Back in 2007, the federal government set up a new program to encourage and reward employment in the public sector—Public Service Loan Forgiveness (PSLF). The premise was that college graduates who chose to work for nonprofits probably wouldn’t be able to pay back their loans as easily as those working more lucrative jobs in the private sector. Forgiving their student loans would ease their financial burdens and draw more workers into those fields.
Sadly, there was one major exception to eligibility—clergy.
In 2021, the exception was recognized as discrimination and reversed. But while several years have passed since the doors to PSLF were opened to pastors, many still don’t know about this valuable opportunity.
What Is PSLF?
The PSLF program allows anyone who has made 120 qualifying payments—essentially, 10 years of monthly payments—toward his or her federal student loans while working full-time for a qualifying employer to have the remainder of the loans forgiven tax-free. The two keys to PSLF are the type of employment and the type of payments made.
Type of employment: To qualify, a borrower must work directly for a nonprofit organization or the government. The work must be full-time, defined as an average of 30 hours per week or more.
Type of payments: PSLF applies to federal direct student loans being paid back according to an Income-Driven Repayment (IDR) plan. IDR plans calculate monthly payments based on the borrower’s income (not including housing allowance) and family size, rather than how most loan payments are calculated based on the loan’s balance, term, and interest rate. Technically, the 10-year Standard Repayment plan is also a qualifying plan for PSLF; however, this plan typically results in your loans being paid off after 120 payments, so there’d be nothing left to forgive.
Limited-Time PSLF Opportunity
Over the years, PSLF has been criticized for denying forgiveness to people on the wrong repayment plan. In response, the government made changes to the program and added temporary exceptions to include more people.
“There is a one-time account adjustment ending this summer that allows any previous months to be eligible for PSLF as long as the borrower was in repayment and working full-time for a qualifying employer, regardless of which repayment plan the borrower was enrolled in,” said Cal Treichler, a certified student loan professional.
For borrowers with Federal Direct student loans, no action is required to receive the benefits of this one-time account adjustment. However, borrowers with commercially held Federal Family Education Loans (FFEL) must consolidate their loans before April 30, 2024, into Federal Direct loans to receive this retroactive credit toward PSLF. Logging in to your StudentAid.gov account and clicking on “My Aid” is the best way to determine which types of loans you have.
Going forward, the borrower must be enrolled in a qualifying repayment plan to continue making progress toward PSLF. You can learn more about repayment plan options on the Federal Student Aid website.
New SAVE Repayment Plan
As a part of the current administration’s push to help student loan borrowers, a new IDR plan called Saving on a Valuable Education (SAVE) was recently created. Introduced in 2023, this plan determines monthly payments based on a smaller percentage of income than the other IDR plans, meaning most borrowers will have lower monthly payments. It’s attractive if your goal is to pursue PSLF, because the most effective strategy is typically to reduce your monthly payments to maximize the amount forgiven after 10 years.
Ben Wacek, who owns a financial planning firm geared toward serving Christians, shared an example of how PSLF and SAVE could help one of his clients:
A married pastor with two children has a household adjusted gross income of $100,000. Prior to the introduction of the SAVE plan, the lowest payment available on an Income Driven Repayment plan for this pastor would have been around $443 per month. Under the SAVE plan, his monthly payments would be around $248.
You can learn more about what your payment on the SAVE plan may be by using Federal Student Aid’s loan simulator.
How to Apply for PSLF
On reaching 10 years of qualifying payments, you can apply by submitting the PSLF form. That will require each of your relevant employers to certify your employment history. While you only have to fill out that form once you’ve reached 10 years, Treichler recommends you begin submitting it annually to confirm you’re on track toward PSLF along the way.
After submitting your first PSLF form, you should receive a letter stating exactly how much progress you’ve made toward PSLF. By the way, the months during the COVID-related student loan payment pause from March 2020 to August 2023 count toward PSLF, even if you weren’t making payments. As long as you were in repayment status and working full-time for a qualifying employer, you’ll receive credit for the 42 payments that would have occurred during that time regardless of whether or not you made any payments.
Is This Going to Disappear Anytime Soon?
After 17 years, the PSLF program has weathered numerous threats and presidential administrations from both political parties, so it’s likely to continue to benefit borrowers into the future. The SAVE plan was created in 2023 through executive action, not a law passed by Congress. This means a future administration could repeal the SAVE plan. If that were to happen, borrowers would still have other IDR options available to them. A number of the IDR plans were passed by Congress, so it’d take congressional action to change them.
Regardless of the upcoming election’s outcome, PSLF will likely continue to benefit pastors and other student loan borrowers in the years to come. For Christians, the program is an excellent way to minimize debt and practice wise stewardship. The government has provided a way to accelerate the elimination of student debt for nonprofit workers, and to take full advantage of this opportunity would be to walk with wisdom.
To learn more about PSLF, SAVE, and all things student loans, the government’s Federal Student Aid website is an excellent resource. For personalized help, you can search for a certified student loan professional.
The Gospel Coalition