What Type of Repayment Plan Qualifies for PSLF?
Understand the essential repayment plans for Public Service Loan Forgiveness. Learn how to qualify and effectively manage your loan strategy for forgiveness.
Public Service Loan Forgiveness (PSLF) offers a path to student loan debt relief for individuals dedicating their careers to public service. This federal program aims to forgive the remaining balance on eligible Direct Loans after borrowers make 120 qualifying monthly payments. These payments must be made under a qualifying repayment plan while working full-time for a qualifying employer. Understanding the specific repayment plans that meet PSLF criteria is essential for borrowers pursuing this forgiveness option.
Qualifying Repayment Plans
For Public Service Loan Forgiveness, most borrowers benefit from enrolling in an Income-Driven Repayment (IDR) plan. These plans adjust monthly payments based on a borrower’s income and family size, which can result in lower payments and a remaining balance to be forgiven after 120 payments. The specific IDR plans that qualify for PSLF include the Revised Pay As You Earn (REPAYE), also known as the Saving on a Valuable Education (SAVE) Plan, the Pay As You Earn (PAYE) Repayment Plan, the Income-Based Repayment (IBR) Plan, and the Income-Contingent Repayment (ICR) Plan.
The 10-Year Standard Repayment Plan also qualifies for PSLF. However, loans are typically paid in full under this plan by the time 120 payments are made, leaving no balance for forgiveness. While payments count, this plan rarely results in forgiveness unless the original loan amount was very high or specific periods of deferment or forbearance contributed to the 120 payments.
Certain repayment plans do not qualify for PSLF because they are not income-driven or their repayment period is too long to result in a balance remaining after 10 years. These non-qualifying plans include the Graduated Repayment Plan, Extended Repayment Plan, and Alternative Repayment Plans. Selecting an appropriate repayment plan is important for PSLF.
Understanding Income-Driven Repayment Plans
Income-Driven Repayment (IDR) plans calculate monthly payments based on a borrower’s discretionary income, helping keep payments affordable. Discretionary income is determined by taking a borrower’s Adjusted Gross Income (AGI) and subtracting a specific percentage of the federal poverty line for their family size. For instance, under the SAVE Plan, discretionary income is calculated as AGI minus 225% of the federal poverty guideline. For IBR and PAYE plans, it is AGI minus 150% of the poverty guideline, while for ICR, it is AGI minus 100% of the poverty guideline.
The monthly payment amount is then set as a percentage of this calculated discretionary income, with the specific percentage varying by plan. For example, monthly payments under the SAVE Plan are 10% of discretionary income for undergraduate loans, potentially dropping to 5% in the future. IBR payments are 10% or 15% of discretionary income, depending on when the loans were borrowed. Payments on IDR plans can be as low as $0 per month, depending on income and family size.
Borrowers on IDR plans must recertify their income and family size annually to ensure their monthly payments remain correctly calculated. This process involves providing updated financial information, such as tax returns or pay stubs, to the loan servicer. Missing the annual recertification deadline can lead to complications, including a potential increase in monthly payments to the amount that would be due under the 10-Year Standard Repayment Plan, and accrued interest may capitalize. Interest capitalization occurs when unpaid interest is added to the principal balance of the loan, increasing the total amount on which future interest is calculated.
Changing Your Repayment Plan
Borrowers can change their student loan repayment plan at any time, which is important for those seeking Public Service Loan Forgiveness. This process allows individuals to switch to an eligible Income-Driven Repayment (IDR) plan if they are not already enrolled in one. Applying for an IDR plan can be done online through the Federal Student Aid website or by contacting the loan servicer.
When applying for an IDR plan, borrowers need to provide personal details, such as their address, email, and phone number. Financial information is also required, including family size and income details. To streamline the application, borrowers have the option to provide consent for the Department of Education to access their federal tax information directly from the IRS. This allows for faster processing and can eliminate the need to manually upload income documentation like tax returns or pay stubs.
After submitting the application, it is important to understand that processing times can vary, and borrowers should anticipate a period of several weeks. During this time, borrowers may be placed in an administrative forbearance while their application is pending. Once the new plan is approved, borrowers will receive confirmation of their new payment amount and the effective date of the change. It is advisable to confirm with the loan servicer that payments are being correctly applied under the new IDR plan to ensure they count toward PSLF.