In October 2021, the Department of Education announced the PSLF Limited Waiver Program. This new program is designed to correct all of the errors that caused borrowers to be denied for Public Loan Forgiveness. PayForED lists 10 steps for PSLF Waiver Approval that will help you through this process.
To properly navigate this program, the borrower will need to determine the reason for their PSLF denial. The most common are:
- A borrower had FFEL loans rather than Federal Direct Loans
- The borrower received incorrect repayment method advice
- Incorrect recording of the payment amount or payment timing
The first two will require the borrower to take a series of steps for PSLF Limited Waiver Approval. These will be unique to each borrower. The incorrect accounting error will be done automatically by the loan servicer. Those borrowers will receive notification directly via email from the Department of Education.
Before you start this process, it is recommended that you have your FSA ID and password. This will allow the borrower to access their federal loan data. It is also recommended that you have your most recent tax return, W2, and current annual salary. Here are the steps borrowers need to follow:
- Review Federal Student Loan type
- Understand which repayment is being used
- Importance of the PSLF Waiver Deadlines
- Transferring Servicer to Fedloan Servicing to Qualify for PSLF
- Get Employment Certification Form completed
- Determine if loan consolidation is required
- Identify the best Income-Driven Repayment method to select
- Project your new forgiveness date
- Properly plan future tax filing method and Adjusted Gross Income
- Submit employment form periodically
Review Your Federal Student Loan Type
The PSLF Limited Waiver program can only forgive federal student loans. As stated above, one of the most common reasons for PSLF denial is that borrowers had FFEL loans. These loans did not qualify under the rules of PSLF even though they are Federal Student Loans. The current PSLF Waiver allows FFEL loans to now qualify.
To review your student loan type, the borrower needs to log into their account on the StudentAid.gov site using the FSA ID and Password. Click on View Details and then View Breakdown. A list of your federal loans will be displayed. If you have FFEL loans or a Consolidated FFEL loan, you will need to take some additional steps. These are described in a future step below.
Understand Which Repayment Method You Are Using
The other major reason for PSLF denial is the wrong repayment method advice. Only the Income-Driven Repayment Methods qualify for Public Service Loan Forgiveness. Many borrowers will still need to make additional payments after they receive their new waiver PSLF credits. These borrowers will need to switch to an IDR method and complete their payments under one of those methods.
The IDR repayment methods that qualify for PSLF under the waiver program are Income-Based Repayment (IBR). Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR).
To find out which repayment method you are enrolled in go to the Studentaid.gov site or call your loan servicer.
Importance of the PSLF Waiver Deadlines
The dates of the PSLF Limited Waiver program are a little confusing. The waiver period only corrects PSLF credit months through 10/31/2021. Yet the enrollment period is the same date in 2022. So, what does that mean?
Borrowers who have FFEL loans or are in the wrong repayment will only earn PSLF credit months through 10/31/2021. If you do not correct those problems, future payments will not be earned toward loan forgiveness. In addition, if a borrower does not enroll in the program before 10/31/2022 then no credits will be earned and the PSLF waiver will be forfeited.
This is important to understand since borrowers will need to correct their denial problem as soon as possible to earn future PSLF credits and get loan forgiveness as early as possible. PSLF Waiver credits are only earned through 10/31/2021.
Transferring to Servicer to Fedloan Servicing to Qualify for PSLF
Under the current PSLF rules, all PSLF borrowers need to be serviced by Fedloan Servicing. If you have a different loan servicer then you will need to log into StudentAid.gov and enroll in the PSLF program. This will move your account to Fedloan Servicing.
Fedloan Servicing will determine the number of PSLF credits that a borrower will earn based on the payment rules and employment certifications. This should be done as soon as possible to avoid any future credit problems.
Get Employment Certification Form completed
To earn the PSLF Limited Waiver credits, the borrower must have made payments and be a full-time employee for a qualifying employer. If the borrower is working for multiple qualifying employers he or she must have worked 30 hours per week during their payment period.
The borrower will need to submit either the Employment Certification Form (ECF) or the new PSLF Form. It is preferred that the borrower use the new PSLF form through the StudentAid.gov site. It will complete most of the employer information for the borrower. The borrower will need to get it signed by an authorized person at the company and then submit the form to FedLoan Servicing.
If the borrower has multiple employers during the qualifying time then a form from each employer is required. Fedloan Servicing will review the submitted forms and apply the proper PSLF credit to the account. This may take a few months since the government needs to update the systems and Fedloan Servicing will need to validate the information.
Determine If A Loan Consolidation is Required
Borrowers who still have FFEL loans will need to consolidate those loans to a Direct Loan Consolidation. You only should consolidate the FFEL loan. DO NOT do a complete Direct Consolidation. There is some confusing information about this process. Under current consolidation rules, a complete federal loan consolidation will result in the PSLF credit clock restarting and all prior credits will be lost. The PSLF Waiver program is an exception to this rule. At this time it is our recommendation that only the FFEL loans should be consolidated to a Direct Consolidated Loan.
This step is also important to get done as soon as possible since PSLF Waiver credits can not be earned after 10/31/2021 with FFEL loans for periods after 11/1/2021 for future PSLF credits.
Identify the Best Income-Driven Repayment Method for PSLF
As I mentioned before, borrowers will need to switch over to an IDR method if additional payments are required to reach the 120 credits months. This could be the hardest part of the process since the Income-Driven Methods are complex. Most borrowers do not understand these methods since the monthly payment is determined by the borrower’s income and not the loan terms.
The reason for this problem is the loan servicers are legally not allowed to provide personal financial advice. To select the proper IDR method the borrower needs to manage their Adjusted Gross Income. As a result, this limits the advice the borrower gets to make the best decision. For the married couple, this becomes even more confusing since this may impact how they file their taxes. A simple tax filing adjustment can reduce a couple’s annual payments by thousands of dollars. It also may allow them to save more for retirement and increase the amount forgiven.
This is a major void in the IDR and loan repayment system. Just as the loan servicer can’t provide tax advice, most tax professionals do not understand loan repayment. The PayForED Student Loan Repayer software has an easy-to-use tax estimator. It helps borrowers project the different tax filing methods and repayment options in a single view. With these estimates, student loan borrowers can make better decisions. The borrower will still require professional tax advice since the PayForED solution is only an estimate.
Project Your New PSLF Date
For some, the new rules may allow borrowers to stop payments now since they have earned the 120 PSLF credit payments needed. Other borrowers will need to see how many credits will be approved based on payments and employment verification. If you are trying to project the credits months remember months in normal forbearance will not count toward a credited month under the PSLF Waiver approval review.
Once you have those approved credits, you will need to project your targeted PSLF date. If you believe you have the 120 credits then the option to go into forbearance during the review period may be a good option until you know how many additional months will be needed.
Proper Planning For Future Tax Filing Method and Adjusted Gross Income
The IDR methods are required for PSLF. This part of the PSLF process is often understated and not understood by the borrower. In addition, the loan servicers are unable to give complete advice on the strategies to lower your monthly payments since it requires personal financial advice.
To maximize a person’s PSLF, the borrower needs to understand how their income and tax filing method will impact their monthly payment. This is the complexity that is not explained and is often the reason why many married couples leave the PSLF program.
With proper management, borrowers could be growing assets and reducing their monthly payments. As a result, their loan forgiveness amount will be much higher, and will most likely have more personal assets as a result of this better planning.
This planning is critical to the annual IDR Income Recertification process. The information is normally driven by the most recent tax return on file. Your 2021 tax return will be critical this year since many have not had to recertify their income during the National Forbearance Period.
Submit Employment Form Periodically
To attain the PSLF approval, employment verification is required for the 120 periods. It is recommended that periodic submission of the employment forms should be done. These submissions should be done at least once a year if you are at the same employer. I recommended it be done at the end of each year or at your IDR Income Recertification date.
If you change jobs, it should be done at the exit interview. This will eliminate the risk of you forgetting to get the form completed and delaying the reporting of your PSLF credits.
PSLF Limited Waiver Approval Summary
The above steps for PSLF Waiver approval will reduce the risk of a borrower making a mistake. The Department of Education estimated that this will help over 550,000 borrowers. This is really exciting! Borrowers need to recognize that their next steps will be unique to their specific situation.
To help borrowers, PayForED is offering a consulting service to help people navigate the PSLF Waiver Approval steps. This includes a FREE discovery call to see if the borrower qualifies and provide an estimate of the possible loan forgiveness. If that is positive, then the borrower can opt-in to get the customized analysis at a reasonable fee.
We will also be offering a series of PSLF Limited Waiver webinars to help borrowers get more information on the PSLF Limited Waiver Program. It will allow borrowers to get more information and ask questions. Click below to register.