The Public Service Loan Forgiveness can be a relief for public service employees who carry significant federal student loan debt. This program allows any student loan borrower who has made 120 qualifying payments on their Federal Direct Student Loans while working full-time in public service work to have the remaining balance of the loan forgiven (though the borrower must continue to work full-time in public service employment while making application for forgiveness and until the forgiveness is fully processed). Because of the public service obligation, forgiveness under this was determined by the Department of the Treasury to be non-taxable.
Federal regulation defines “qualifying payments” as any payment made under the standard 10-year schedule, the Income-Contingent Repayment option, the Income-Based Repayment option or the new Pay As You Earn option. The 120 payments do not need to be consecutive, so if the borrower pauses out of either repayment or public service employment briefly, that does not disqualify them.
The definition of public service employment is quite broad for purpose of this legislation. Among other things, it includes government employees, public interest attorneys, prosecutors, public defenders, and other employees of tax exempt organizations classified as 501(c)(3) by the Internal Revenue Code.
The negative side of this forgiveness program is that it is only available on Federal Direct student loans. If a borrower’s loans are held by a different lender, they will need to consolidate their loans with the Federal Direct Loan Program in order to become eligible for forgiveness. Additionally, this program does not offer any assistance with private student loans.
Borrowers who wish to pursue this option should read the requirements in detail. Application for forgiveness will require employment certification. Instructions are available for the employment certification process. The actual application for forgiveness is expected to be available by 2017.