Personal Finance

The new rules for the public service loan forgiveness program

Key Points
  • After years of frustration with the public service loan forgiveness program, many borrowers are finally seeing some relief.
  • How to make sure you do, too.
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After 16 years of payments, Karen Tongson, a professor at the University of Southern California, finally got her student loans canceled this year.

She'd been pursuing public service loan forgiveness, a government program signed into law in 2007 by then-President George W. Bush that allows nonprofit and government employees to have their remaining federal student loans excused after 10 years, or 120 payments.

The program has been plagued by problems, however, making people who actually get the relief a rarity.

Borrowers often believe they're paying their way to loan cancellation only to discover at some point in the process that they don't qualify, usually for technical and confusing reasons. Lenders have been blamed for misleading borrowers and botching their timelines.

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"No one had any faith," Tongson, 48, said. "When I told friends and other colleagues that I'd signed up for this thing, they were like, 'That's never going to happen.'"

But then in November, Tongson checked her student loan balance and found it had dropped from $47,000 to $0. The U.S. Department of Education had also refunded her $20,000 for her years of overpayments.

Her surprise came as a result of reforms the Biden administration has been making to the loan program. It has reassessed borrowers' applications and recounted their payments, and it estimates that more than 500,000 people may be closer to forgiveness as a result. Many others are likely due refunds, as well.

Here's what you need to know about the new rules.

How are payments being counted differently?

To get your student loans forgiven under PSLF, you need to have made 120 payments over 10 years while working a public service job.

The problem the Biden administration is working to fix is that many borrowers are told by their lenders that they've made fewer payments than they actually have, or that some of their payments aren't counted for technical reasons, such as the type of federal loan they hold or being late one month.

To give people the proper credit for their payments, the administration is now looking not at the number of your qualifying payments but the months that you've been in repayment, said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors.

Even if you haven't been making payments throughout the government's pandemic pause on student loans, those months still count toward public service loan forgiveness, Griffin Rubin added.

"Payments made in any federal student loan program under any repayment plan can count," said Mark Kantrowitz, a higher education expert. "This includes partial payments and late payments."

How can I make sure I benefit from the new rules?

You want to act as quickly as possible, Kantrowitz said. That's because the Biden administration's new rules for public service loan forgiveness are slated to expire Oct. 31, 2022.

If you have either a Federal Family Education Loan (FFEL) or a Federal Perkins Loan, which don't normally count for public service loan forgiveness but now temporarily do, you'll need to consolidate those into direct loans with your servicer.

"It typically takes 30 days to 45 days for the consolidation to occur," Kantrowitz said.

"Borrowers should do this even if they don't expect to have 120 payments by the deadline, as the previously ineligible payments will count only if they do this," he added.

Student debt relief for some on the way
Student debt relief for some on the way

In addition, borrowers will also have to prove that their work was considered public service for any stretch of time that they're trying to get counted toward forgiveness. To do so, you'll want to file with your servicer a so-called employer certification form for each employer you've had throughout your timeline.

Borrowers currently jobless or not working in public service may still qualify for forgiveness now, so long as they've made 120 qualifying payments in the past, Kantrowitz added.

Some borrowers seem to be getting forgiveness automatically after the government's auditing of these accounts, but going through these steps will make sure you benefit from the new rules.

How does the refund work?

"Any payments made over 120 will be automatically refunded as long as those extra payments occurred after consolidation," said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

If some of your payments didn't qualify for another reason than an illegible loan type, you should still get a refund as long as you've hit those 120 payments.

The refunds shouldn't have any tax implications, Mayotte said.

"However some states do tax the amount forgiven under PSLF," she added.