The Lawyer’s Guide to Public Service Loan Forgiveness (PSLF)
Executive Summary
Public Service Loan Forgiveness (PSLF) offers lawyers the opportunity to have part of their student loans forgiven if they work in the public sector or with a non-profit. While approval rates have increased in the last year, historically, PSLF denied almost all applications for forgiveness. This guide was built to give lawyers all the requirements they need to be aware of as well as some common pitfalls that have denied borrowers in the past. These include:
- Work full time for a government agency or non-profit
- Make 120 qualifying payments in a qualifying income driven repayment plan
- Have eligible loan types for forgiveness
- Maintain diligent records to receive forgiveness
PSLF is worth it if you can meet the requirements, but it must be done correctly because mistakes result in substantial financial consequences.
Are you a lawyer who decided to work a career in the public sector or at a non-profit?
Did you take out student loans to pay for law school?
Is making a difference more important than making a Big Law salary?
If you answered “yes” to these three questions, then you are a great candidate for the Public Service Loan Forgiveness (PSLF) program.
PSLF allows lawyers to serve their country, community, and cause while having part of their student loan debt forgiven. But the PSLF is not a guarantee. Historically, roughly 98% of borrowers have had their forgiveness denied. While this rejection statistic has improved over the last year, it highlights the importance of following all requirements.
PSLF is a notoriously tricky program to benefit from because the requirements for forgiveness are not easy to understand. Borrowers have lost years of repayment, assuming they complied with the requirements only to receive a denial upon applying for forgiveness.
Their failures do not have to be yours. This blog lays out the steps a lawyer needs to take so they can benefit from PSLF. Follow these steps, and you will be on the right track towards forgiveness.
PSLF benefits
Student loans for lawyers can present a financial burden for students with a mission-driven outlook on their careers. The average monthly student loan payment for lawyers can far exceed $1,000/month.
For a lawyer considering working in the public sector or at a non-profit, the salary potential is not high enough to make these large monthly payments and maintain a standard of living that a lawyer deserves to have.
One benefit to PSLF is the short timeframe for forgiveness. The standard repayment period for federal student loans upon graduation is ten years, which is the shortest standard repayment timeframe offered by federal student loans. The PSLF also features a ten-year repayment period. A lawyer who has smaller payments through a PSLF income-driven repayment (IDR) plan will financially benefit from the difference between their IDR payment and their 10-year standard monthly payment. These monthly savings can be hundreds of dollars.
Example: Laura the Lawyer graduates law school with $150,000 in student loans. She is working at a PSLF-eligible government agency where she makes $70,000 per year. The monthly payment on her student loans with a 10-year standard repayment is roughly $1,800. By pursuing PSLF and making her payments through an IDR plan, her payments average roughly $500 per month. By pursuing PSLF through an IDR plan, Laura saves $1,300 per month on her student loans and will have them forgiven in the same time as if she had made her 10-year standard repayment monthly payments.
Another benefit is that PSLF forgiveness is tax-free. Tax-free loan forgiveness is different from other repayment plans. Through standard IDR forgiveness, the amount forgiven is taxable.
Example: A lawyer has $100,000 in student loans forgiven after 20 years of IDR payments. They are in the 22% tax bracket, so they owe $22,000 in taxes for this loan forgiveness.
The short timeframe for forgiveness and tax-free treatment of forgiven amounts makes the PSLF an enticing opportunity for any lawyer.
PSLF requirements
To qualify for PSLF, a borrower must achieve all 5 of these requirements. Missing any of them leaves a borrower ineligible for forgiveness. Typically a borrower will not qualify for forgiveness because they did almost everything correctly, but as we will see, even a minor oversight can have a substantial financial impact. Print these requirements, write them down and set calendar reminders for yourself. Do not let something fall through the cracks which will force you to pay anymore than you have to.
Employed by a Government or Non-Profit Organization
The job title does not matter for PSLF. For forgiveness, a lawyer needs to work for an eligible employer. These include:
U.S. government organizations including federal, state, local, tribal, and military agencies like AmeriCorps and Peace Corps.
Non-profit organizations that are considered 501(c)(3) under the Internal Revenue Code or provide certain qualifying public services like emergency management, public safety, law enforcement, public interest law services, early childhood education, public service for disabled and elderly individuals, public health care workers, and providing library services.
To determine if your organization is eligible, you have two options:
Use the PSLF Help Tool on studentaid.gov to enter your employer information. The tool helps determine if your employer is eligible. It also partially completes your employment verification form.
Manually complete the PSLF Certification and Application Form and submit it. You will receive a notification when your application is accepted, rejected, or returned for more information.
Important: The PSLF Certification and Application Form is the same form as the Employment Certification Form. They will be used interchangeably in this guide. The Employment Certification Form (ECF) should be submitted annually or whenever a lawyer changes their job. A lawyer is not considered in the PSLF program until this form is submitted, approved, and the loans have moved to the qualified loan servicer, FedLoan. Loans will not be eligible for PSLF until FedLoan is the servicer of the loans.
It is important to file the ECF annually because it provides a record of consistently being in the program and having a certified employer.
Some common mistakes made on the ECF are:
Missing Information: Ensure all information on the form is complete and accurate. Pay close attention to the employer address and the Employer Identification Number (EIN). If these are not correct, the application will not be approved.
Inconsistent Information: When lawyers submit an annual ECF or an ECF for a job change, a lawyer should verify the start and end dates of employment with prior ECF submissions. Having inconsistent start and end dates can delay forgiveness or even result in a denial.
Correction errors: If you are correcting something in the borrower section, you must initial the correction. If you change the employer section, the employer must initial the correction.
Correct signer: The ECF needs a signature from an authorized official. The signer is usually someone from HR. Ask your employer who is authorized if you are unsure.
Signature: Currently, the PSLF will only accept handwritten signatures or a digital signature written as a hand-drawn signature. Document signing apps that format the signature in a font will not be accepted. It is best practice to obtain signatures in wet ink.
2. Work Full-time
A lawyer will not receive forgiveness if they do not maintain full-time employment for 120 qualifying months (10 years). A lawyer is considered full-time:
If employed with only one qualifying job, the applicant must work at least 30 hours per week, or the number of hours the employer considers full time, whichever is greater.
If the applicant has more than one qualifying job at the same time (e.g., multiple part-time jobs), they must work an average of at least 30 hours per week.
If you take a medical leave like maternity or paternity leave and are still considered full-time, the 12 weeks of payments (3 months) will count as qualifying payments.
If you work for a religious non-profit, time spent on religious instruction, worship services, or any form of proselytizing as a part of your job responsibilities may count toward meeting the full-time employment requirement.
Vacation or leave time provided by your employer counts as hours worked in determining whether you are a full-time employee.
Switching jobs during the PSLF program will delay your forgiveness. Once starting with a new employer, complete and file the ECF as soon as possible.
3. Make 120 Qualifying Payments
A lawyer can only receive forgiveness after they have made 120 qualifying payments. These payments do not have to be consecutive, but a lawyer must have a total of 120 qualifying payments to receive forgiveness. A qualifying payment must meet all of the following requirements:
Paid after October 1, 2007
Made through a qualifying repayment plan
For the complete amount on the bill (even a penny less will not qualify)
No later than 15 days after the due date
While employed full-time with a qualifying employer (see #1 and #2)
Qualifying payments is a common mistake area for borrowers. Keep in mind that:
Making more than one payment in a month will only count as one qualifying payment. Do not prepay any monthly student loan bills! Ex: A lawyer makes their payment for January on their due date of January 1st. On January 31st, they make their February payment. These two payments will only count as one qualifying payment. The lawyer should have paid their second payment on February 1st.
If an employer makes a student loan payment on your behalf, the one-time payment will only count as one qualifying payment even if the amount paid is much greater than the month’s amount owed. Work with your employer to extend the payments over multiple months.
Do not pay extra. Even a penny extra each month will reduce the potential forgiveness at the end of the program.
Months in deferment or forbearance do not count, except for the COVID forbearance. If you are in law school and working at a qualifying employer, you may consider waiving the in-school deferral on payments to qualify those months. Note: This may result in the borrower having to make payments on their loans while in law school.
Being in the grace period does not count as qualifying payments. Borrowers have a six-month grace period after graduating from law school before they need to make payments. A lawyer who starts making payments before the six-month grace period ends will have those payments count towards their 120 qualifying payments.
Payments made before starting work or paying while not employed will not count.
If a lawyer has previous payments that did not qualify under these requirements, lawyers have an additional option. Until October 31, 2022, they may file for a PSLF waiver. This waiver may make payments that were previously ineligible due to being less than the amount owed, late, on ineligible repayment plans, or made before the borrower was in the PSLF program, eligible. Lawyers will still need to document that they were with an eligible employer, worked full-time, and made the payments after October 1, 2007.
Lawyers who are not sure if their previously ineligible payments count towards the waiver should apply anyways. There is no penalty but quite a lot of potential benefits.
4. Have the Right Types of Student Loans
The PSLF is only for Direct Loans. A lawyer can check their loan type by logging into studentaid.gov and checking the loan type of each loan. If it says anything other than “Direct” it is not eligible for PSLF.
The following types of loans are eligible for forgiveness:
Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS loans
Direct Consolidation loans
The following types of loans are not eligible for forgiveness:
Federal Family Education Loans (FFEL)
Perkins Loans
Private student loans
Privately refinanced student loans
Parent PLUS loans
Any other loan not listed in the eligible list above
Having loans that are not eligible does not mean that they cannot become eligible for PSLF. A lawyer can convert these loans. They must consolidate the ineligible loans into a Direct Consolidation Loan.
Consolidating ineligible loans may not always be the best option for a lawyer. For one reason, consolidating previously eligible loans with a history of qualified PSLF payments will erase the payment history. Once erased, a lawyer will have to start over on their 120 qualifying payments. If a lawyer determines that consolidation is the best option, a lawyer can fill out a consolidation application on studentaid.gov for the ineligible loans. After consolidating into a direct consolidation loan, refile the ECF form to ensure that they are with the correct provider, FedLoan.
The payments made on ineligible loan types before consolidation will not count towards the 120 qualifying payments required for forgiveness. If a lawyer has made ineligible payments on ineligible loans, the lawyer must consolidate these ineligible loans into a Direct Consolidation Loan by October 31, 2022, and apply for the PSLF waiver. As long as the new consolidated loans had payments made with a qualifying employer while working full-time, those previously ineligible payments will count. Consolidation must be completed before the PSLF waiver expires to qualify.
Any ineligible loans not consolidated by October 31, 2022, will be subject to the original PSLF rules that will keep those loans ineligible for forgiveness. Also, loans consolidated after October 31, 2022, will have their repayment history erased. Meaning previously qualifying payments made before the consolidation will not count. It is imperative that if a lawyer decides to consolidate, they do it before October 31, 2022.
5. Make Payments in a Qualifying Income-Driven Repayment Plan
As stated above, the PSLF program takes 120 qualifying payments (10 years) to achieve forgiveness. It is impossible to achieve forgiveness before ten years. While the standard 10-year repayment plan is eligible for PSLF, it does not make sense to do this. Since a borrower must pay in full and on-time to qualify, making these payments over ten years will fully pay off the student loans at the time of forgiveness. Then there will be no financial benefit to the PSLF program.
Therefore, a lawyer should select a qualifying Income-Driven Repayment (IDR) Plan. These include:
PAYE
REPAYE
IBR
ICR
PAYE and REPAYE are the two most commonly chosen repayment plans. These plans determine the monthly amount owed based on a lawyer's annual income. A lawyer who works for a government agency or non-profit with a low salary will benefit more from forgiveness than a lawyer making substantially more.
Like filing the employment certification form annually, borrowers on an IDR plan also must certify their income annually. A borrower will certify their income through the studentaid.gov website. Failing to certify income annually will cause the borrower to default to a standard 10-year repayment plan. Changing back to the 10-year standard repayment plan will result in potentially higher monthly payments, potential ineligibility to switch back to an IDR plan, and a reduction in the total financial benefit of student loan forgiveness.
IDR plans penalize borrowers who make a high salary and are in PSLF. Lawyers should understand their future earning potential, how each IDR plan calculates payment amounts, and the income potential of their spouse, if applicable, before deciding whether to pursue PSLF. If you are not sure which repayment plan works best for you, schedule a Meet & Confer with me, and we can do a student loan repayment analysis.
6. Maintain diligent records for filing for forgiveness
PSLF is a great way for lawyers to have their student debt forgiven, but the forgiveness process is tedious. Luckily, lawyers are, by nature, organized and adept at maintaining diligent documentation.
The PSLF requires nearly perfect documentation to qualify. A lawyer should have all of the following documents when filing for forgiveness:
Ten years of employment certification forms
Records from FedLoan that show there have been 120 qualifying payments. It is best practice to take a screenshot or download the FedLoan summary report on an annual basis to ensure that there are no mistakes over the time of the program.
After applying, a borrower should receive an email stating the approval, delay due to incomplete information, or denial of their application.
If an application is approved, the borrower will receive a notice stating the forgiveness of all the remaining balance of eligible loans. A lawyer should see on FedLoan that their balance is $0. If a borrower makes an additional payment following the 120th qualifying payment, they will receive a refund for the overpaid amount.
For incomplete applications, borrowers will receive a notice of the missing information to provide. Lawyers should continue to make their required payments during this process. As stated above, overpayments are refunded.
Borrowers who receive a denial should inspect their notice for the reasons for the denial. Borrowers denied because some or all of their payments were not eligible under a qualified repayment plan can apply for Temporary Expanded PSLF (TEPSLF). If TEPSLF also results in a denial, the borrower will need to keep making payments based on the terms of their repayment plan. There is an additional option to file an appeal to the FSA Ombudsman Group through the StudentAid.gov feedback center.
PSLF Checklist
PSLF can be a fantastic student loan repayment program for any lawyer pursuing a career in public and non-profit lawyer positions. But this program is filled with pitfalls. Here is a checklist of items to ensure your PSLF application process goes as smoothly as possible:
Initial application
File your PSLF application and employment certification as soon as possible
Ensure the PSLF application has the correct EIN and address of any qualifying employers along with an eligible signature.
Ensure that FedLoan is the service provider for all loans in PSLF.
Ensure loans are all in a qualifying IDR plan
Ensure loans are eligible for forgiveness, which may mean consolidating loans.
Apply for PSLF waiver by October 31, 2022, to make previously ineligible loan payments eligible
Annual tasks
Ensure each annual ECF has the correct EIN and address of any qualifying employers along with an eligible signature.
File the ECF annually even if you did not change jobs. If you did change jobs, file the ECF as soon as you begin working full-time.
Recertify income for the IDR plan on an annual basis
Documentation
Keep a copy of each application and employment certification form.
Keep records that your work was full-time, especially for lawyers who work part-time with multiple qualifying positions.
Document each qualifying payment and the date of the payment
Take screenshots of FedLoan to document payments were correctly counted.
Payments
Do not pay student loan payments in advance (only one monthly payment counts).
Make all payments in full and on time.
Do not allow loans to be in deferment or forbearance except for the COVID forbearance.
Make payments during the grace period if they will qualify.
Applying for PSLF forgiveness can be done, and the financial benefit of tax-free forgiveness in only ten years is substantial. Lawyers are more than capable of navigating PSLF without assistance. But they may benefit from working with a financial planning professional who understands the PSLF program and all of its requirements. As a Certified Student Loan Professional™, I will analyze your student loans, financial situation, and future earning potential to determine if the PSLF program is in your best interest. If it is, we will work together to document and meet each requirement for forgiveness. If you are interested in learning how a student loan analysis or ongoing financial planning can help you financially, schedule a free Meet & Confer. This meeting can be the first step towards paying off your law school debt.
Disclaimer: Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.