The Public Service Loan Forgiveness (PSFL) program is one of the most generous student loan forgiveness options in existence. Under this program, graduates with federal loans who work full-time in eligible public service jobs can have their remaining debt forgiven after making 10 years of payments. Best of all, loan forgiveness is tax-free.
Graduates with $100,000 or more in federal loans could take an eligible public service job and have their loans forgiven after 10 years. They could also enroll in income-based repayment programs that limit their monthly payments to 10 to 15 percent of their discretionary income.
Some graduates did follow this plan, and now the Department of Education is telling them they are no longer eligible for PSLF.
Can the Education Department Pull PSLF Eligibility?
Four plaintiffs and the American Bar Association are suing the Education Department for retroactively pulling PSLF eligibility with no warning. All four plaintiffs are lawyers who chose their career paths after being told by the Education Department that they were eligible for loan forgiveness. One plaintiff has almost $240,000 in student loans.
The Education Department’s decision to pull eligibility was applied retroactively. In other words, it initially said these borrowers were eligible for PSLF, but that the original decision was wrong. Payments made by these plaintiffs over the years towards PSLF were all for naught. The plaintiffs could find new jobs and reapply to PSLF, but they would need to start 10 years of repayments over again.
Unfortunately, the PSLF program may be called into question by future student loan borrowers. Why should borrowers risk enrolling in PSLF if the Education Department can declare their jobs ineligible for forgiveness without warning?
Not only that, but if borrowers are also enrolled in income-based repayment programs, the long-term financial consequences could be devastating. Borrowers in such a situation would have made very little progress reducing their principal balance, and likely would have more debt due to compound interest.
The Education Department encourages borrowers enrolled in the program to resubmit the PSLF certification form each year. This form lets borrowers know whether they still qualify for PSLF.
There Are Other Options for Student Loan Forgiveness
This lawsuit shows that enrolling in PSLF may come with risks. However, there are other options for forgiveness on federal loans.
Borrowers who are victims of fraud under state law, or those who are permanently and totally disabled may have their loans forgiven. Bankruptcy courts have also become more lenient towards borrowers seeking discharges on their student loans. Borrowers enrolled in income-based repayment programs can have their loans forgiven after 20 to 25 years of payments, but with an income tax hit.
If you are struggling with student loans, the Kansas City bankruptcy attorneys at The Sader Law Firm can help you discover options for relief. Continue following our blog for future updates on clever ways to manage student loans.