PSLF is going through big changes. Could you qualify for forgiveness now?

SAN JOSE, CA., January 19, 2022 /PRNewswire/ — When the Cancellation of civil service loans (PSLF) launched in 2007, it promised to provide tax exemption in as little as 10 years (120 qualifying payments) to student borrowers who work for nonprofit or government employers. Unfortunately, the structure of the program makes it difficult for qualified employees to have their loan forgiven. Keep reading to learn about the big changes that will make it easier to get student loan forgiveness, from myFICO.

For more information on loans and credit, visit the myFICO blog at https://www.myfico.com/credit-education/blog

Pardon requests from those who participated in the PSLF have been rejected at a dismal rate of 98%. The central problem is that only certain loans and repayment plans are eligible for the PSLF. So when borrowers apply for forgiveness, they may find that few or none of their payments have been reflected, even though they have worked for an eligible employer for more than 10 years.

Due to the national COVID-19 emergency, the Department of Education (ED) has additional flexibility to waive certain student loan rules. And in October 2021, this announcement that it had decided to take advantage of these specific flexibilities to temporarily lift certain PSLF restrictions by October 31, 2022.

ED estimates that hundreds of thousands of borrowers will benefit from these temporary waivers. Here’s what you need to know about the PSLF changes and what you’ll need to do to take advantage of them.

All previous payments made on Direct Loans will now automatically count towards the PSLF
One of the most common complaints about the PSLF program is that there are a variety of ways in which payments made on eligible direct loans while working for a eligible employer could be considered a not eligible PSLF payment. How is it possible ?

An example would be if the payment was made while you were on an ineligible repayment plan. Only payments made during a income-contingent reimbursement plan (IDR) or the standard 10-year repayment plan are counted. Payments made on any other plan, such as the Extended Repayment Plan or Progressive Repayment Plan, are not eligible.

Even if you were on an eligible repayment plan, there may be times when your payments didn’t count toward the 120 eligible payments you need to receive the PSLF rebate. Examples include whether payment was made late or for less than the total amount due.

If any of these situations apply to you, here’s what you need to know. ED has announced a limited PSLF waiver that will credit any previously ineligible payments that were made before September 30, 2021 on non-consolidated loans.

If you have already applied for the PSLF and have at least one certified skilled job, these payments will be credited to you automatically without requiring any action on your part. In reality, nearly 30,000 borrowers have already received or will soon receive emails from the ED letting them know that they have received the pardon.

If you have never applied for the PSLF, you will need to submit the PSLF form by October 31, 2022 receive credit for these payments. And even if you have already joined the PSLF program, you may still receive an email from the ED asking you to certify additional periods of employment so that certain previous payments can be counted.

Ed says that 27,000 borrowers could become eligible for immediate forgiveness after providing this additional documentation. And he estimates that, overall, more than 550,000 borrowers could benefit from an average of two years of progress toward forgiveness as a result of these changes.

Borrowers with Not direct Loans can also get credit for their past payments by consolidating
So far, we’ve only talked about student borrowers who have made payments on eligible direct loans. But what if you’re a student borrower who took out a federal loan that is not it be eligible for PSLF, such as a Federal Family Education Loan (FFEL) or Perkins loan?

The limited PSLF exemption can also be very useful to you. You can now consolidate these non-qualifying student loans into a direct consolidation loan and receive credit for all previous payments you made on these loans while working for an eligible employer.

If you have already consolidated your FFEL or Perkins loans into direct loans and have already joined PSLF, you should automatically receive credit for previously ineligible payments. However, if you still have these loans, you have to consolidate them and submit a PSLF form by October 31, 2022 to make them count.

It’s now easier for military members to get credit for months spent on active duty
The federal government allows members of the military to place their student loans in adjournment during periods of active service and up to 13 months after the end of the period of active service. This benefit is intended to take the pressure off student loan repayments during those already stressful periods of military service.

But taking advantage of this benefit can have a negative impact on servicemen and women applying for civil service loan forgiveness. You cannot normally progress to the PSLF unless your loans are in repayment. Thus, months spent with your loans in abstention or deferment does not count, even if those months were spent serving your country on active duty.

This question would put the military in a difficult position. They could either keep paying their student loans (which could cause financial stress for themselves and their families) to stay on track for the PSLF. Or they could put their loans on forbearance or deferral and lose months of progress.

Recognizing these challenges, the Ministry of Education announced that it would temporarily allow all months spent on active duty to count towards the PSLF. So, if you placed your loans within a delay or forbearance during your active duty military service, those months can now be added to your tally of eligible PSLF payments.

If you already have direct loans and have already joined PSLF, the Department of Education should let you know soon about how to get credit for the months your loans were suspended or deferred while you were in active service. But if you have ineligible federal loans, you’ll need to consolidate them into the Direct Lending Program by October 31, 2022 take advantage of this new advantage.

Other upcoming changes
In addition to the “headliner” changes listed above, the Department of Education has promised to take a few more steps to improve the PSLF curriculum. Here are three examples:

  • Automatic Certification for Federal Employees: Starting next year, service members and other federal employees will automatically receive credit for their qualifying periods of employment by comparing data with other federal agencies.
  • Automatic rejection review: The Department of Education says it will systematically review all denied PSLF applications in hopes of finding and correcting processing errors.
  • Simpler application process: ED hopes to make it easier to apply for the PSLF in the future by improving its database of eligible employers and allowing candidates to digitally sign their applications.

ED also discusses PSLF in its process of developing negotiated rules. Unlike the limited PSLF waiver which is due to expire on October 31, 2022, any improvements agreed upon during the development of negotiated rules would have long-term effects.

Final Thoughts
Although a lot is temporarily changing with PSLF, there are still two key things that haven’t changed.

  1. You must still work full-time for an eligible employer to join PSLF and progress towards forgiveness.
  2. You must always register at least 120 qualifying payments (or the equivalent) before your loans can be cancelled.

This second requirement means that you will need to work for an eligible employer for at least 10 years to get the PSLF exemption. Borrowers who are about to repay their student loans will want to carefully consider whether it makes sense to join PSLF and start making payments on an income-based repayment (IDR) plan.

Depending on your situation, joining an IDR plan could push back your debt-free date. So if paying off your loans as quickly as possible is your top priority, you might prefer to stick with your current repayment plan, even if it means missing out on some forgiveness later on.

For more information on the changes described above, you can visit the official PSLF Limited Waiver page on StudentAid.gov. You’ll find answers to a variety of frequently asked questions and quick links to additional resources.

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SOURCE myFICO