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How Grads Can Get Another Shot at Student Loan Forgiveness

Loans, Student Loans
Some student loan borrowers will be able to apply for loan forgiveness as part of a $1.3 trillion spending law.

The Trump administration is giving student loan borrowers who missed out on public service loan forgiveness a second chance, and they should move now to prepare.

The recently passed $1.3 trillion federal spending plan sets aside $350 million to forgive student debts owed by borrowers who met all the conditions needed to qualify for the Public Service Loan Forgiveness program, but were mistakenly enrolled in the wrong repayment plan.

Borrowers in PSLF must make 120 qualifying payments to get forgiveness on the remaining balance.

Under the new budget law, borrowers who have made payments on a graduated or extended repayment plan have a chance to get relief through PSLF, even though payments made on those plans don’t normally qualify.

“I think that this bill’s language brings a significant benefit to borrowers,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. “Congress recognizes that the communication about the Public Service Loan Forgiveness program was not as robust and clear as it could have been.”

This expansion is available to borrowers on a first-come, first-served basis, so the money could run out.

» MORE: 10+ Student loan forgiveness, cancellation and discharge programs

It’s easy to make a mistake

Demand for PSLF is substantial, but many borrowers who expect to qualify aren’t meeting the requirements. Of the 740,000 borrowers who had submitted at least some employment certification paperwork for loan forgiveness by September 2017, about a third had made no payments that qualified, the Department of Education says.

Here’s where they may have gone wrong, and what you should check if you want to apply for forgiveness.

1. Document that your employer qualifies

To be eligible for PSLF, you must work full-time for a qualifying employer while making the required 120 payments and document it with employment certification forms.

Qualified employers include:

  • Government organizations
  • 501(c)(3) nonprofits
  • Other nonprofits that provide a qualifying public service

Submit an employment certification form to FedLoan Servicing, the servicer that processes all PSLF employment certifications and applications, for each of the employers you’ve worked for while making qualifying PSLF payments. You can submit these forms retroactively when you’re applying for forgiveness, but completing them annually or whenever you switch employers is the best way to get peace of mind that you’re on track for PSLF.

Filing employment certification forms isn’t the same as applying for PSLF. After you make 120 qualifying payments, you must submit a Public Service Loan Forgiveness application.

2. Confirm you have direct loans, or consolidate

Another PSLF requirement: Your loans must be part of the William D. Ford Federal Direct Loan Program. To confirm that you have direct loans, call your loan servicer or log into its online portal. You can also sign in to your Federal Student Aid account using your FSA ID.

If you don’t have direct loans, you can still qualify for PSLF if you first consolidate those other federal loans into a new, direct consolidation loan. However, any payments you make before consolidating don’t count toward the 120 payments needed for PSLF.

3. Check your repayment plan

PSLF does not make sense if you’re on the standard 10-year repayment plan; you’ll have already repaid the loan by the time forgiveness kicks in. PSLF does make sense for qualified borrowers who have chosen repayment periods longer than 10 years.

Of those who choose longer repayment terms, only those in income-driven repayment plans are eligible for PSLF; those in graduated or extended repayment plans are not.

Under the new budget, you may be eligible for PSLF if you’ve made some payments on an extended or graduated repayment plan. However, you should still switch to an income-driven repayment plan as soon as possible, Mayotte says.

To confirm the repayment plan you’re currently on, call your loan servicer or log into its online portal. Alternatively, sign into the National Student Loan Data System using your FSA ID and find your repayment plan listed in the “Repayment Plan Type” box when you click on each loan.

If you’re not on one of the four income-driven repayment plans, it’s time to switch. Apply for an income-driven repayment plan on the Federal Student Aid website.

4. Stay tuned for more details

The Department of Education hasn’t yet issued guidance on how borrowers who have been on graduated or extended repayment plans may apply for PSLF. It has until late May to provide more information to borrowers, according to the new budget act.

NerdWallet staff writer Brianna McGurran contributed to this report.

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