• Mitchell Reed Sussman

Public Service Loan Forgiveness

The Public Service Loan Forgiveness Program forgives the balance remaining on a Federal Direct Student Loan, or Federal Family Education Loan (FFEL) or Perkins Loan if either have been consolidated into a Direct Loan. If a Federal Family Education Loan or Perkins Loan was not consolidated into a Direct Loan, it is not eligible for Public Service Loan Forgiveness.


To be eligible for Public Service Loan Forgiveness, a borrower must have worked full time for a government agency or for certain types of non-profit organizations, be on an Income Driven Repayment Plan, and have made 120 qualifying payments on the qualifying Direct Loan. If a Federal Family Education Loan or Perkins Loan were consolidated into a Direct Loan, any payments made prior to the consolidation do not count toward the 120 qualifying payments.


If a borrower has both a Direct Federal Student Loan and a Federal Family Education Loan or Perkins Loan and wishes to consolidate into a single qualifying Direct Loan, payments made on the already existing Direct Federal Student Loan will not be given credit toward the 120 qualifying payments. The full 120 qualifying payment would have to be made after the loan consolidation. A borrower in such a situation may wish to consider consolidating their Federal Family Education Loan(s) or Perkins Loan(s) into a separate Direct Loan so as not to lose credit for payment already made on the preexisting Direct Federal Student Loan.


It is very important to ensure loans a borrower plans to have forgiven are eligible for Public Service Loan Forgiveness. Servicers have at times given false information to borrowers, stating a loan is eligible when it is not unless the loan is first consolidated. This has led to startling surprises as such false information has caused borrowers to take care in doing everything to comply with the requirements for discharge under Public Service Loan Forgiveness, only to find out that cannot get their load forgiven or only some of their loans forgiven with others still remaining. Borrowers who have been given false information on their loan eligibility and relied on this information provided by their servicer can sue for damages caused by the misrepresentation of eligibility. Due to servicers giving such false information to borrowers, the number of lawsuits that have been filed against services for misrepresenting their loan eligibility has been increasing. While this does raise the possibility of a borrower suing the servicer that falsely stated loans would be eligible for forgiveness that are not without first being consolidated, it causes the time of service under the Public Service Loan Forgiveness Program to start over, beginning after the consolidation is completed. Depending on when the false nature of the loan being eligible is discovered during the 120 qualifying payments period, which works out to be 10 years, it could potentially double the time before loans can be forgiven.


In another lawsuit brought by the American Federation of Teachers which sought loan forgiveness under Public Service Loan Forgiveness rather than Teacher Loan Forgiveness in order to have a full balance forgiven rather than the limitation under Teacher Loan Forgiveness. Under the suit the American Federation of Teachers claims the U.S. Department of Education has mismanaged the Public Service Loan Forgiveness program, denied claims after the borrower had made the required 120 qualifying payments, and for intentionally preventing public service workers from receiving forgiveness. While this primarily is brought by teachers, the implications can be applicable to anyone who qualifies for Public Service Loan Forgiveness.


For a payment to be qualifying, they have to have been made after October 1, 2007, been made under a qualifying repayment plan, were made for the full amount of the payment due, been made no later than 15 days after the date due, and while employed full time by a qualifying employer. Any payments made do not qualify if they are made while the borrower’s loan is in in-school status, during the grace period after completing the educational program, in deferment, or in forbearance. If a borrower wishes to begin making qualifying payments while their loan is in the deferment period or in forbearance, the borrower can waive the deferment or forbearance in order to make payment due that would not otherwise be required so the number of qualifying payments can begin. The qualifying payments do not have to be consecutive, so if the borrower’s employment changes to a non-qualifying employer payments made while working for a qualifying employer will not be lost toward the 120 qualifying payment requirement.

To quality as a non-profit organization for Public Service Loan Forgiveness, the organization must be either tax-exempt under Section 501(c)(3) of the Internal Revenue Code, or have a primary purpose to provide a qualifying public service such as emergency management, military service, public safety, law enforcement, public interest law services, early childhood education, public service for individuals with disabilities, public service for the elderly, public health, public education, public library services, or school based services. Full time service as a volunteer in AmeriCorps or the Peace Corp also applies as qualifying employment. Labor unions, partisan political organizations, for profit organizations including government contractors, do not qualify. Volunteer employment with AmeriCorp or the Peace Corp also provides special rules to allow for up to 12 qualifying payments to be counted in a single payment by using their Segal Education Award or Peace Port transition payment.


Full time employment for purpose of Public Service Loan Forgiveness requires working at least 30 hours per week. This requirement can be met through part time employment if the cumulative average work hours with multiple qualifying employers meets or exceeds the 30 hour per week requirement. However, time spent on religious instruction, workshop services, or any form of conversion to religion, belief, or other opinion does not count toward the full time employment requirement.


Only those on an Income Driven Repayment Plan qualifies to receive Public Service Loan Forgiveness. As 120 qualifying payments are required, to be able to qualify to have the Federal Direct Loan forgiven there must be 10 years of payments that qualify. Under a Standard Repayment Plan, a loan will be repaid in the 10 year period regardless of if the employment was with a qualified employer. Due to this, if one wishes to seek Public Service Loan Forgiveness they should have their loan servicing changed to an Income Driven Repayment Plan as soon as possible.


The amount of the loan forgiven under Public Service Loan Forgiveness may be subject to taxes as income up to 25% of the balance forgiven amount. This would be included in the tax year that forgiveness is received. This is something a borrower should consider and plan for in either saving for the future tax liability or making additional payments or payment amounts to reduce the later forgiven balance.

34 CFR §685.219


Federal Student Aid, U.S. Department of Education, In certain situations, you can have your federal student loan forgiven, canceled, or discharged (https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation)


Federal Student Aid, U.S. Department of Education, If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness Program (https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service)


Anderson, Tom, Student loan forgiveness can come with a tax bomb, CNBC, September 11, 2016 (https://www.cnbc.com/2016/09/09/student-loan-forgiveness-can-come-with-a-tax-bomb.html)


Lobosco, Katie, Student loan nightmare: ‘I have to start over’, CNN Money, January 2, 2018 (https://money.cnn.com/2018/01/02/pf/college/public-service-loan-forgiveness-lawsuits/index.html)


Nove, Annie, She was denied public service loan forgiveness, so she filed a lawsuit, CNBC, December 18, 2018 (https://www.cnbc.com/2018/12/18/borrowers-denied-public-service-loan-forgiveness-file-lawsuits.html)


Modan, Naaz, Teachers sue Ed Dept over denied loan forgiveness, EducationDrive, July 11, 2019 (https://www.educationdive.com/news/teachers-sue-ed-dept-over-denied-loan-forgiveness/558594/)


California v. Navient, Superior Court of California, County of San Francisco, Case Number CGC-18-567732


American Federation of Teachers v. DeVos, U.S. District Court, District of Columbia Number 1:19-cv-02056

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