PSLF Program Update: The Headlines Are Deceiving

May 26, 2019 2 comments

By Joseph Reinke, CFA, CEO of FitBUX

This article discusses new data that was released for the PSLF program. It also discusses how to protect yourself just in case you don’t qualify for PSLF in the future.  If you want more information on the PSLF Program be sure to checkout FitBUX’s Public Service Loan Forgiveness Guide.

One of the biggest fears for FitBUX Members pursuing Public Service Loan Forgiveness (PSLF) is the chance that they may not qualify, thus costing themselves a lot of money in the long run.

Since the PSLF program was launched in the fall of 2007, the first eligible individuals to qualify were able to apply for forgiveness in October 2017. The government released a report last week with the most up-to-date figures (Click here for the full report).

The data provides us with two very important keys to follow:

  1. Don’t believe the hype.
  2. You have to have a solid backup plan in case you don’t qualify.

PSLF Data

Before we dive into the two important keys, here is the summarized data from the report:

  1. Overall, 53,749 borrowers submitted applications for forgiveness
  2. 73% of applicants (approximately 39,200 people) were denied for not having eligible loans and not having qualifying employment! This is something we stress time and time again when creating repayment strategies with FitBUX members considering going onto PSLF.
  3. Another 25% (approximately 13,400) were denied for missing or incomplete data on the application.
  4. Overall, 338 unique borrowers qualified to have their loans discharged.
  5. That is 0.5% of applicants.

Don’t Believe The Hype

Many headlines out there will highlight that only 0.5% have gotten loans forgiven. These headlines imply the program is a failure which is not the case. There is good reason why most people applying don’t qualify.  The report also highlights why its important to follow directions!  Not only this, but many of the problems that plagued the PSLF Program in the beginning no longer exist.

Of the 73% that got denied for not having eligible loans and not having qualifying payments, many should have never applied to begin with. For example, private loans don’t qualify so if you have private loans don’t apply!

Not working for a qualifying employer used to be a problem. However, about 4 years ago the government rolled out a new form. You can complete it and send it in. Not only does the government confirm that your employer qualifies, they will also confirm that your loans qualify.  Everyone on PSLF should complete this, period, no questions asked.

Those that had been on PSLF prior to the PSLF certification form being rolled out may have been given wrong information by their loan servicer.  The Trump administration realizes this which is why they set up a fund to forgive those loans.

The astonishing data point is that 25% of people were denied for missing or incomplete information. That amazes me because these are college educated individuals that should be able to read and complete the necessary information.  I apologize if that sounds rude but “common man!”.  Your asking for thousands of dollars to be forgiven. Take a few minutes to make sure you do everything correctly.

As I said when the first update was released a few months back, the PSLF program was chaotic when it was first introduced. Over the recent years, applying and verification has become more “streamlined” and easier to do.  Therefore, we should see an uptick in those that have there loan forgiven.

We’ve already started seeing this uptick. On the first report 0.3% of applicants qualified and 0.5% on this report.  Side note…100% of people that followed the programs rules and procedures had their loans forgiven!

IDR Tax Savings Solution

What You Can Do In Case You Don’t Qualify For PSLF

This report highlights the reason why all should take the advice we give to FitBUX Members who are pursuing/considering pursuing PSLF: Pretend it doesn’t exist.

If it didn’t exist, you would be on an income-driven loan forgiveness plan (IDR). While IDR monthly payments are lower, the amount forgiven at the end of the IDR plan, unlike PSLF, is taxed at the same rate as your regular income, however.

This means that you will most likely have a significant tax bill at the end of 20 or 25 years when your loans are forgiven. At a minimum, you need to start saving for the tax as soon as possible and be sure to discuss this with your student loan planner.

When you qualify for PSLF, then great, you will have a lump sum of money available for other purposes.  If you do not qualify for whatever reason, at least you are on pace to be able to cover your tax liability.

If you need expert help figuring out how much to save for the tax and to track this amount over time, I highly recommend our one-of-a-kind IDR Tax Tracking Solution.

We calculate exactly how much you should be saving to cover your estimated tax liability as well as automatically track whether you’re on pace to pay the tax liability or need to save more. In addition, we also update your forecasted numbers every time your income changes or tax laws change.

Learn more here: FitBUX Student Loan Tracking Solution.

If you’d like to read more about the PSLF program then check our PSLF Guide.  Want to read more about money? Be sure to check out our blog home page

FitBUX's Income Driven Repayment Tax Savings Solution

2 Comments on “PSLF Program Update: The Headlines Are Deceiving

  1. Do you think that part of the issue is that at first there were no defined or standard documents til 2012 or so? Or that the program has been more defined in the last few years?

    1. I do think that has a huge part to do with it. There was mass confusion when they implemented. In fact, a lot of people are still confused and Fed Loans is not easy to deal with.

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