Is Public Service Loan Forgiveness All It's Cracked Up to Be? 4 Things to Know

If serving the public is your calling, there’s a good chance you already know that you're probably not going to be raking in the cash. (Trust me, I should know. I spent 17 years as a public school counselor and the benefits came from serving kids, not from a big paycheck.)

While you can make a decent living working in public service jobs, oftentimes, your income may be barely enough to cover all of your monthly expenses. This is especially true if you have an overwhelming amount of student loan debt.

That’s why some people turn to Public Service Loan Forgiveness (PSLF) for help. The PSLF program forgives the remaining balance on your federal Direct Loan after 10 years of qualifying payments. It's available to many employees working in public service, including some school districts, public hospitals, non-profit organizations, government organizations at all levels, volunteer organizations like Peace Corps and Americorps, and more.

But before you declare that PSLF will solve all your money problems, there are a few things you need to be aware of. 

1. Public Service Loan Forgiveness is not a guarantee

Since PSLF is considered such a political hot potato, one question that comes up often is: "Can I be certain that the PSLF Program will exist by the time I have made my 120 qualifying payments?"

And the answer: it depends.

Let's get some clarification right from the Federal Student Aid website. It states: "We can't make any guarantees about the future availability of PSLF. The PSLF Program was created by Congress, and Congress could change or end the PSLF Program."

So, as you can see, this program's future is far from certain. 

2. You may think you qualify — and you may be wrong

Many people work for several years in a job thinking they qualify for PSLF but then find out they do not. Frustrating for sure ... but it happens often, and here’s why.

Since you have to make 120 qualifying monthly payments, it will be at least 10 years after you make your first payment before you can cash in on your benefits. If you wait until then to find out if your employer qualifies, you might be out of luck. 

How can you ensure this doesn't happen to you? If you’re working towards PSLF, it’s important that you fill out the Employment Certification form — over and over again.

When you should fill it out?

• When you are trying to qualify initially
• Annually every year after that, and
• Every time you switch employers. 

3. Income-driven payments may not be enough

Since you have to be enrolled in an income-driven repayment plan in order to participate in PSLF, you may find that you’re not paying enough to cover your monthly interest. 

This is known as “negative amortization.” Because unpaid interest gets added to your loan principal, it can cause the size of your loan to swell even though you’re paying on time each month.

If you decide to leave the public service sector and not return, you may find that you longer qualify for PSLF —which means you'll be on the hook for a bigger debt. 

See also: Comparing Income-Driven Repayment Plans.

4. It could impact your career decisions 

Once you receive word that your current employer qualifies, you might be wondering how long you have to stay in your current job to qualify for PSLF. This can cause a lot of stress, especially if you’re working in a career that you don’t love and you’re thinking about leaving. 

The good news: you don’t have to make 120 consecutive payments. For example, if you decide to leave your qualifying job because you’re not happy and end up with a period of employment with a non qualifying employer, you won’t lose credit for prior qualifying payments you made.

The not-so-good news: a payment can be counted only if you are employed full-time by a qualifying employer at the time you make the payment.

Plus, after you make your 120th qualifying payment, you need to submit the PSLF application to receive loan forgiveness. You must be working for a qualifying employer at the time you submit the application and at the time the remaining balance on your loan is forgiven. 

Are you curious to find out if there are other options besides PSLF to help you pay off your student loan faster?

Check out Everything You Need to Know About Student Loan Refinancing.