Do Payments on the SAVE Plan Count Toward PSLF?

Student loan repayment and forgiveness programs are important for many individuals. The Saving on a Valuable Education (SAVE) plan and Public Service Loan Forgiveness (PSLF) can work together to provide debt relief. This article explains how payments made under the SAVE plan contribute to PSLF eligibility.

Understanding Public Service Loan Forgiveness (PSLF)

Public Service Loan Forgiveness (PSLF) offers federal student loan forgiveness for individuals working in public service roles. To qualify, borrowers must meet specific criteria related to their loans, employment, and repayment history. Only federal Direct Loans are eligible for PSLF. Other federal loan types, like Federal Family Education Loan (FFEL) Program loans or Federal Perkins Loans, must be consolidated into a Direct Consolidation Loan to become eligible. This consolidation process allows previously ineligible loans to gain the Direct Loan status required for PSLF.

Qualifying employment for PSLF generally means working full-time for a U.S. federal, state, local, or tribal government organization, including U.S. military service. Employment with certain non-profit organizations also qualifies, specifically those tax-exempt under Section 501(c)(3). Other non-profit organizations may also qualify if they provide specific public services as their primary purpose. Full-time employment is defined as working at least 30 hours per week, or the employer’s definition of full-time, whichever is greater.

Borrowers must make 120 qualifying monthly payments to receive PSLF. These payments do not need to be consecutive, allowing for breaks in qualifying employment. A qualifying payment must be made for the full amount due, on time (within 15 days of the due date), and while employed full-time by a qualifying employer. Payments must also be made under a qualifying repayment plan, which includes all Income-Driven Repayment (IDR) plans and the 10-year Standard Repayment Plan.

The SAVE Plan Explained

The Saving on a Valuable Education (SAVE) plan is the newest Income-Driven Repayment (IDR) plan. It replaced the REPAYE plan and calculates monthly payments based on a borrower’s income and family size. The SAVE plan aims to reduce financial strain for borrowers, particularly those with low and moderate incomes.

Monthly payments are determined by a borrower’s discretionary income. This is calculated as the difference between their adjusted gross income (AGI) and 225% of the federal poverty guideline for their family size. For example, a single borrower earning $32,800 or less, or a family of four earning $67,500 or less, may have a $0 monthly payment. For undergraduate loans, the payment is capped at 5% of discretionary income, while graduate loans are capped at 10%.

The SAVE plan includes an interest subsidy. If a borrower’s monthly payment does not cover the full amount of interest that accrues, the government covers the remaining unpaid interest. This prevents the loan balance from growing due to unpaid interest, even when monthly payments are low. Borrowers on the SAVE plan must recertify their income and family size annually to ensure accurate payment calculation.

How SAVE Payments Qualify for PSLF

Payments made under the SAVE plan qualify as eligible payments for Public Service Loan Forgiveness. This is because the SAVE plan is a qualifying Income-Driven Repayment (IDR) plan under PSLF rules.

The SAVE plan’s lower monthly payment calculations can make the 120-payment journey more manageable for public service employees. By potentially reducing the amount borrowers pay each month, the SAVE plan helps alleviate financial burden while making progress toward forgiveness. The interest subsidy feature also prevents loan balances from increasing due to accrued interest not covered by the monthly payment.

While SAVE plan payments count towards PSLF, all other PSLF requirements must still be met. Borrowers must maintain qualifying employment, work full-time, and have eligible Direct Loans. The SAVE plan primarily assists with the “qualifying payments” aspect of PSLF by offering lower and more stable monthly payment amounts.

Ensuring PSLF Eligibility While on SAVE

Maintaining PSLF eligibility while enrolled in the SAVE plan requires proactive management of loan and employment details.

Loan Consolidation

Confirm all federal student loans are Direct Loans. If a borrower holds Federal Family Education Loan (FFEL) Program loans or Federal Perkins Loans, these must be consolidated into a Direct Consolidation Loan to qualify for PSLF.

Employer Certification

Verify employer eligibility using the PSLF Help Tool on StudentAid.gov. This tool often requires the employer’s Employer Identification Number (EIN) and employment dates. The PSLF Form is used to certify employment periods and track qualifying payments. Borrowers need to provide accurate employment dates, employer contact information, and obtain a signature from an authorized official at their workplace.

Annual Recertification

For borrowers on the SAVE plan, annual income recertification is mandatory. This involves submitting updated income information, such as federal tax returns or pay stubs, and confirming family size. Borrowers can allow the Department of Education to automatically access their IRS tax returns for seamless annual recertification.

Submitting the PSLF Form

Submit the completed PSLF Form. Borrowers can use the PSLF Help Tool to generate the form, have their employer digitally sign it, and electronically submit it to their loan servicer. A paper form can also be printed, manually signed by both the borrower and employer, then mailed or faxed. Submit the PSLF Form annually or whenever employment changes to ensure accurate tracking of qualifying payments.

Tracking Progress and Final Application

Regularly track qualifying payments through their loan servicer’s online account or StudentAid.gov. This allows for monitoring progress toward the 120 required payments and addressing any discrepancies promptly. Respond to communications from the loan servicer regarding PSLF or SAVE to avoid issues with eligibility. Once 120 qualifying payments are made, a separate PSLF application must be submitted. Borrowers must be working for a qualifying employer when they submit this final application.

Recent legal challenges have temporarily impacted the SAVE plan’s full implementation, leading to administrative forbearance for some borrowers. During these periods, payments typically do not count toward PSLF. Borrowers concerned about their PSLF timeline during such pauses may consider options like switching to an active income-driven repayment plan or exploring the PSLF buyback option, which allows certain non-qualifying forbearance periods to count if a lump sum payment is made.