Because this situation could potentially last for years, depending on how long the legal process takes, many borrowers are unsure how to navigate it.

In most cases, the advice is simple: don’t make extra payments. The analysis differs for borrowers working toward full repayment versus those pursuing forgiveness, but the conclusion remains the same—making unnecessary payments is a mistake.

Extra Payments Don’t Help Chasing Forgiveness

When it comes to making extra payments during forbearance, the most important thing for borrowers pursuing forgiveness is this: extra payments don’t help. Payments only count toward forgiveness if you receive a bill first. Paying more than what is due or making multiple payments doesn’t provide any benefit. You’re simply reducing a balance that will eventually be forgiven anyway.

This holds true regardless of the type of forgiveness you’re pursuing.

PSLF Borrowers Should Use the Buyback Program

If you’re working toward Public Service Loan Forgiveness (PSLF), the forbearance period won’t count toward forgiveness. Everything is paused. The good news for PSLF borrowers is that the buyback program exists.

Though the PSLF buyback is a newer, unproven process, and its costs are hard to project because we don’t know what will happen with SAVE, the best move for most PSLF borrowers is to put the money you’d use for extra payments into a savings account.

Once you reach ten years of public service work, you can use the funds you’ve saved for the buyback. This approach ensures that the money you spend toward your student loans will actually reduce your balance.

IDR Forgiveness Borrowers Don’t Gain From Extra Payments

Borrowers working toward 20- or 25-year Income-Driven Repayment (IDR) forgiveness don’t have the buyback option that PSLF borrowers do.

These borrowers face a tough decision: either pause their progress toward IDR forgiveness or switch to a different repayment plan.

Switching plans is particularly challenging right now because servicers are months behind in processing applications. Moreover, moving to a more expensive plan may end up costing more in the long run—especially if SAVE ultimately prevails in court.

Because making extra payments won’t bring borrowers any closer to forgiveness, the best approach is likely to set the money aside in a high-yield savings account. These funds can be earmarked for the potential tax bill that may arise if forgiveness occurs after 2025.

While there’s hope that time spent under the SAVE litigation forbearance will eventually count toward IDR forgiveness, borrowers can’t rely on it. For now, using the forbearance as an opportunity to build up an emergency fund or pay off other high-interest debt is a smart option.

Want to Switch Plans? If you are eager to get off of SAVE an into a repayment plan that can count toward forgiveness, the online application is not currently available.

Borrowers that wish to swtich back to their old IDR plan will have to use a paper application and submit it via their servicer’s secure portal.

Full Repayment Borrowers Have Better Options

For many borrowers, forgiveness isn’t likely. With growing incomes and shrinking balances, their debt will be repaid long before it could be forgiven.

For borrowers in this situation, enrolling in SAVE and taking advantage of the interest-free forbearance is an incredible opportunity. Pausing interest charges means that 100% of your monthly payments will go toward your principal balance.

However, making extra payments now isn’t the best strategy.

The better option is to put the money into a high-yield savings account during the pause. The more you can save, the better. When the pause nears its end, you can make a large lump-sum payment.

This approach has two advantages. First, it puts interest to work for you instead of against you. Normally, repaying debt is a battle against interest charges, but now, you can earn interest on future payments while your balance remains steady. If you manage to set aside $10,000 in a savings account earning 4% interest, after a year, you’ll be $400 ahead.

Second, this strategy provides flexibility. If your car breaks down or you face an unexpected expense, you can dip into your student loan savings. If you’ve already given that money to MOHELA, it’s usually gone forever.

The One Situation Where Extra Payments Make Sense

If you’ve struggled with managing money in the past and worry that seeing a large balance in your savings account might tempt you to spend it, your strategy might shift.

For example, if you’re close to fully repaying your student loans, one reasonable approach might be to take advantage of 0% interest charges and aggressively pay down the balance until it’s gone. If watching the balance drop each month motivates you, and you’re concerned about being tempted by savings, do what works best for you.

Final Thoughts on the SAVE Litigation Forbearance

We’re in a unique situation right now.

Switching repayment plans is more difficult than usual. The SAVE litigation forbearance comes with both benefits and drawbacks. Most confusing of all, the situation could change in a few months—or stay the same for several years.

It’s not easy to plan.

If you have questions about your situation, feel free to ask in the comments. If you want to find a way to make the most of the SAVE forbearance, let’s set up a call to discuss it.

While this is undoubtedly a confusing time for borrowers, it also presents opportunities.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Extra Payments During SAVE Litigation Forbearance Are a Mistake appeared first on The Student Loan Sherpa.

At first glance, the companies that sent these letters seemed legitimate. They knew exactly how much I owed in federal student loans and had my name and address correct. Everything appeared to be the usual stuff you get about student loans. However, when I looked closer, I noticed several warning signs that something wasn’t right.

Sherpa Tip: Sometimes it is challenging to separate a scam from legitimate information.

For example, an expansion of PSLF that requires some borrowers to consolidate might seem like a scam because it is both confusing and sounds too good to be true.

If you find verification on studentaid.gov or through your federal loan servicer, you can be certain it isn’t a scam.

The Red Flags – Signs the Letter Might be a Scam

No Company Name Listed – One letter didn’t mention the company’s name at all. Instead, it just referred to itself as “The Company” in the small print, never revealing its actual name. Legitimate companies always state their names clearly. The fact that you can’t find the company’s name probably means they’re hiding it on purpose.

Generic Greetings – One of the more obvious signs of a scam is that it says “Dear Borrower” instead of your name. Knowing your name doesn’t necessarily mean it is valid, but not knowning your name almost certainly means it is a scam.

Instructions to create your Federal Student Aid ID – Another letter gave me steps on how to set up my Federal Student Aid (FSA) ID. They ask you to create an FSA ID so they can use it later. However, you should never share this ID with anyone.

The Department of Education warns that your username and password are as legally binding as your written signature. Giving someone your FSA ID is like letting them sign documents for you, which could let them make unwanted changes to your account without your permission.

New Laws – Talking about new laws is a common trick scammers use. They might tell you about a “new law” that supposedly only they know about. It is unlikely, however, that there is a new student loan law that you haven’t heard about from watching the news, reading a newspaper, or visiting sites like this. If you cannot verify any new student loan law from a trustworthy source, the odds are very high that you are looking at a scam.

Document Preparation and Application Assistance – The fine print on both letters I received made it clear that the only thing they were actually offering was to help submit applications or process paperwork. If I contacted them, they’d likely compare their service to hiring an accountant for tax returns. But, this is misleading.

These document preparation companies charge hundreds of dollars, hoping you won’t realize they’re just filling out a 20-minute form. They almost certainly will not offer helpful insight for your specific financial circumstance.

Important Deadline – If a letter mentions an important deadline on your student loans, be wary. Your student loan servicer would inform you directly of any important deadlines for your student loans. If the first you hear about this “deadline” is from an advertisement or letter from an unknown company, there probably isn’t a real deadline at all.

The Consumer Financial Protection Bureau also has a great page on identifying Student Loan Scams.

They highlight the following red flags:

Protecting Yourself from Fradulent Student Loan Letters

If you get a letter and question its legitimacy – If you doubt a letter’s authenticity, first look up the company’s name online. Be aware, however, searching online might not catch all the scams. Some companies are skilled at creating fake positive reviews and hiding the very real complaints. The Consumer Financial Protection Bureau has some additional advice for evaluating these companies.

If you think they took or are about to take your money – If you’re worried that a scam company has taken your money or is about to, getting your money back can be tough.

If you already paid them, demand they return your money immediately. Inform them that you will be submitting a complaint to the Consumer Financial Protection Bureau and your state’s attorney general if it isn’t promptly returned. These scammers go to great effort to stay off law enforcement’s radar. The threat of reporting their scam is the threat they are most likely to take seriously. Please be aware that, while law enforcement is often good about pursuing these companies, they are usually slow to respond because they need time to build a case.

If you wrote them a check that hasn’t been cashed yet, you can ask your bank to stop the payment. If you paid by credit card, you can tell your credit card company it was a fraudulent charge and ask them to reverse it.

No matter what happens, keep an eye on your credit report. Scammers might have your personal info and could try to steal your identity.

Getting Back at the Scammers

You might feel a strong urge to get back at these dishonest individuals and companies.

Calling scammers to waste their time may seem tempting. Doing so, however, would end up wasting your own time and might even make you more of a target for them.

The most effective step you can take is to file a complaint with the government. The attorney general in most states is responsible for protecting consumers from scams. By reporting to your state’s attorney general, you help law enforcement become aware of the scam.

One person’s complaint might not change things overnight, but if enough people report these scams, it could help prevent others from becoming victims.

Bottom Line – Don’t Take Anything at Face Value

Student loans can be overwhelming and impact a lot of people. Student loan scams have plagued the U.S. for years. Fortunately, a little bit of caution can help avoid most student loan scams.

Generally, a good rule of thumb regarding student loans is to double-check everything you are told, regardless of the source. It’s possible that you misunderstood something, a student loan servicer might have told you something in error, or someone could be trying to take advantage of you.

In essence, if something feels off to you – even if you can’t pinpoint exactly why – it’s important to trust your instincts.

For additional information about student loan scams, read here.

The post Scam Alert: Student Loan Payment Reduction, Consolidation and Forgiveness by Mail appeared first on The Student Loan Sherpa.

Many student loan borrowers struggle to figure out if their current employer is eligible for PSLF. Assessing future employment opportunities for eligibility can be even more daunting.

Luckily, there are several resources designed to assist borrowers in finding employers that are recognized for PSLF purposes.

Finding Government Jobs – The Classic PSLF Option

Landing a government job is well-known route towards qualifying for Public Service Loan Forgiveness.

Unfortunately, there’s no single database that lists all available government jobs. Borrowers seeking employment with a government will need to explore multiple different databases.

USAJobs.gov – If you are looking for a job with the federal government, USAJobs.gov is the ideal place to start a search. Most, but not all, federal agencies post job listings on this site.

State and Local Government Websites – Some government agencies are excellent at promoting vacancies broadly, while others may only list them on specific government sites. The more effort you have to put in to finding a job listing, the less competition you’re likely to find. It’s a good idea to find and bookmark the career pages of state and local governments you’re interested in.

Agency Specific Websites – If there is a specific government agency that you wish to work for, be sure to check out their website. Some government entities advertise their vacancies only on their own websites. For example, your local library may post its jobs exclusively on its site, rather than on the local government website. Job hunters that bookmark and frequently check these pages will have a competitive edge.

Despite the typically lower salaries compared to the private sector, government positions are highly competitive. The advantages go beyond Public Service Loan Forgiveness. Government jobs are usually considered to be stable and often offer excellent benefits programs.

Fortunately, government jobs are not the only path to PSLF.

Nonprofit Employers – 501(c)(3)s

Another significant option for employment that qualifies under PSLF is through a nonprofit organization.

Some nonprofit organizations recognize the appeal of PSLF eligibility and prominently mention it in their job postings. Others may not mention it at all.

To find potential nonprofit employers, searching job boards such as LinkedIn or Indeed with the keyword “nonprofit” can be a very effective. Additionally, seeking out specific nonprofits and watching their job opportunities pages is another good strategy.

Just like with government jobs, there is no single database that provides a comprehensive list of all nonprofit job openings. The more digging you do and the more creative you get with your search, the higher your chances of finding suitable opportunities.

It’s important to note that not all nonprofits are eligible for PSLF. Nonprofits classified as a 501(c)(3) tax-exempt organizations are eligible. Other nonprofits may also qualify. However, nonprofits such as those that are partisan political organizations or labor unions are not be eligible for PSLF.

Jobs to Avoid – The Confusing Potential Employers

The PSLF eligibility status of contractors affiliated with a government or nonprofit is a confusing issue for borrowers. Some positions may appear to alight with government or non-profit work, but do not count towards PSLF.

For example, if you work as a custodian for a nonprofit hospital, you are probably eligible. Alternatively, if you work as a custodian at a nonprofit hospital, but are employed by a third-party cleaning services company, you are probably not eligible.

Key Takeaway: What you do or where you work does not matter for PSLF eligibility. The distinction lies in who your direct employer is.

Verifying Employer Eligibility As Soon As Possible

While employer assurances regarding PSLF are encouraging, more work is necessary to ensure eligibility.

The Department of Education will not take into account what your employer has promised about eligibility. If they employer isn’t eligible, none of the time spent working there will count towards PSLF. Thus, it is critical to verify eligibility as soon as you are able.

Borrowers can take certain measures during the interview and hiring process to help ensure eligibility:

During Job Interviews – Many job interviews are coordinated by an HR representative or recruiter. These individuals often will know if the employer qualifies under PSLF.

Looking up the Employer EIN (Employer Identification Number) – The Department of Education has a great resource called the PSLF Help Tool. Borrowers can investigate employer eligibility using the employer’s EIN. The SEC has a search engine that allows people to look up a company’s EIN, though this information is limited to publicly traded companies; so, the EIN for government agencies and non-profits often won’t be provided.

After Getting Hired – No matter how confident you are about your employer’s eligibility for PSLF, you should still submit an employer certification form (ECF) after your first couple of months on the job. The ECF is the only definitive method to verify eligibility. Additionally, it also triggers an account review to ensure you are on an eligible repayment plan and have eligible loans.

Addressing issues with employer eligibility, repayment plans, or loan types often means resetting the ten-year progress toward forgiveness. Assumptions can lead to errors, potentially delaying forgiveness for months or years.

The post How to Find Employers Eligible for PSLF appeared first on The Student Loan Sherpa.

This week I received a reader email asking about Public Service Loan Forgiveness for his father. This is a situation that is probably familiar to many borrowers:

• The parent works in a public service job (such as a government or 501(c)(3) position).
• They took out a Parent PLUS loan to help pay for school.
• Parents are making loan payments but are thinking about retirement.

In this case, the reader’s dad was coming upon his retirement age, but thinking about sticking around a little longer to qualify for Public Service Loan Forgiveness (PSLF).

The Problem with PSLF for Parent PLUS Loans

In order for a student loan to qualify for Public Service Student Loan Forgiveness, the borrower must make 120 payments (10 years worth) and be enrolled in one of the following repayment plans:

• the standard 10-year plan
• Income-Based Repayment (IBR)
• Pay As You Earn (PAYE)
• Saving on A Valuable Education (SAVE)
• Income-Contingent Repayment (ICR).

If you are on the standard 10-year plan, forgiveness doesn’t do you much good because your loan is paid off after 10 years.

The problem for Parent PLUS loan borrowers is that these loans are not eligible for IBR, REPAYE, SAVE, PAYE, or ICR. This means that even if you are in a public service job, payments on a Parent PLUS loan will not be helping you towards student loan forgiveness.

However, there is one exception.

The Exception

Borrowers can consolidate their Parent PLUS loans into a Federal Direct Loan in order to gain eligibility.

Even if you have just one Parent PLUS loan, you can consolidate the loan into a Federal Direct Consolidation loan through the Department of Education. This may seem silly because consolidating the one loan doesn’t change its interest rate. In all practicality, it really is nothing more than a name change.

That name change makes a big difference, however. Even though the consolidated loan contains a Parent PLUS loan, it is eligible for the Income Contingent Repayment Plan.

However, consolidation will not help Parent PLUS borrowers gain eligibility for the more preferable plans, such as SAVE. The only exception to this rule, the double consolidation loophole, requires completing the process by July 1, 2025.

Important Warning on Consolidation: Even though Federal Direct Consolidation is an essential step for Parent PLUS Loans to become eligible for PSLF, borrowers should be very careful with consolidation.

There is no Undo – Once loans have been consolidated, there is no way to reverse the process. This means it is critical to avoid any potential mistakes.

Only Include Parent PLUS Loans – Some borrowers have Parent PLUS loans that were borrowed for their child as well as traditional federal student loans in their own name. If these two loan types get consolidated together, the combined loan will have limited eligibility for repayment plans and other federal programs, which can mean higher payments for the borrower. In most cases you will want to keep Parent PLUS loans separate from all other federal student loans.

The Steps Towards Parent PLUS Public Service Loan Forgiveness

1. Consolidate your Parent PLUS loan(s) into a federal consolidation loan.
2. Sign up for the ICR Plan with your lender.
3. Make 120 certified payments while in a public service position.
4. Apply to have the remainder of the debt forgiven.

Step number one requires going through the consolidation process just once. However, steps two and three require action on a yearly basis.

Signing up for ICR means that borrowers must certify their income every year. The income certification process usually takes very little time and can be completed online. This needs to happen each year so that the Department of Education can increase or lower payments based upon changes in income. Borrowers have the option of authoriziting the IRS to share tax information yearly to automate the process, but borrowers will still want to watch things closely to make sure payments are properly calculated.

Step three is best accomplished by sending in an employer certification form on a yearly basis. Though yearly certification of an employer’s eligibility isn’t explicitly required, it is a best practice for borrowers. This helps the borrower keep track of payments towards the required 120 and helps ensure that the borrower is meeting other PSLF eligibility criteria.

Also, keep in mind that when you complete step four, you must still be employed by an eligible employer. If you have left your job at a PSLF employer, you won’t get loans forgiven, even if you have worked the required 10 years.

Children In Public Service

Many Parent PLUS holders have reached out asking about whether their child’s work in public service has any bearing on the Parent PLUS loan qualifying for PSLF.

In theory, it would make sense. If the loan was borrowed to pay for an education that is now being used to serve the public, PSLF would seem appropriate.

Unfortuantely, it doesn’t work this way. The Department of Education is strict about PSLF rules, and PSLF eligibility is based entirely on the employment of the loan borrower. As a parent borrower, PSLF eligibility is based on your work, not your child’s work.

The Bottom Line

If the requirement to consolidate Parent Plus loans in order to be eligible for PSLF seems ridiculous, that’s because it is. This unnecessary red tape will likely prevent a number of families from achieving student loan forgiveness.

However, red tape or not, it is possible to have Parent PLUS loans forgiven… you just have to jump through the hoops.

If you are thinking about going this route, be sure to work closely with your lender to make sure you are dotting all your i’s and crossing your t’s. A mistake in paperwork can be the difference between a huge pile of debt being forgiven or not.

If you decide that Public Service Loan Forgiveness might not be the best option to repay your Parent PLUS loans, the good news is that there are other ways to repay Parent PLUS loans.

The post Public Service Forgiveness for Parent PLUS Loans appeared first on The Student Loan Sherpa.

Borrowers now have until June 30, 2024, to consolidate their federal student loans and take advantage of the generous rules for awarding pre-consolidation progress toward forgiveness. This extension is particularly crucial for Federal Family Education Loan Program (FFELP) borrowers.

Despite the deadline being extended multiple times, today’s announcement likely marks the final extension. The urgency stems from the impending implementation of the full version of the SAVE rules, set to take effect on July 1, 2024. Under these new rules, borrowers who consolidate will receive the weighted average amount of their existing loans’ progress prior to consolidation.

Key Rule Comparisons

Previous Rules:

• Before the Biden administration’s changes, consolidating federal student loans would reset a borrower’s progress toward forgiveness under both the Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) forgiveness programs.

Current Temporary Rules:

• The temporary rules count certain deferments, forbearances, and activity on balance-based plans that typically do not count toward forgiveness. This includes loans that were previously consolidated under the old rules.
• Borrowers receive maximum progress based on the included loans. For example, if a borrower has one loan with 10 years of progress and another with 6 years of progress, the consolidated loan will reflect the full 10 years of progress.

New SAVE Rules (Effective July 1, 2024):

• Borrowers will receive a weighted average of their progress. For instance, if a borrower has a $3,000 loan with 10 years of progress and a $1,000 loan with 6 years of progress, consolidating the two will result in a loan with 9 years of progress.
• Conversely, if a borrower has a $3,000 loan with 6 years of progress and a $1,000 loan with 10 years of progress, the consolidated loan will have 7 years of progress.

Why Consolidation Before June 30th is Crucial for FFELP Borrowers

For FFELP borrowers, consolidating before the June 30th deadline is almost essential. The temporary rules provide a unique opportunity to maximize progress toward forgiveness, which will no longer be available after the deadline.

A failure to consolidate means that prior payment activity on plans such as the standard repayment plan or the graduated-extended repayment plan will not count toward IDR or PSLF forgiveness.

Even for borrowers without FFELP loans, consolidation is often still advisable, especially for those with loans showing varying amounts of progress toward forgiveness.

Even though borrowers with federal direct loans will recieve the adjustment automatically, there are still potential benefits to consolidating before the adjustment happens.

For example, borrowers who have returned to school after working for a few years and those with loans reflecting different stages of progress should strongly consider consolidation. The temporary rules maximize existing progress. By not consolidating, these borrowers will have loans with different forgiveness timelines.

Final Thoughts

With the final extension in place, impacted borrowers should act swiftly to consolidate their loans before the June 30th deadline.

The benefits of the current temporary rules provide an unprecedented opportunity to maximize progress toward loan forgiveness. As the new SAVE rules take effect on July 1, 2024, this likely represents the final opportunity to take advantage of these generous rules.

If you have questions about how this deadline impacts you, consider calling your loan servicer, reading about the full terms of the adjustment at studentaid.gov or scheduling an consultation to discuss how to maximize the benefit of the adjustment as part of your broader repayment strategy.

The post Biden Administration Extends Student Loan Consolidation Deadline appeared first on The Student Loan Sherpa.

That said, the road to forgiveness is paved with strict conditions and strategic planning. Let’s dive into the two primary programs that offer a path to wiping out your student debt in ten years.

Public Service Loan Forgiveness (PSLF): Debt Freedom for Public Servants

The Public Service Loan Forgiveness program remains a beacon of hope for those in public service roles, offering a route to loan forgiveness after ten years of service and qualifying payments. The key to PSLF is ensuring that your employment, loan type, and repayment plan meet the eligiblity requirements.

Recent reforms have aimed to streamline the process, correcting past administrative hurdles and expanding eligibility. This summer, the one-time adjustment is expected to further ease the path to forgiveness, potentially forgiving years of payments would have otherwise been deemed ineligible.

Sherpa Tip: Don’t leave your PSLF job too early. It’s vital to remain in a qualifying job not just during the period when making the 120 required payments, but also when you apply for forgiveness. Exiting your position too early can jeopardize your eligibility.

SAVE Plan: Quick Forgiveness for Smaller Debts

The Saving on A Valuable Education (SAVE) plan introduced a new forgiveness timeline that benefits those with smaller initial loan amounts. Borrowers starting with less than $12,000 in student loans can earn forgiveness in a decade. Each additional $1,000 borrowed adds a year to the forgiveness schedule, with a cap at 20 years for undergraduates and 25 for graduate students.

Decoding the $12,000 “Original Balance” Rule

This limit applies to your total original loan balance, rather than individual loans. Crucially, increases in your balance due to interest accrual or paused payments do not affect your original forgiveness timeline under SAVE.

Tax Implications of Forgiveness

PSLF offers tax-free forgiveness, a significant benefit for public servants.

For those under the SAVE plan, any loans forgiven before 2026 will also avoid federal taxes. Post-2025, there is reason for hope that future loan forgiveness won’t be taxed either.

Sherpa Tip: If you are facing a potential tax bill in the future, it is a good idea to start planning now. The best plan will account for the possiblity that you won’t get taxed, but have money set aside if you do get taxed.

As a borrower working toward SAVE forgivneess, my tax bill plan is to use a Roth IRA to give myself some flexiblity.

The Challenge with Private Student Loans

Regrettably, private student loans are excluded from federal forgiveness programs, with no option to convert them into federal loans. For these debts, the best strategy is refinancing for better terms and focusing on aggressive repayment.

As of November, 2024, the following lenders currently offer the lowest interest rates on private student loan refinancing:

Rank	Lender	Lowest Rate	Sherpa Review
1		3.95%	Earnest Review
2		3.99%*	Splash Financial Review
3		4.88%	ELFI Review

Maximizing Forgiveness Benefits

To make the most of federal forgiveness programs, lowering your monthly payment maximizes the forgiven amount. This can be achieved by:

• Income Shielding: Contributing to retirement accounts can effectively reduce your taxable income and lower monthly payments under income-driven plans.
• Income Certification Timing: Carefully timing your income certification can help manage how much of your income is recognized for payment calculations. If you have an unusually high earning year, you can hide it from IDR calculations.
• Selective Tax Filing: If married, consider whether filing taxes separately could beneficially impact your repayment calculations by not counting your spouse’s income.

Final Thoughts

Understanding and managing student loan forgiveness can be tricky, but with some careful planning and a bit of effort, getting your loans forgiven in just ten years is a real possibility. Though it requires jumping through some hoops, pursuing loan forgiveness is a viable path and a resonable strategy.

For many, it is the most afforadable way to eliminate federal student loans.

The post How Student Loan Forgiveness in Just Ten Years is a Realistic Possiblity appeared first on The Student Loan Sherpa.

Usually, if you pause your loan payments, it also stops the countdown to forgiveness. But, there are some exceptions to this rule.

A recent reader email perfectly shows how pausing your loan payments can create problems if you’re trying to get your student loans forgiven.

The Reader Email about the Student Loan Forgiveness Clock and Forbearances

Reader Gene writes:

Over the last seven years, I have made about 80 PSLF qualifying payments. During that time, I was on three months of Administrative (processing) Forbearance and three months of Hardship Forbearance.  

Will the months of Administrative Forbearance or Hardship Forbearance count as qualifying payments?

Thank you!

Public Service Loan Forgiveness Basic Requirements

As seen in our detailed breakdown of the Basics and the Fine Print on Public Service Loan Forgiveness, time towards the required ten years, or 120 months, basically has three basic requirements:

1. Eligible Loans – Not all federal loans are eligible. This includes certain Plus loans as well as FFELP loans. However, some loans can be made eligible through federal direct consolidation.
2. Eligible Repayment Plan – Only specific repayment plans will count towards PSLF. The income-driven plans such as IBR, PAYE, and SAVE count, but the graduated and extended repayment plans are not eligible.
3. Eligible Employer – Only employers that fall within the Department of Education’s definition of public service will count. This includes most government agencies and 501(c)(3) non-profits.

Because there is room for confusion within these requirements for PSLF, we suggest sending an employment certification form to your federal servicer every year. This is the best way to track progress and ensure you meet all the requirements.

Is my employer eligible for Public Service Loan Forgiveness? The exact eligibility requirements can be a bit complicated. This article breaks down the criteria for eligibility. Additionally, the Department of Education recently created the PSLF Help Tool to assist with the verification process.

Forbearances and Deferments and Time Towards Student Loan Forgiveness

Unfortunately for Gene, deferments and forbearances usually do not count towards the required 120 payments for Public Service Loan Forgiveness. Additionally, this time will not be eligible for the 20 or 25-year forgiveness programs under an Income-Driven Repayment Plan.

This is because a forbearance or deferment means that the borrower made no payment under an eligible repayment plan. (Note: $0 payments on an income-driven repayment plan can count.)

This rule can be incredibly frustrating in Gene’s case because he spent three months on an administrative forbearance. Administrative forbearances are usually the result of slow processing or errors on the part of the student loan servicer.  Sadly, there is no mechanism in place to get these months to count towards PSLF.

Good News for Gene: The rules haven’t changed, but a new temporary exception will help Gene and millions of other borrowers.

Scroll down to the temporary exceptions to learn more.

The Massive Exception to the Rule

As part of the Covid-19 economic relief, all federal student loan payments were paused, and interest rates were set to zero.

Fortunately for borrowers, this deferment of payments will count towards Public Service Loan Forgiveness and Income-Driven Loan Forgiveness.

Borrowers don’t need to make extra payments for the time to count towards loan forgiveness.

The Temporary Exceptions

There are two notable temporary exceptions to the rule. One has expired, while the other is still available.

The Limited Waiver on Public Service Loan Forgiveness – (Expired)

In October 2021, the Department of Education announced rules for expanded Public Service Loan Forgiveness eligibility.

Under the expanded rules, called the Limited Waiver, active duty military service counted toward PSLF, even if the borrower was on a military deferment.

The Limited Waiver on Public Service Loan Forgiveness program ended on October 31, 2022.

One-Time IDR Account Adjustment – Expected Mid-2024

In April of 2022, the Department of Education announced an update to the rules for calculating progress towards forgiveness. Previous periods of deferments and forbearances may now count towards forgiveness under this one-time update.

Crucially, this time can also be used toward PSLF.

Most borrowers do not need to take any action to get this benefit, but consolidation may be required for borrowers with certain loans, such as FFEL.

Avoiding PSLF delays due to Forbearances and Deferments

Borrowers working towards PSLF should all be on Income-Driven Repayment (IDR) plans.

One of the key requirements to stay enrolled in the IDR plans is to certify your income yearly. Missing certification deadlines can cause delays in enrollment and force a forbearance or deferment. It can also cause an interest capitalization, which can be expensive.

Bottom Line

Federal student loans can be forgiven after ten years of public service or 20 years of IDR payments. Unfortunately, things don’t always go smoothly, and sometimes progress stops.

If you are working towards student loan forgiveness but your loans are on a deferment or a forbearance, the clock is likely paused.

The post Does Deferment or Forbearance Time Count for Student Loan Forgiveness? appeared first on The Student Loan Sherpa.

For borrowers seeking Public Service Student Loan Forgiveness, the potential consequences of a side hustle are critical.

A second job can impact the pursuit of PSLF, but the good news is that borrowers are permitted to chase some extra income without losing eligibility.

PSLF Limitations on Second Jobs and Outside Work

Qualifying for PSLF is notoriously complicated. Fortunately, a second or third job won’t derail eligibility.

PSLF doesn’t require that a borrower only work in public service. Instead, the borrower simply needs to work full-time in a PSLF-eligible job.

Further, there is no earnings cap on PSLF work. A borrower making $250,000 per year could still qualify for PSLF. That said, there are still some consequences of the new income source.

Practical Consequences of a Side Hustle for Public Servants

Even though there isn’t an earning cap or one-job requirement, a second job will still impact PSLF.

The point of an extra job is more income. The more income a borrower generates, the higher their IDR payments will be. These higher monthly payments will mean less money is forgiven after 10 years of PSLF work.

At some point, a borrower could earn so much money that working toward PSLF no longer makes sense. The smaller your balance and the larger your income, the more likely you fall into this category.

Could my income be too large to qualify for an IDR plan? Some IDR plans, notably SAVE, do not have a cap on income.

Additionally, the 10-year standard repayment plan is also eligible for PSLF. A borrower could do eight years on SAVE and then switch to the standard repayment plan for the last two years of PSLF.

The Full-Time Employment Requirement

For borrowers considering additional work, it is essential to remember that there is a full-time employment requirement for PSLF.

According to the Department of Education, a borrower is a full-time PSLF employee if “you work an average of 30 hours or more per week during the period being certified on your PSLF form regardless of whether your employer considers you full-time for other purposes.”

If a second job will cause you to work less than 30 hours per week, it becomes a PSLF-eligibility issue. As long as you remain full-time, you won’t lose eligibility.

Sherpa Tip: There is a workaround to the full-time employment rule. If you work two part-time jobs at PSLF-eligible employers, you can qualify for PSLF if the combined hours add up to at least 30.

Tips for PSLF Borrowers with Two Jobs

As someone who worked in a PSLF-eligible job and worked a second job, I know it is stressful. You don’t want one mistake to erase all of your hard work.

With that in mind, there are two important tips I’d like to leave for everyone in this situation.

First, submit employer certification forms at least once a year. When you send in an employer certification form, your servicer will verify that you have met all PSLF requirements before certifying your progress. It is a great way to ensure that you are at the right job, on the right repayment plan, and have eligible loans.

Additionally, if you change PSLF employers, completing a certification years later can be a considerable challenge.

Second, don’t leave your PSLF job too early. We all know about the ten-year requirement to qualify for PSLF, but most borrowers must work a little extra. You need to be employed in a PSLF job at the time you apply for forgiveness and when the loans are discharged.

Don’t make the jump to your second job or the private sector until your student loans have been forgiven.

The post How a Side-Hustle or Second Job Impacts Public Service Loan Forgiveness (PSLF) appeared first on The Student Loan Sherpa.

Many of you have emailed asking about possibly making double or triple payments to speed up the PSLF or IDR forgiveness clock.

Even though a new provision allows borrowers to make extra payments to get closer to loan forgiveness, most borrowers will find that speeding things up isn’t a realistic option.

Paying Extra for Faster Forgiveness

When the SAVE plan was created, the Department of Education issued many new regulations.

One of these new regulations allows borrowers on an IDR plan to make “catch-up” payments for previous periods when they were on a deferment or forbearance. The purpose of making these extra payments is to qualify for forgiveness sooner.

Unfortunately, there are some significant limitations with this new provision. For starters, it does not become available until July 1, 2024.

Additionally, “catch-up” payments can only be made for deferments and forbearances less than three years old.

Lastly, borrowers on an in-school deferment cannot use the catch-up provision to count that time toward IDR forgiveness.

Sherpa Tip: Even though the catch-up doesn’t address older deferments and forbearances, borrowers may still be able to get credit for these periods under the one-time IDR count adjustment.

Extra Payments Don’t Usually Move Forgiveness Clock

To see why paying double can’t count as two payments, an example might help.

Suppose a borrower just graduated college and worked during school. This new graduate qualifies for a monthly payment of $10 under the new SAVE plan.

If borrowers could make multiple payments in a month, this example borrower could pay $240 in one month and be two years closer to loan forgiveness.

Such a rule would be incredible for the borrowers who qualify for low monthly payments, but it hardly seems fair to everyone else.

Strategy Behind Extra Payments

Why pay extra if making extra payments doesn’t speed up the forgiveness clock?

In many cases, paying extra is a lousy strategy. If you are working toward IDR forgiveness or PSLF, it just means less money to forgive at the end.

Some borrowers consider paying extra to keep their balance under control. The new SAVE subsidy already addresses this issue. With this new program, many people are better off just putting that extra payment into a high-yield savings account.

Understanding the Forgiveness Clock

In the past, many borrowers thought about forgiveness purely from a time-based perspective. PSLF takes ten years, and IDR forgiveness takes 20 or 25 years.

I’ve encouraged borrowers to think of it less as a forgiveness clock and more as a payment count, especially with PSLF. This approach helps ensure that borrowers don’t skip over critical eligibility factors.

As we look at things from a payment count perspective, it is essential to remember that there is still a time-based element. If you need 20 years’ worth of payments for IDR forgiveness, it will take 20 years to get there.

The post Accelerated Forgiveness: Making Extra Payments for Quicker Forgiveness appeared first on The Student Loan Sherpa.

These changes go far beyond a new repayment plan and the Supreme Court striking down debt cancellation.

Borrowers must understand these changes for a couple of reasons. First, they could benefit through lower payments or earlier forgiveness. Second, in researching their repayment options, they may come across outdated information in conflict with what they read elsewhere.

Those who understand what has changed will be able to save money and avoid following outdated advice from their friends, loan servicers, or the internet.

The Big Change: The SAVE Repayment Plan

The new SAVE plan is a massive change from the options available to borrowers in 2020.

Under SAVE, borrowers can get lower monthly IDR payments and potentially qualify for forgiveness earlier.

Some of the provisions of SAVE will be immediately available when payments resume. Others will become available on July 1, 2024.

If you are new to SAVE, check out my article on the SAVE timeline and how it impacts other IDR plans. Additionally, you can preview SAVE payments using the SAVE calculator.

IDR Payment Count Update

By early 2024, the Department of Education will update borrower progress toward IDR forgiveness.

This is to correct issues where servicers steered borrowers into a deferment, forbearance, or balance-based plan when an IDR plan would have been a better decision.

As a result, many of these prior periods where the borrower was not on an IDR plan will still count toward the required 20 or 25 years for IDR forgiveness.

There are a couple of important takeaways here. First, you may be much closer to IDR forgiveness than you previously thought.

Second, you may have read that repayment plans like the extended or graduated repayment plan will count toward IDR forgiveness. This is true. However, it is essential to understand that this only applies to previous periods on these otherwise ineligible repayment plans. If you sign up for the extended repayment plan in the future, you won’t make any progress toward IDR forgiveness.

Sherpa Tip: For most borrowers, the benefit of the IDR count update happens automatically.

However, if you have FFEL or Perkins loans, you must consolidate them before the December 31, 2023, deadline to benefit.

Consolidation Becomes Less Risky

Historically, consolidating federal student loans came with an element of risk. When you consolidated, a new loan was created, which meant restarting the “forgiveness clock.”

That isn’t the case today. As noted in the previous section, consolidating before the December 31 deadline means borrowers keep all their IDR or PSLF progress. Best of all, if you have mixed progress, the consolidated loan will have the tally of the highest loan that was included. For example, if you have a $10,000 loan with 50 IDR payments and a $10,000 loan with 70 IDR payments, the new consolidated loan gets credit for all 70 payments.

If you miss the December 31 deadline, consolidation won’t mean a complete restart of payment progress. As part of the new rules that go into effect with the SAVE repayment plan, borrowers that consolidate their loans keep the weighted average of their existing forgiveness progress. Returning to our last example, the consolidated loan would have 60 IDR payments.

The Remaining Consolidation Risk: Consolidation is less risky, but it is not without risk. Borrowers who have Parent PLUS loans for their children and student loans from their own education will still want to exercise caution.

Combining these debts in one consolidation loan will mean limited repayment plan eligibility.

REPAYE for Married Couples

Some rule changes were relatively minor, easy to miss, but really important for borrowers. One such example is the change to income rules for married couples on REPAYE.

In the past, borrowers could file their taxes separately to exclude spousal income from IDR analysis. However, they could only do this for specific repayment plans. Notably, on REPAYE, this option was not available. Spousal income was counted in IDR calculations whether or not you filed taxes separately. Thus, REPAYE was a bad choice for many married borrowers.

Fortunately, the rules have changed. SAVE allows married borrowers to file taxes separately to exclude spousal income, and REPAYE has been modified to allow spouses to file separately.

Being married still causes issues for federal student loan borrowers, but the ridiculous REPAYE rule is no longer in effect.

Borrower Interest Subsidy Changes

Historically, one of the “risks” of income-driven repayment plans was that the borrower balance could grow with each passing year.

If the IDR payment was $100, but the loan generated $250 in interest each month, the borrower’s balance would increase by $150 each month. The confusing interest capitalization rules made things even more complicated.

When REPAYE was first created, it had a provision to address this issue. Borrowers with interest charges higher than their monthly payment received a stipend covering half the excess interest. Going back to our previous example, the borrower’s balance would increase by $75 each month instead of the full $150.

Under SAVE, borrowers will get a stipend for 100% of the excess interest. In our example, the borrower pays $100 each month, and the loan balance doesn’t grow at all. Additionally, borrowers currently on REPAYE will get this benefit while they await the transition to SAVE.

PSLF Employment Requirements

Not all of the changes are for the better.

For a brief period, the Limited Waiver on PSLF was in effect. During this time, the Department of Education reviewed PSLF applicant records and updated payment counts helping some borrowers reach the necessary 120 certified payments.

During the Limited Waiver, borrowers were not required to be currently employed by a PSLF employer to earn forgiveness.

Unfortunately, that special exception has ended.

If you are pursuing PSLF, in addition to the 120 certified payment requirement, you must work for an eligible employer at the time of your application and approval. Don’t leave your PSLF job until after your debt is forgiven. An early move could mean missing out on loan forgiveness.

Student Loan Forgiveness Taxes

You may have heard that there is a tax on federal student loan forgiveness. You may have heard that there isn’t a tax on loan forgiveness.

Both statements are wrong.

The potential tax on forgiveness is a bit more complicated than that.

PSLF doesn’t get taxed by the IRS. IDR forgiveness usually gets taxed by the IRS, but from now until January 1, 2026, it doesn’t get taxed.

State taxes complicate things even further. Some states will tax forgiveness; others won’t.

If you are nearing forgiveness or concerned about a potentially large tax bill, talking to a local tax expert is probably the best bet. A tax professional can help determine whether or not you will get taxed and help you find ways to avoid and/or minimize the tax.

My hope is that the federal tax gets permanently erased before we get to 2026, but that will depend on Congress taking action. If forgiveness is off in the distance for you, consider using my strategy to prepare yourself just in case you get a big tax bill.

The Fresh Start Program

Many borrowers were in default on their federal student loan payments at the time of the payment and interest pause.

To help these borrowers, the negative credit reporting and collection calls stopped.

Now borrowers have the option of the fresh start program to get signed up for an IDR plan and get their loans back on track.

In the past, borrowers could either rehabilitate or consolidate their loans to address a default. Because these options could only be used once, many borrowers ended up in difficult situations.

Fresh Start allows borrowers to restart repayment without the mistakes of the past hanging over their heads.

Annual Income Certification

One of the biggest headaches with IDR has been the annual income certification. Inconsistent processing times from loan servicers occasionally resulted in borrowers missing out on months of IDR payments because the servicer was still calculating the monthly bill.

Borrowers not only had to remember to recertify their income each year, but they had to time it right.

Recent legislation now allows borrowers to authorize automatic income verification based on their most recent tax return. These changes haven’t been fully implement on the IDR applications yet. However, once they are in place, borrowers can allow automatic income verification. This will mean one less thing to remember each year.

When the automated income verification is in place, borrowers will receive a letter from their servicer shortly before their previous income verification expires. The letter will include the new monthly payment for the next year. At that point, borrowers can update their information as necessary. For example, if their family size has grown or their income drops, their payment can be recalculated.

Checking Dates and Facts on Student Loan Information

If you are researching options for your federal student loans, it is critical to understand that there have been significant changes over the past few years.

Pay special attention to the date of any articles or resources you read. In many cases, older resources may have information that is no longer accurate.

On a more positive note, the reason for the confusion is that many new rules have been created to correct past issues. There is still plenty of room for improvement, but repayment options for federal borrowers have never been better.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Important Student Loan Rule Changes to Understand appeared first on The Student Loan Sherpa.