Public Service Loan Forgiveness

How it works

The borrower must be employed full time, as the program defines it, by a federal, state, local, or tribal government, or by a nonprofit that is tax exempt under section 501(c)(3), while making each of the 120 payments. The loans must be Direct loans, and older federal loans of other types can be consolidated into a Direct loan to qualify from that point on. Payments must be made under an income driven plan or the standard ten year plan. The 120 payments do not have to be consecutive, so a borrower who leaves public service and returns keeps the earlier count. The borrower certifies employment through the federal student aid site, which tracks the count. Forgiven balances are excluded from federal income under current law.

What it gives

The whole remaining balance goes away after ten years of payments, with no tax on it.

Combined with an income driven plan, the payments themselves can be small.

Payments made under different qualifying employers all count together.

What it costs, or where the catch is

Only Direct loans qualify, and payments made before consolidating other loan types may not count.

Full time employer certification is on the borrower, and gaps in paperwork cause delays.

The ten year clock means a borrower who leaves public service early sees no forgiveness.

A worked example

Noor works for a county health department with $85,000 in Direct loans and a $320 monthly payment under an income driven plan. Over 120 months she pays $38,400, since $320 times 120 is $38,400. The remaining balance after interest, about $70,000, is forgiven in year ten with no federal income tax. On the standard plan she would have paid roughly $110,000 over the same loans.

Where it goes wrong

The usual miss is years of payments on the wrong loan type or the wrong plan that never counted, discovered only when the borrower applies.

Who confirms it for you

For your own numbers, the loan servicer. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

Federal Student Aid: Public Service Loan Forgiveness. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.