Woman reviewing notes outside with pen in mouthRecent press regarding the Public Service Loan Forgiveness (PSLF) program might lead one to believe the program is fraught with peril and not worth pursuing. The fact of the matter is that the program can be very beneficial to borrowers with higher student loan debts and lower incomes, and those who are working for one of many eligible government or non-profit employers. The key is being an educated consumer and ensuring that you meet the requirements for the program right from the start. Here are the 5 most important things you need to know if you are pursuing PSLF.

1. You need to make 120 eligible payments, on eligible loans, while working for an eligible employer

The key to PSLF eligibility is that you must fulfill all the requirements concurrently; but you don’t need to do so consecutively. This means that only payments made while under an eligible repayment plan (10-year standard or any of the income-driven repayment plans), on a Federal Direct Loan, and while working for an eligible employer will count towards the 120 you’ll need to receive forgiveness of your loan balance. With that said, if you leave eligible employment at some point, say to return to school or take a job in the private sector, your prior eligible payments will still be waiting for you if you decide to continue pursuing PSLF down the road.

2. It doesn’t matter what you do for a living, it matters who you work for

Many potentially eligible borrowers fail to pursue PSLF because they don’t think they qualify based on their job.  In reality, it doesn’t matter what it is you actually do, as long as you are working for a government (federal, state, local, or tribal) or 501(c)(3) non-profit employer. Other types of non-profits may also be considered eligible as long as their primary focus is one of several qualifying public services found here. This is good news for those in, for example, an administrative role at a school or hospital, but bad news for contractors who may actually work at a qualifying employer but receive their paychecks from a private, ineligible, company.

3. Don’t consolidate unless you are required to

Most borrowers do not need to consolidate their loans to pursue PSLF. If you already have all Federal Direct Loans, and no Parent PLUS Loans, there is no need to consolidate and doing so could mean starting from scratch.  Consolidation wipes out any prior eligible payments you may have made and once it’s done, there’s no reversing the process.

If you have Parent PLUS Loans however, you will need to consolidate in order to access the Income Contingent Repayment plan, which is the only plan other than the 10-year standard plan that is eligible for PSLF and open to Parent PLUS borrowers. If you have Perkins or Federal Family Education Loan (FFEL) program loans, you will also need to consolidate into the Direct Loan program to access PSLF. You can do so at studentloans.gov.  Remember, consolidation wipes out prior eligible payments so if you do have to take this step, do it before you start making the eligible payments.

Not sure what kind of loans you have?  nslds.ed.gov or your loan holder can let you know.

4. Get in the habit of submitting your proof of employment annually

While you’re not required to submit proof of 10 years of eligible employment until you actually apply for PSLF, every expert out there recommends doing so annually. Submitting the Employment Certification Form annually will trigger the servicer to start counting your eligible payments right away. It will also result in the borrower receiving notification if the employment or payments are not seen as eligible – something borrowers should know when they are starting to make payments rather than after ten years have passed.

Readers should note that there is currently a known payment-counting issue with the PSLF servicer. It’s being worked on, but the resolution may take some time. If you receive a payment count that you think is off, you can appeal that count via email. Due to the volume of such recount requests, however, they are taking up to a year to resolve. For this reason, unless you are eligible for forgiveness right now, we recommend holding off on requesting a recount at this time and simply wait to see if it’s resolved when you send in next year’s Employment Certification Form.

5. Don’t pay more than you have to

There’s a phenomenon I’m seeing lately where borrowers are trying to “hedge their bets” by paying more than what is required on their income-driven plan despite the fact that they are pursuing PSLF. This can actually hurt your PSLF eligibility. When you pay more than your monthly bill, the servicer is required under federal regulation to push the due date ahead unless the borrower specifically requests them not to. As only payments made within 15 days of the due date count for PSLF purposes, paid-ahead payments can cause future payments to be disqualified under the program.

Paying extra also essentially is stealing from yourself. If you are sure you will get forgiveness after the ten years, paying extra just reduces the forgiven amount and increases the total amount you will pay over that ten years.  As there is no tax on PSLF-forgiven amounts, there’s no benefit to reducing that balance.

If you are paying extra because you aren’t sure if you will stay working for a qualifying employer the full ten years and want to reduce interest, a better strategy is to open a separate savings account and put the extra funds there monthly. If you do end up leaving public service, you can always make a lump sum student loan payment with those savings at that time. In the meantime, you’ll be earning a bit of interest and if you do end up with forgiveness under PSLF, you’ll have a nice fund available for something else.

Being an educated consumer about programs such as PSLF is the best tool you have to ensure you will be successful.  Thankfully, there are many free resources available to help you including your loan holder, the Department of Education, and several non-profits that assist student loan borrowers.

Betsy Mayotte, President and Founder, The Institute of Student Loan AdvisorsBetsy is the President and Founder of The Institute of Student Loan Advisors (TISLA). She has been working in the student loan industry doing compliance and advocacy work for over 20 years and has helped thousands of borrowers with their student loans. She is regularly quoted in the media on student loan issues and was a frequent contributor to U.S. News and World Report’s The Student Loan Ranger.