Public Service Loan Forgiveness: New Law Gives Second Chance to Borrowers in the Wrong Plan

On March 23, 2018, President Trump signed an omnibus spending bill into law. One of the provisions in the $3.1 trillion bill provides $350 million for the Public Service Loan Forgiveness (PSLF) program. The money is earmarked to help borrowers who enrolled in the wrong repayment plan—namely, graduated or extended repayment plans—but otherwise qualified for PSLF.

What's PSLF?

Under the PSLF program, borrowers who are employed full-time (over 30 hours each week) in an eligible federal, state, or local public service job or 501(c)(3) non-profit job and who make 120 eligible on-time payments can qualify for forgiveness of their federal student loans (Direct Loans only). President George W. Bush started the program in 2007 to motivate more graduates to work in public service. (To learn more about the PSLF program, see Student Loan Relief: Canceling Your Loans.)

What's a Qualifying Repayment Plan?

To qualify for loan forgiveness under the program, you must make your payments under a qualifying repayment plan, specifically, one of four income-driven repayment plans. (To learn about the different plans for repaying federal student loans, see Student Loan Repayment Plans.)

Unfortunately, many borrowers who would otherwise be eligible for loan forgiveness under the program mistakenly enrolled in repayment plans, like the graduated repayment plan or extended repayment plan, which were ineligible for loan relief.

How the New Law Helps Borrowers in the Wrong Plan

Under the new budget law, the Department of Education will use the $350 million to provide forgiveness to student loan borrowers who meet all requirements for PSLF except that they were enrolled in graduated or extended repayment plans.

The funds are available on a first come, first served basis until the money runs out. So, borrowers who file for PSLF as soon as possible are more likely to have their debt forgiven. To apply for PSLF, use the application on the Department of Education website.

Steps to Take to Make Sure You're on Track for PSLF

If you eventually hope to receive PSLF, it's a good idea to make sure you're on the right path. Here are some steps you can take to increase your chances of qualifying for loan forgiveness under the program.

  • Go to the National Student Loan Data System to find out what kind of loans you have.
  • Verify that your loans are Direct Loans. (Only Direct Loans qualify for PSLF.)
  • Find out if you're in an income-driven repayment program that qualifies for PSLF.
  • It's a good idea to complete and submit an Employment Certification Form to the Department of Education annually and whenever you change employers to make sure you're on track to receive forgiveness.
  • If you're on a graduated or extended repayment plan, but you're eligible for income-driven repayment and your employment qualifies you for PSLF, contact your student loan servicer to switch plans.

Also, you should be aware that PSLF is in danger. Recent budget proposals and the PROSPER Act propose eliminating PSLF entirely.

Effective date: March 23, 2018