The Public Service Loan Forgiveness Scheme (often referred to as PSLF) is a program placed in motion by the government to provide people with relief from their student loan debt if they work with a non-profit or government agency.
The program is intended to remove the balance left on your qualified Direct Loans absolutely, provided you have fulfilled all the criteria. PSLF was part of the Act on College Cost Control and Access, which was implemented in 2007.
In addition to debt relief, there were three other big provisions: interest rate cuts, income-based repayment plans, and an increase in Pell Grant dollars.
Pros of Public Service Loan Forgiveness
You may apply for IDR plan discharge if you are not qualified for PSLF because you work for a for-profit company. You are applying for an IDR contract for this strategy, which will help you get a decreased monthly charge. Depending on the repayment package you are under, if the debts are not completely forgiven by the completion of the repayment period, the outstanding student loans will be forgiven after 20 to 25 years. You will, however, be expected to pay income taxes for the amount that is forgiven, depending on existing IRS law.
- It lets you get out of debt from your student loan. If you apply for the Public Service Loan Forgiveness scheme, as long as you make 120 monthly installments over a term of 10 years, you can get rid of the student loan. The outstanding debt balance will be repaid thereafter. The Forgiveness of the Teacher Loan also lets you get rid of your loan. There is a cap to the amount that can be forgiven, though.
- For the program, there are many jobs that qualify. In order to apply for the public service loan forgiveness scheme, you do not even have to enter the public sector service. The software takes the employer into account and not the sort of work you perform. So, for as long as the employer is acceptable to the scheme, it is possible to work at a position you want.
- For the forgiven amount, you do not pay tax. As the IRS views the forgiven amount as taxable revenue, certain student loan repayment programs have a tax effect. This is not the condition with the schemes for Teacher Loan Forgiveness and Public Service Loan Forgiveness. Therefore, you do not have any cause to fear. Basically, once the debt balance is repaid, the IRS would not slap you with a big tax bill.
Cons of Public Service Loan Forgiveness
Although the loan forgiveness program may be really nice if you look just at the numbers, to everyone, it might not be the right choice. It is crucial that you do the math on your own case and the variables you have will have a huge effect on how much you save from forgiveness.
- The eligibility conditions are very strict. You have to first ensure that you are hired by a qualified employer in order to get the rewards of a forgiveness scheme. After that, you have to stick to a lengthy list of conditions to guarantee that you stay with the program until your student loan balance is forgiven. For eg, you have to be up to date with the annual documentation and documents for the Public Service Loan Repayment Program. You get disqualified from the program if you aren’t.
- Job opportunities are limited. It reduces the work you will do if you wish to enroll in a federal student loan waiver program. Although it’s perfect for graduates who are interested in working in the public sector or who are excited about teaching, these career options may be the first, second, or even third option for any degree. It could be a big compromise.
- You would be expected to make a long-term career commitment. You must devote at least 5 to 10 years to the chosen field of work in order to apply. If you are not interested in working in relevant roles, this can be cumbersome.
Is PSLF and an IDR plan right for me?
For borrowers who have high student loan debt relative to their income, IDR plans provide a smaller monthly payment amount. In some instances, however, an IDR plan could give you a higher monthly payment than you want to pay, and under a traditional repayment plan, your monthly payment could be lower. PSLF may not be right for you in that case.