Dramatic Expansion of PSLF... but you need to act quickly 🏃💨

If you’ve ever worked in community mental health and still owe money on your Federal Student Loans, there is a LIMITED TIME OFFER from the Federal Government to qualify for Public Service Loan Forgiveness (”PSLF”).

Normally, if someone contacted you about a “limited time offer” regarding your student loans - I’d tell you it’s almost certainly a scam.

But in this case it’s true. The Biden Administration has used the special powers extended to them as part of the Coronavirus emergency to dramatically expand PSLF. But because these emergency powers have a shelf life, so too does this PSLF expansion. The expansion ends (probably forever) on October 31, 2022.

Even if you've applied for PSLF in the past and been rejected - you may well still qualify. This is a BIG deal and a BIG CHANGE from how PSLF has historically been administered.

The temporary PSLF expansion is called the PSLF "Limited Wavier". I know... super catchy name. Not at all confusing, either. 🤦

Public Service Loan Forgiveness: the “Limited Waiver” Forgiveness Opportunity

This is confusing stuff, so I’m going to break things into four sections.

1. Review the ordinary PSLF requirements 😖 Which are quite nuanced and restrictive.
2. Review the 3 different PSLF requirements currently in effect (I know, confusing af) 🙈
3. Review the current (much more lenient) requirements that apply ONLY through October 31, 2022 👍
4. Outline what to do and how to do it! 📝

Ordinary PSLF Requirements 😖

There are FOUR requirements to receive Public Service Loan Forgiveness - and you have to meet ALL of them EXACTLY.

The four are: (i) hold only Direct loans; (ii) be on an Income Driven Repayment Plan; (iii) Make 120 on-time payments; and (iv) be employed full-time for a non-profit employer when you make those 120 payments, when you apply for forgiveness AND when you actually receive the forgiveness.

Let’s break them down a bit more.

1. Hold Only Direct Loans

There are three common types of Federal Student Loans: Direct, FFEL and Perkins. ONLY Direct loans are eligible for PSLF. Hold non-Direct loans? Not a problem, you can consolidate them into a Direct consolidation loan and then that consolidated loan will qualify for PSLF.

The only problem with consolidation is that it resets the 120 payment count. So if you made 120 payments on your FFEL loans, under the normal requirements you would NOT be eligible for PSLF - you’d have to consolidate and start all over at 0 payments. Awful.

2. Make payments under an Income Driven Repayment (”IDR”) Plan

This is another requirement that has tripped up a lot of borrowers. You must make your 120 payments while enrolled in one of the IDR plans: REPAYE, PAYE, ICR (Income Contingent Repayment) or IBR (Income Based Repayment). If your payment plan has “extended” or “graduated” in the name - sorry, those payments do NOT qualify toward PSLF. Again, awful.

Technically payments made on the “standard repayment” plan also count toward the required 120 payments for PSLF. But under that standard payment plan you would fully pay off your loans in 120 payments (e.g. ten years).

3. Make 120 On-Time Payments while Employed Full Time by a Non-Profit

This one is fairly straightforward. But it does require the employment to be full-time - part time and volunteering do NOT qualify.

4. Be Full-time Employed by a Non-Profit at ALL THREE critical times

Not only do you need to be employed full-time by a non-profit employer when you make the 120 payments but you also MUST be employed by that type of employer both when you APPLY for forgiveness and when you actually RECEIVE the forgiveness.

Three Different PSLF Requirements Currently in Effect 🙈

Ok, those requirements are fairly complex and onerous. Which is why there are two different set of requirements that make the rules a bit more lenient. That yields a total of three different sets of requirements.

It’s good that there are more lenient requirements - but having all these different requirements adds to everyone’s confusion.

So let’s review. Here are the three different set of requirements.

1. Normal Requirements - those are the rules we reviewed above.
2. Temporary Expanded PSLF. This “temporary expansion” has been around for a while. This "temporary expansion" refers to the fact that if you made any of those 120 payments on a non-IDR payment plan you might be able to get those payments counted toward the 120. This program fixes ONLY being on the wrong repayment plan, so it’s pretty limited.
3. PSLF Limited Wavier. This is the exciting one! This “limited waiver” makes the requirements MUCH LESS rigid. But you have to act fast - this opportunity will go away on October 31, 2022!

PSLF “Limited Waiver” Requirements (MUCH less rigid) 👍

From now until October 31, 2022 the rules are dramatically loosened. This is the PSLF Limited Waiver that the Biden Administration has put in place.

So let’s review each of the four (strict) requirements for typical PSLF and how this Limited Waiver changes things.

1. Direct Loan Only

The Limited Waiver still will only forgive a Direct Loan, so you will need to complete a consolidation into a Direct loan before receiving forgiveness.

But here’s the cool thing. Ordinarily that consolidation will reset your 120 payment count back to zero. But not anymore! The Limited Waiver rules allow you to receive credit for repayments on essentially ANY Federal loan (Direct, FFEL, or Perkins Loans to name the most common).

The consolidation does NOT reset the payment count. You keep credit for payments made on any type of loan as long as you worked full-time for a non-profit employer when the payment was made.

2. Make payments under an Income Driven Repayment (”IDR”) Plan

Under ordinary rules, ONLY payments made while in an IDR plan count toward the 120 payments required to receive PSLF.

Not the case under the Limited Waiver rules.

Virtually ANY payment will count toward the required 120 payments. The following bullets were taken directly from the Department of Education’s website:

• Periods of repayment under any plan count
• Periods of repayment on loans before consolidation count, even if on the wrong repayment plan
• Periods of repayment where your payments were made late or for less than the amount due count
• Periods of repayment on loans before consolidation count, even if paid late, or for less than the amount due
• Note however, that...
  • You can receive credit only for periods of repayment after Oct. 1, 2007, since that is when the PSLF Program began.
  • Periods of deferment or forbearance, and periods of default, continue to not qualify.
  • BUT: Suspended Payments Count Toward PSLF and TEPSLF During the COVID-19 Administrative Forbearance (see the main PSLF page for details). Essentially every month of non-payment during Covid counts as a payment toward your 120 - as long as you were employed full-time by a non-profit.

3. Make 120 On-Time Payments while Employed Full Time by a Non-Profit

The employment requirement is unchanged: full-time employment at a non-profit. BUT as the bullet points immediately above point out, the definition of what counts as a payment is dramatically more lenient.

4. Be Full-time Employed by a Non-Profit at ALL THREE critical times

Another big expansion the Limited Waiver offers: you no longer need to be employed full-time by a non-profit when you APPLY for forgiveness and when you RECEIVE forgiveness.

This might sound like a technicality — but it’s actually a big deal.

Many folks who used to work in community mental health, but have since moved into private practice would be unable to receive PSLF under the ordinary rules. But not right now!

If you made 120 payments (under the current liberal definition of what a payment is) while working full-time in CMH, you can apply for and receive forgiveness regardless of where you’re employed currently. Indeed, you don’t have to be employed at all!

What you need to do! 📝

Alright, you think you might qualify? Awesome.

Even if you haven’t worked for ten years in CMH (e.g. haven’t had time to make 120 monthly payments), it still might make sense to go through this process to get additional payments counted toward your 120. Even if you don’t work for a non-profit right now, who knows where you might decide to work in the future!

Once the calendar turns November 1, 2022 - this opportunity will be gone. Probably forever.

So here’s what to do.

1. Figure out what type(s) of loans you have. As we’ve discussed, PSLF will only forgive Direct loans.
2. If you hold any loan other than a Direct loan, you’ll need to consolidate into a Direct loan by October 31, 2022. For the fastest processing time, the Department of Education recommends choosing FedLoan Servicing when you complete your consolidation application.
3. Use the PSLF Help Tool to certify your non-profit work. The text in quotations in the following bullet points comes directly from the Department of Education’s website. Not in quotes is my color commentary
   • “Use the PSLF Help Tool to generate a PSLF form to submit to FedLoan Servicing. You must submit at least one PSLF form to FedLoan Servicing by Oct. 31, 2022, that is later approved”
   • “However, if you were in the same situation but submitted a form that was denied because you had the wrong type of loan, those payments will automatically be counted as qualifying payments in the coming months.”
   • "If you’re not sure why your prior payments were denied, we recommend you check your account details online at myfedloan.org, or fill out a new PSLF form"
   • IF IN DOUBT, FILL OUT THE FORM AGAIN!!!

Confused? 🤔 Uncertain? 🤨

I know - this is all a lot of confusing detail.

👉  If you're still a bit uncertain or unsure - contact me. I'll happily help in any way I can!

And PLEASE share this post with those you know who might benefit! If there's enough interest I'll schedule a (free) group Q&A session to help everyone along!

Additional Comments & Clarifications

Here are some additional notes and items you should know as you begin to work through the PSLF process.

• Most of the requirements as spelled out on the Main PSLF Page do not currently apply - the limited waver rules currently govern. I know - that’s confusing.
• Beware consolidation. If you’re not sure if you’ll ultimately be eligible for PSLF, you might not want to consolidate. Consolidation comes with downsides, most notably that any unpaid interest “capitalizes.” Capitalizing unpaid interest means your ongoing monthly interest costs could significantly increase. Learn more about the pros and cons of consolidation on this Department of Ed page.
• Become a Public Service Loan Forgiveness (PSLF) Help Tool Ninja. A pretty helpful walk-through of the tool you’ll use to submit your work experience and ultimately apply for forgiveness.
• As the Department of Education put it, “FedLoan Servicing, one of the federal loan servicers, administers the PSLF Program on our behalf.” The Federal government is the actual lender (or “holder”) of your student loans, but they contract out to private companies to administer the details of those loans. FedLoan is one of several servicers and they happen to be the only servicer that processes PSLF. So before your loan can be forgiven via PSLF, the servicing of your loan will have to be transitioned to FedLoan (if you’re currently with a different servicer). That transfer to FedLoan should happen automatically, and you can also request that transition as part of completing a loan consolidation. You may have heard FedLoan is quitting the student loan servicing game. And yes, that is happening - but not until after this year. Until the end of 2022, FedLoan will continue to service and process all PSLF applications.
• If you made payments after your 120th qualifying payment, those payments will be treated as overpayments and refunded to you as well. HOWEVER, payments in excess of 120 payments can only be refunded if paid on the consolidation loan. This applies to both FFEL loans and Direct Loans that are consolidated into a Direct Consolidation Loan.

How to Determine if you have Direct Loans or Not

These instructions come directly from the PSLF Limited Waiver Page. Copied here for your convenience (they’re a bit buried on that page).

• Visit Aid Summary (you’ll be asked to log in to your account in order to view the page).
• Scroll down to the Loan Breakdown section. In the Loan Breakdown section, you’ll see a list of each loan you have taken out, even if you have paid the loan off or consolidated it into a new loan. If you expand View Loans, then click the View Loan Details arrow next to a loan, you’ll see a more detailed name for that loan. Direct Loans begin with the word “Direct.” Federal Family Education Loan Program loans start with “FFEL,” and Perkins Loans include the word “Perkins” in the name. Parent PLUS loans are not eligible under the limited PSLF waiver.

Disclaimer

Turning Point is a registered investment advisor in the state of California. Please visit turningpointhq.com for important information and additional disclosures. This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes financial, legal or tax advice; a recommendation for purchase or sale of any security; or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Read the full Disclaimer here.