary income or fixed payment for 12 years.
As we mainly focus on the Government Employee Student Loan Forgiveness program, we shortly introduced the repayment plans. If you want to get more information about repayment, you can check the official Student Aid platform or contact us for your questions.
You cannot get Forgiveness in Less than 10 Years.
One of the downsides of the Government Employee Loan Forgiveness program is that it is only accessible for a minimum of 10 years. Borrowers eliminate their remaining debt after making 120 monthly payments which take at least ten years. Such a long term is the reason why Joe Biden proposed changing the program so that borrowers can get $10,000 forgiveness for every service year.
Some people wonder if they can qualify sooner by making higher payments. However, it is a wrong idea because such a process does not exist. You can make the higher payment, e.g., 3-month worth payment. In this case, the payment will bring three credits, and you will not be required to repay the debt for the 3-month period. You need to wait for the 4th month to get another credit.
As it takes a minimum of 10 years to progress toward forgiveness, it is necessary to keep communication with the forgiveness service. The applicants are advised to fill and submit the PSLF form regularly.
This form allows officials to check the payments and notify the borrower about the progress. Borrowers who do not submit the PSLF form periodically will be required to submit it, together with Employee Certificates, at the time of application.
Once the form is submitted, it will be transferred to the loan servicer- FedLoan Servicing. The servicer will track the payments and inform the borrower about how many qualifying payments are made.
Employment Certification is also important to prove that the borrower is working for a qualifying employer. It is possible to get this document from an official in the workplace who can authorize the work.
If you want to apply to the Public Employee Loan Forgiveness program, you need to send your PSLF form with certification to FedLoan Servicing by mail. We will discuss the whole application process in detail in the following sections.
It is advisable to submit the PSLF form annually or when the borrower changes the employer. In this way, borrowers will have records at the official level, which will make the application process easier at the end of the 120 payment period. Besides, the officials will check the process and inform the borrower if he/she makes qualifying payments.
As mentioned, a certificate of employment can be received from an authorized person in the workplace. It is usually the department supervisor or someone from the Human Resources department. If you avoid submitting the PSLF form, you will be required to provide a certificate for each employer you worked with during the 120 payment period at the time of application.
At the End of 120 Payment Period
After making 120 payments, the borrowers will submit the form to receive forgiveness. Keep in mind that you should still be employed by a qualifying employer even at the time of application. Do not lose your job until you receive forgiveness completely.
Once payments are made, borrowers can apply to the Government Employee Loan Forgiveness program in two ways. Either the borrowers should use the Help Tool to fill the form or independently fill all sections and submit it. Debtors should send the complete form to the FedLoan Servicing. If the borrower meets all conditions, the loan servicer will notify the debtor about the removal of the debt.
What is a PSLF Help Tool?
The government wanted to make the Government Employee Student Loan Forgiveness program accessible to many borrowers. Hence, it is essential that borrowers can follow the processes correctly. PSLF Help Tool was created with this aim. It facilitates borrowers to fill the form and understand eligibility conditions.
Some borrowers are concerned about the taxability of forgiveness programs. If the program is taxable, the borrower will need to pay a high amount of taxes. Unpaid taxes can bring interest over time and increase the amount. It is also not desirable to get the new debt to cover taxes while eliminating the existing student loan debt.
Luckily, the Government Employee Loan Forgiveness is not taxable under the Internal Revenue Service codes. It means you do not need to pay additional income taxes from the forgiven debt.
The Role of Income
Among eligibility conditions, there is no requirement for a certain income level. It is enough to have a position in the public sector to qualify for this program, regardless of the income amount. However, your income will play a role in the repayment plan. The Income-driven repayment plan determines the monthly repayment amount based on your income.
What If My Application is Denied?
Your application can get denied for several reasons; technical mistakes, ineligibility, etc. There are several alternative programs to the Government Employee Loan Forgiveness program, which we will discuss later. However, one of the first programs to check is Temporary Extended Public Service Loan Forgiveness (Temporary Extended Government Employee Loan Forgiveness).
This program is only accessible if the denial reason is “some or all of the payments are made on the wrong repayment plan.” As mentioned before, borrowers need to make payments under Income-driven repayment.
If you made some or all payments under other plans, like Standard, Extended, Graduated, etc., your payments would not be qualified for the original forgiveness program. However, a temporarily extended version of forgiveness allows such borrowers to eliminate the debt.
As mentioned, the main eligibility condition is that borrowers should get a rejection because of an unqualifying repayment plan. However, in addition to all Government Employee Loan Forgiveness requirements, there also exist specific conditions for this variation.
First, the borrower should have at least a 10-year repayment history with a qualifying employer. Besides, the payment made 12 years prior, and the last payment should be the same or exceed the amount paid under the right repayment plans (Income-driven repayment).
Borrowers need to submit documentation regarding income and family size to be considered. The loan servicer will notify the borrower to use an online platform and submit the required documents. Keep in mind that you have only 21 days to follow the instructions. Otherwise, the request for extended forgiveness will be canceled.
FAQ for Public Employee Loan Forgiveness
Getting your debt forgiven is not an easy task. Forgiveness reduces your debt obligations, but it does not come without its costs. Hence, we can understand why it also requires many eligibility conditions.
Every year thousands of applicants fail to get forgiveness because they do not understand the eligibility conditions. In this section, we will answer frequently asked questions about Government Employee Loan Forgiveness so that you can ensure the program fits your qualifications.
1. Should I Pay Taxes on Forgiveness?
Whether you apply for Government Employee Loan Forgiveness or its extended version, you do not need to worry about the additional taxes. These programs are non-taxable under the Internal Revenue Service code.
2. What if I Generate Low Income?
As mentioned, your income level is not a part of the eligibility requirements. It is enough to have a full-time position in the public sector. If the income is low, the only consequence of this condition will be a lower repayment amount through the Income-driven repayment plans.
3. How is Employment Verified?
You will only qualify for the Government Employee Student Loan Forgiveness program if you work for an eligible employer. Therefore, the employer should hire and pay you, in addition to the Form W-2 requirement. Besides, the employer should certify your work for the forgiveness program.
4. What if I Work Part-time?
Part-time work is not a barrier to this forgiveness program. However, it demands working as much as a full-time position, defined as a minimum of 30 hours weekly. Hence, you need to get more than one work so that the total working hours will correspond to full-time service. Keep in mind that every employer you work for should qualify for the program.
5. What if I Change My Work?
The Government Employee Loan Forgiveness requires 120 qualifying payments which take at least ten years. Understandably, you might not work with the same employer for such a long period. Luckily, changing employers would not affect your progress much.
First, if you start working with another qualifying employer, you can continue gaining credits immediately. However, you will need to submit a new employer’s certificate.
In case you lose your qualifying employment, e.g., start working in a private sector, your payments during this employment will not count for the forgiveness program. Yet, if after some time you again get qualifying employment, you will continue gaining credits for the forgiveness program.
6. Do My Payments Before Consolidation Counts?
Unfortunately, the payments made prior to consolidation do not count toward the 120 payment requirement. Once you consolidate the loans, you will lose your gained credits for prior payments, and you will start progressing toward 120 payments all over again.
7. I have Private Loans. Can I Qualify?
No. The Government Employee Loan Forgiveness program and its extended version only cover federal loans. If you have a private student loan, it is almost impossible to find a forgiveness program. However, you can at least ease the debt repayment through student loan refinancing.
8. What if I have Defaulted?
Your defaulted student loans do not qualify for this forgiveness opportunity. Yet, once you get out of default, you can consider an application. There exist different ways of eliminating default students, such as loan rehabilitation and consolidation. You can get more information on our blogs or on the official Student Aid website.
9. If I Pay More, Can I Qualify Sooner?
Unfortunately, no. Your 120 qualifying payments should belong to 120 separate months. In other words, you should at least repay the debt for ten years and serve in the public sector at the same time.
You can still make higher payments in the form of prepayments for future months. For example, if you pay 3-month worth of debt, then you will not need to worry about the upcoming debt payments for two months. Yet, it still will not make you qualified sooner.
10. If I Return to School, Can I Eliminate Deferment?
The borrowers do not need to repay the debt for qualifying Government Employee Loan Forgiveness when they are studying. If you decide to return to school during the repayment period, you will have an opportunity to defer the payment. However, the decision is at your discretion. You can contact your loan servicer and ask to eliminate in-school deferment.
Keep in mind that to make qualifying payments, you need to be employed. Hence, even if you resume repayment and do not have employment, such payments will not count for the forgiveness program.
What Other Options I Have?
If Government Employee Loan Forgiveness does not fit your qualifications, do not lose your hopes. There still exist other programs available to federal loan borrowers which can reduce or remove the debt obligations. We will present these alternatives shortly, but if you need more information, you can contact our debt specialists.
1. Other Forgiveness/Discharge Programs
Government Employee Student Loan Forgiveness is not the only forgiveness opportunity designed by the federal government. There are other forgiveness programs like Teacher Loan Forgiveness for Perkins Loan Cancellation, which can help to reduce the debt.
Besides, student loan discharge opportunities exist to eliminate the debt fully in most cases. The difference in discharge is that it depends on external, uncontrollable factors. For example, discharge due to school closure or disability exists.
Another similar program is Borrower’s Defense to Repayment. This program aims to protect borrowers who were misled by educational institutions. If the school officials lied about job replacement rates or the true cost of education, you could apply to this program. The main condition is proving that you would not choose the school if the officials did not lie to you.
During recent years, this program was delayed because of the negative attitude of the Education Department. However, currently, Joe Biden wants to bring this opportunity to its glorious days. Hence, your chance to get forgiveness can be high.
Student Loan Consolidation does not erase a part of the debt. However, it helps to simplify the repayment process. If you have multiple loans from different loan servicers, you can face difficulties in repayment.
Consolidation allows merging all existing loans into one. As a result, you get a single loan to deal with. Sometimes it is also possible to lower monthly payments if the merged loan has a longer repayment period.
A similar option to consolidation is Student Loan Refinancing. It allows borrowers to get a new loan to pay out all existing loans. The reasoning behind such action is that a new loan usually has better terms.
For example, it can have lower monthly payment amounts, lower interest rates, fixed vs. variable interest, etc. Another advantage of this program is that it is also accessible to private student loan borrowers.
4. Repayment Plans
As mentioned, Income-driven repayment plans forgive the remaining debt after the payback period, which is around 20-25 years. Other repayment plans also aim to pay out the debt in shorter periods. If you struggle with debt payments, checking different repayment plans can be helpful. In this way, you can choose the plan which suits your budget and goals the most.
Not Sure How To Proceed?
Many options are accessible to borrowers, specifically to federal loan debtors. This guide aims to draw the full picture of Government Employee Loan Forgiveness. Besides, we presented some alternative solutions to this program.Most borrowers lack financial knowledge and debt management skills. Hence, understandably, you can find the information presented challenging to interpret. If you feel lost among options and do not know which will fit you the best, you can contact Student Loans Resolved experts. In SLR, we gathered experienced debt specialists to help hundreds and thousands of borrowers deal with their debt payments. We can analyze your finances, help with the selection of the right program and lead you throughout the application process. Maximize your chance to eliminate the student debt with SLR experts.