public service loan forgiveness

You may have recently heard in the news about a lawsuit filed against the Department of Education (DOE) regarding the public service loan forgiveness program.  The suit is in response to the DOE retroactively invalidating once qualified payments made by certain attorneys working in public service jobs.  This should be concerning to anyone depending on public service loan forgiveness because the DOE’s explanation is unsettling.  Essentially they’re saying that previously approved certification forms don’t ensure final approval once 120 payments have been made.

Public Service Loan Forgiveness Needs Assurances

I work with physicians in nonprofit settings and I’ve advised them to minimize their payments through income driven payments so they can take advantage of public service loan forgiveness.  Now they may not qualify!?  The ramifications of such an event are huge.  Income-driven repayment can cause loan balances to increase when payments are less than the interest accumulating, known as reverse-amortization.  With public service loan forgiveness, it wouldn’t matter because all principal and interest are eventually forgiven, tax-free.

There must be assurances that when certification letters are approved, they stay approved.  Physicians can’t be making such high stakes decisions based on “You might be forgiven, but we won’t tell you until after you’ve made 120 payments”.  Without assurances, it’s a gamble and it may be better to just pay off your loans either through standard repayment or by refinancing into a private loan with a lower interest rate.

What the Rules Say

With this lawsuit ongoing, there’s not a lot to do yet.  However, It’s important to understand what the rules are to maximize your chances at approval.  The public service loan forgiveness employment certification form is pretty clear.

120 qualified payments

Often, public service loan forgiveness is spoken of as 10 years of payments.  Technically this is true because it takes 10 years to make 120 monthly payments.  If you decide to make additional payments, only one per month will count as qualified.  Qualified payments don’t have to be consecutive and can take longer than 10 years to get to 120.  The repayment plan also matters.  Any income-driven repayment plan qualifies.  Standard 10-year repayment payments also qualify, but the loan will be paid off by the time you get to 120 payments, so it only makes sense if you do standard repayment for a portion of your repayment strategy.  Graduated and extended repayment do not qualify, neither do payments toward private loans.

Full-Time employment by a qualifying employer

Full-time is met by the greater of your employer’s definition of full-time or 30+ hours.  You must also certify (recommended annually) with the DOE that your employer is a government or non-profit organization.  This is what the lawsuit is about.  These attorneys had certified their employment and had been approved, until the last certification, where the DOE claimed that previous approvals were invalid.  These particular attorneys worked in areas of the law that may have fallen in the margins of what’s considered non-profit, despite the 501(c) status of the employer.  This could be good news for physicians, who clearly fall under the “public health” category as indicated on question 14 of the certification form.  To further clarify, section 6 of the same form states as follows.

“Public health includes nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health support occupations, as such terms are defined by the Bureau of Labor Statistics.”

Loans must be Direct Loans

If you have loans from the old Federal Family Education Loan (FFEL) or Perkins programs, these loans DO NOT qualify for public service loan forgiveness and payments made will not count as qualified.  You should consolidate these loans under the Direct Loan program before you start making payments.  If you have both Direct and non-Direct loans that you’ve been making payments on, KEEP THEM SEPARATE.  If you consolidate Direct loans that have been awarded qualified payments with non-direct loans, you will forfeit your qualified payments and have to start over.

What Should You Do?

At this point the lawsuit is ongoing and it’s hard to say what you should do moving forward.  Usually, existing borrowers get grandfathered in when revisions are made to the laws around student loan repayment.  But the retroactive nature of the DOE’s decision to invalidate previous approvals goes directly against that, so it’s hard to tell.

Because physicians fall under a clear categorization of the type of employment, it seems that you are less likely to have your previously approved certifications taken away.  If you are considering public service loan forgiveness or have already been working toward it, I’d continue for now, but keep a close eye on this case.  I know I will.