Public Service Loan Forgiveness (PSLF) is a game-changer for many borrowers working in the public sector. But what if you spend years working toward PSLFโonly to find out you no longer qualify? Suddenly, you’re left unprotected, and everything you worked for is at risk.
At FitBUX, we’ve helped over 50,000 new grads manage their student loans, and Iโve seen firsthand how PSLF can fail borrowers. In this article, weโll cover three ways PSLF can fail you and, more importantly, how to protect yourself in case it does.
3 Ways PSLF Can Fail You
1. Leaving Your Non-Profit Job
One of the most common ways PSLF fails is when borrowers leave their non-profit job.
Maybe you find a better-paying opportunity elsewhere, or you simply donโt like the work anymore. But hereโs the problemโif you leave a non-profit job before hitting 120 qualifying payments, you lose PSLF eligibility. This means all the payments you made under the program no longer count toward forgiveness unless you go back to work at another non-profit in the future.
2. Your Employer Becomes a For-Profit
Could you imagine working at a non-profit for 7 yearsโonly for your employer to change status and wipe out your PSLF progress?
This happens all the time, particularly in healthcare, when a non-profit hospital or organization gets acquired by a for-profit company. You may still be doing the same work, but if your employerโs tax-exempt status changes, you no longer qualify for PSLF.
Unfortunately, this is completely out of your control, and many borrowers donโt even realize it until itโs too late.
3. Government Changes to PSLF
One of the biggest fears borrowers have is the government eliminating PSLF altogether. While this is unlikelyโsince the program has bipartisan support and borrowers are typically grandfathered inโit’s still a concern.
Even if PSLF doesnโt disappear, policy changes can make it harder to qualify or require additional steps to maintain eligibility. Having a backup plan is essential.
How to Protect Yourself If PSLF Fails
Now that you know the top ways PSLF can fail, letโs talk about what you can do to protect yourself and stay financially secureโno matter what happens.
1. Save the Payment Difference
This strategy applies if you would pay off your student loans if you no longer qualified for PSLF.
If you’re pursuing PSLF, youโre on an Income-Driven Repayment (IDR) plan, which lowers your monthly student loan payments.
Hereโs what you do: Save the difference between your PSLF payment and the standard 10-year payment.
For example:
- Your standard 10-year plan payment: $1,755 per month
- Your PSLF (IDR) payment: $400 per month
- Difference to save: $1,355 per month
By setting aside this amount every month, youโll have a financial cushion. If PSLF falls through or you leave your non-profit job, you can use these savings to aggressively pay down your loans.
Not everyone can afford to save this much, which is why we also recommend another strategy.
2. Save for the Tax Liability
If PSLF doesnโt work out, your loans may still be forgiven under an IDR plan after 20-25 years. However, thereโs a catchโyouโll owe taxes on the forgiven amount.
At FitBUX, we refer to this as the minimum monthly tax savings amount.
The best way to do this? Use a Roth IRA to save strategically. This allows your money to grow tax-free, and you can access contributions if needed. Even if PSLF works out, youโll still have savings for other financial goals.
Final Thoughts: Protect Yourself Now
PSLF is a great program, but itโs not guaranteed. If youโre relying on PSLF, you need a backup plan. By saving the difference in your payments or preparing for the tax liability, youโll ensure financial securityโno matter what happens.
If youโre ready to set up a personalized financial game plan, FitBUX can help. Weโve helped thousands of borrowers navigate student loan strategies and create a plan that works for them.
โก๏ธ Click here to get started with FitBUX
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