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News and Insights » 10-Year Public Service Loan Forgiveness

REMEMBER AS A CHILD, the mystery surrounding the idea of the Tooth Fairy? Once you lost a tooth and placed it under your pillow, money would magically appear the next morning. Not really understanding how it worked didn’t seem to matter too much, just as long as you were able to wake up to some loose change or bills if the Tooth Fairy was feeling generous. For many, the 10-year Public Service Loan Forgiveness (PSLF) program carries about the same mysterious feeling as the elusive Tooth Fairy.

Over the years many physicians have been diligently making their monthly student loan repayments in hopes that the balance of their student loans vanishes through the program. For those in this boat, there is light at the end of the tunnel as October 2017 marks the 10-year anniversary of the start of this program. As such, the first wave of participants should finally see the balance of their loans forgiven this year!

To qualify, participants have several requirements they must fulfill in order to receive debt forgiveness. First, over the 10-year period, or 120 payments, they must have been employed by a qualifying employer, i.e. a government agency (federal, state, local or tribal), a not-for-profit organization which is tax exempt under Section 501(c)(3) of the Internal Revenue Code, or by other qualifying types of not-for-profit programs. Additionally, participants must have worked at least 30 hours per week over the 10 years.

A qualifying loan under PSLF is any non-defaulted loan received under the William D. Ford Federal Direct Loan (Direct Loan) Program, which includes all income-driven repayment plans. Loans under other federal student loan programs, such as the Federal Family Education Loan (FFEL) Program or the
Federal Perkins Loan (Perkins Loan) Program do not qualify for PSLF. However, they may become eligible if consolidated into a Direct Consolidation Loan. It is important to remember though that after consolidation, only new payments made under the Direct Consolidation Loan will be counted towards the 120
payments required for PSLF.

Qualifying payments then are those made after October 1, 2007, for the full amount due, while fully employed by a qualifying employer, and once the borrower is required to make payments. Therefore, payments made during a grace period, deferment, or forbearance would not be included.

For those working towards PSLF, be sure to complete and submit the Employment Certification for Public Service Loan Forgiveness form to the U.S. Department of Education. This form is vital as it will be used to help verify that all payments qualify under the program.

Keep in mind that once the 120th qualifying payment has been made, participants should then also submit the PSLF application to receive loan forgiveness. Currently, the forgiveness application is still under development, but is expected to be completed by September 2017. Participants must also still be working for a qualifying employer at the time of the application submission to receive forgiveness.

Here at UMAFS, we are often asked if the forgiven balance will be considered as taxable income. Good news, under the PSLF program the forgiven balance is not considered taxable under the current federal income tax system. Additional details may also be found at www.studentaid.ed.gov, the U.S. Department of Education’s website.

As mentioned previously, 2017 represents the long awaited “Tooth Fairy” event of the 10-year PSLF program. If you do have any additional questions or would like to discuss how this program may be beneficial to you, please call us at 801-747-0800 or email ckelley@umafs.org to schedule a consultation.

August 16th, 2017 @ 12:00am by Chad-Kelley
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