As a participant in this program, I certainly have strong feelings about it. I will try not to discuss in detail the politics around this program other than its creation, possible reasoning for its existence, and the threats it currently faces. While I will explain my philosophy with navigating this program, I certainly shouldn’t be seen as a financial expert or an expert on the policy. Please consult people smarter than me for the actual requirements to the program and for legitimate financial advice. I should also state that I have the privilege of being sufficiently employed with roughly average student loan debt (~$40k) and am able to benefit from my wife’s income.

What Is Public Service Loan Forgiveness (PSLF)

Established in 2007, PSLF is a program that provides loan forgiveness to those working for a public institution. In general, those working full-time for a government entity (federal, state, or local) or non-profit organization that make 120 qualifying payments (10 years) into Direct Loans under income-driven repayment plans are eligible to have the remaining balance of their loans after those 120 payments. I tried to bold the key terms there, but again, it’s best to consult the StudentAid.Gov page for this program for specific details: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service. Participants in the program are encouraged to submit annual “Employee Certification” forms to verify that they have met the program requirements for the last year and are on track to forgiveness.

To take a dive into politics for a minute, the program makes some sense. Public sector jobs typically either pay much less than similar roles in the private sector (myself doing data analysis, for example) OR simply are not paid adequately for their positions (teachers). PSLF then provides an incentive for people to enter these roles in exchange for some debt relief. It seems like we would want to have high-quality teachers, police officers, and other public servants. Providing incentives to enter these low-paying positions could attract those that may otherwise seek better paying positions in non-government agencies. Granted, maybe we should just pay people what they’re worth, but that’s an entirely different discussion :).

What Issues Does PSLF Face?

There are lots of problems with PSLF. Famously, 99% of applicants to the program are denied (source). The main issue seems to be people having incomplete Employment Certification forms, the wrong kinds of loans, or lacking the necessary qualifying payments. Certainly, the Department of Education could do a much better job of saying what loans / repayment plans DO and DO NOT qualify for the program, and they could give borrowers better notifications to say if they are on track.

There has also been lots of challenges to the program (source). Obama’s 2015 budget proposal looked to cap the total forgiveness amount to a certain amount. A Republican budget proposal in 2016 looked to eliminate the program for all new borrowers. All of President Trump’s budget proposals have included the elimination of this program for new borrowers. I know I linked Wikipedia above, but the relevant items I quoted have reasonably reliable links to them. More thorough sources can be provided if requested.

The Catch-22

PSLF requires you to be in an income-driven repayment plan. These plans promise smaller monthly payments than the standard 10-year repayment. That works for PSLF, since you want to minimize the amount you pay within those 10 years of making qualifying payments in order to have the most forgiveness (and the most benefit from the program). Having smaller monthly payments means the loan will take longer to pay off. This would give more time for interest to build up, and someone paying down their loans using one of these income-driven repayment plans would likely spend more money in the long-term on the loan as compared to those using the standard repayment option. If one wanted to pay the least possible for their student loans, they should make high monthly payments to pay them off as quickly as possible (and thus reducing the amount of interest that could accrue on the loans).

Let me give a SUPER ROUGH example: lets say you have $40k in student loans that accrue 5.5% interest annually. You start off making $200 monthly payments that increase by 2% each year (since income-driven repayment is tied to your annual salary). After 10 years, you would have paid around $26,000. However, your loans would still have a balance of over $35,000 (yay interest!). If you are accepted into PSLF, that remaining balance is perfectly fine since it will get forgiven anyway. You got your loans paid off for the relatively low price of $26,000! If you are not accepted into PSLF, you now have a lot of loan to still pay off. If in this same 10 year period you had paid $400 each month, you would have paid $48k into your loans and would have a remaining balance closer to $7k. That’s less good for the PSLF forgiveness (since you had very little forgiven), but not too bad if you’re somehow ineligible for PSLF at the end of those 10 years.

How Should I Proceed?

I think anyone pursuing PSLF should have a backup plan in case it falls through. Lots of applicants think they are eligible only to be denied by the program. There’s also governmental pressures to reduce or eliminate the scope of the program, and there’s a chance this could impact current applicants. Finally, you may simply find yourself somewhere within the 10 years looking at a private-sector job that may make you ineligible for the program.

My solution has been to take money that “should” be going towards my student loans and put it towards other personal / household debt I have. We have put a bit of money extra each month towards our other sources of debt (credit card, car loans, etc). The thought here is that eventually one of the following cases would occur:

1. I complete the PSLF program and have the remaining balance of my loans forgiven, having paid as little of them as possible (WOOO!).
2. I am rejected from or no longer eligible for PSLF, but a good chunk of my other personal debt is paid off and can focus our budget on paying the rest of my loans quickly.
3. I am rejected from or no longer eligible for PSLF, have all personal debt paid off, and have a good pile of money sitting in a savings account that can immediately be thrown at my remaining student loan balance.

That’s at least what I’ve been doing, and so far things have worked out well. I am 4.5 years into PSLF, and the only debt we have is Lauryn’s car (which should be paid off soon) and the house. Granted, us buying a house makes our budget a bit tighter, but I’m still hoping we can find some extra money here and there to go towards our other debt in hopes of putting us in a better financial situation once my time with PSLF comes to a close.