Answers to Questions about Student Loan Forgiveness

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By Mark Kantrowitz

June 30, 2020

During our webinar about Student Loans 101 (Forgiveness), participants asked dozens of questions. Here are the answers to questions on student loan forgiveness. 

Questions about Income-Driven Repayment and PSLF

When I signed up for PSLF, I was directed to the REPAYE repayment plan. My spouse does not have student loans, so IBR is better for me. I was told that I can start with REPAYE, switch to IBR before my income is recertified, and have the payments made under REPAYE count toward my PSLF qualifying payments. Does this sound right? I’m worried that I will be subjected to a “gotcha” and the payments made under REPAYE will not count.

That is correct. Payments made under any of the income-driven repayment plans or standard 10-year repayment count toward Public Service Loan Forgiveness (PSLF). Borrowers can switch among these repayment plans and still qualify for public service loan forgiveness.

It is good that you are cautious. Some borrowers consolidated their loans only to later learn that consolidation resets the qualifying payment count to zero.

Questions about Consolidation and Loan Forgiveness

I recently consolidated two FFELP loans which originated in 2006 into a direct Federal loan. Does this qualify for forgiveness?

Yes. A Federal Direct Consolidation Loan can qualify for public service loan forgiveness. One can use a Federal Direct Consolidation Loan to make FFELP loans eligible for public service loan forgiveness.

The 120 qualifying payments start from the date of consolidation. Payments made previously on the FFELP loans do not count toward forgiveness, not even if the borrower was in the income-based repayment plan on the FFELP loans prior to consolidation.

Public service loan forgiveness is per loan, not per borrower. A consolidation loan is a new loan and therefore the qualifying payment count starts fresh from zero.

Questions about Public Service Loan Forgiveness

If you work full-time at a qualifying employer but part time at a for-profit entity (e.g., working part time in retail at Target) does the for-profit work negate the nonprofit work?

Borrowers must work full-time in a qualifying public service job, which is defined as working 30 or more hours a week on average.

Nothing stops a borrower from moonlighting in a job for a for-profit employer. Only the hours worked for the qualifying employer, however, will count toward public service loan forgiveness

Monthly loan payments under an income-driven repayment plan are based on the borrower’s income. So, working a side job will increase the borrower’s income. This will generally increase the monthly loan payments and thereby decrease the amount of loan forgiveness. In most cases, however, the increase in income will exceed the decrease in loan forgiveness. 

Do graduate federal loans ($40K a year) qualify for Public Service Loan Forgiveness?

Yes. All federal loans in the Direct Loan program are eligible for public service loan forgiveness, including Federal Direct Stafford Loans, Federal Direct PLUS Loans and Federal Direct Consolidation Loans, regardless of whether they were borrowed to pay for undergraduate school or graduate school. 

For example, a borrower who has a law school degree and who is pursuing a career as a public defender or prosecutor, or working in public interest law, can qualify for public service loan forgiveness.

Likewise, a graduate student who is pursuing an MSW and who will be working as a social worker can qualify for public service loan forgiveness.

How can we find out if our loan is eligible for the PSLF and if we’ve met the 10-year minimum or how much longer we have to go?

To determine if your student loans are eligible for public service loan forgiveness and the number of qualifying payments made and remaining, submit an employment certification form (ECF).

The loan servicer will check whether your loans are eligible, whether you are in an eligible repayment plan, and whether your employment is eligible. The loan servicer will also count the number of qualifying payments you have made.

It is a good idea to submit an employment certification form at least once a year and whenever you change employers to keep a record of your qualifying payments. 

Even if you don’t file the employment certification form, your payments will still count if they are qualifying payments. But, filing the form lets you know about any problems earlier. It also makes it easier to apply for loan forgiveness after you’ve made 120 qualifying payments. 

I have been out of school over 13 years, currently work for the City Government and that has been prior to school and still am working with the City but when I submitted a request for forgiveness I was told I was not qualified – payments were always automatically deducted and have been using income-driven program.

There are several possible reasons why your application for loan forgiveness was denied.

  • Only payments made while working full-time in a public service job count. Public service before your loans entered repayment does not count.
  • Only full-time employment counts, which requires an annual average of at least 30 hours a week.
  • If you did not work directly for the government, but instead worked for a government contractor, your employment is not considered to be qualifying employment unless the government contractor is a tax-exempt 501(c)(3) organization.
  • If your loans were in the FFEL program and not the Direct Loan program, the payments do not count, even if you repaid them in the income-based repayment plan. The income-based repayment plan is available in both the FFEL and Direct Loan programs, but only loans in the Direct Loan program are eligible for public service loan forgiveness.

As the loan servicer for public service loan forgiveness why your application was denied. You can also look at the checklist for public service loan forgiveness

If you satisfy all of the requirements for public service loan forgiveness, it is possible that the loan servicer made an error. If so, assemble documentation that proves that all of your payments were qualifying and ask the loan servicer to review your appeal. If that is unsuccessful, submit an appeal to the FSA Ombudsman at the U.S. Department of Education.  

Will payments made during COVID-19 count towards PSLF qualifying payments?

During the payment pause and interest waiver, the suspended loan payments will count toward public service loan forgiveness as though the borrower had made the payments, so long as the borrower continues to work full-time in a qualifying public service job. Any extra payments made by the borrower will not count toward loan forgiveness. 

The suspended payments also count toward the 20- or 25-year forgiveness at the end of an income-driven repayment plan for borrowers who are not pursuing public service loan forgiveness.

Questions about COVID-19 Forbearances

Does COVID-19 forbearance start over payment or just add 3 months?

A forbearance is a temporary suspension of the repayment obligation. Repayment will continue after the forbearance.

If interest accrues and is unpaid during a forbearance, it will be capitalized at the end of the forbearance by adding it to the loan balance. Some lenders will re-amortize the loan using the new loan balance and the remaining payment term. Other lenders will leave the monthly payment unchanged, which may increase the repayment term by a month. Check with the lender to learn the specific policies that apply to your loans. 

There were a lot of specific programs listed. Is there a list or link somewhere to all loan forgiveness programs that fall under each of these categories?

See the Complete Guide to Student Loan Forgiveness.

Questions about Other Types of Loan Forgiveness

Can federal student loans be forgiven if you cannot get a job?

Borrowers must repay their student loans even if they can’t get a job, are unable to find a full-time job or are unable to find employment in their field of study. There is no loan forgiveness for unemployment.

Borrowers who are unemployed may qualify for an unemployment deferment, which is a temporary suspending on the obligation to make payments on the student loan. The unemployment deferment is limited to a maximum of 3 years. 

Borrowers can also choose an income-driven repayment plan, which bases the monthly payment on a percentage of the borrower’s discretionary income. If the borrower’s income is less than 150% of the poverty line, the monthly payment is zero.

Questions about the Taxability of Loan Forgiveness

What do you recommend for borrowers expecting a loan forgiveness amount in excess of $100,000?

If a borrower is pursuing public service loan forgiveness, the loan forgiveness is tax-free, so the borrower does not need to do anything special to prepare for loan forgiveness, other than complying with all of the detailed and continuing to make the required payments on the loans. The forgiveness at the end of 20 or 25 years in an income-driven repayment plan is taxable under current law. Although it is possible to get the tax debt forgiven or reduced if the borrower is insolvent, some borrowers may want to start saving to cover the tax liability. (The IRS does offer payment plans for tax debt, but the payment plans are limited to a maximum of 6 years. A 6-year payment plan will have monthly loan payments that are about 75% to 90% of the monthly payments on the original debt over a 10-year repayment term.) Saving 2.5% of the original loan balance per year should be enough to cover the tax liability. That’s about $200 a month on $100,000 in student loan debt. 

A good place to start:

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