Scholarships and Loan Forgiveness

Public service loan forgiveness (PSLF) is a program through Federal Student Aid that forgives any remaining balance on Direct loans after submitting a specific number of qualifying payments. 

 

There are a few general stipulations that are recommended in order to qualify for PSLF:

1. Your loans must be Direct loans (private loans are not eligible), and you must have a FAFSA account

2. You must qualify for an income-driven repayment plan, such as SAVE, PAYE, income-based repayment (IBR), and/ or income-contingent repayment (ICR)

   1. Review the PSLF website for differences in these loan repayment plans​

3. Your monthly payment using an income-driven repayment plan must be less than your monthly payment using a standard (10-year) repayment plan​

   1. If your loan burden is relatively low and your salary high, your monthly payment using a standard repayment plan (in which your loans are fully paid off in 10 years) may be less than an income-driven plan​

      1. A standard repayment plan calculates your monthly payment based on loan amount and interest rate divided over 10 years

      2. An income-driven repayment plan uses your adjusted gross income (AGI) to determine your monthly payment

4. You must be employed by an employer with tax-exempt or 501c3 tax status

   1. PSLF has a tool to search if your employer qualifies​​

   2. The PA Jobs pages by state labels major healthcare employers that qualify for PSLF

   3. Most academic medical centers and not-for-profit health systems qualify

5. You must be employed full-time or at least 30 hours per week​

6. You need to complete 120 payments on a qualifying repayment plan while actively employed at a qualifying institution to submit for loan forgiveness​

   1. Payments do not need to be consecutive​

   2. Payments still qualify if you are actively employed but using federally-supported leave, such as FMLA, or approved PTO

7. If you defer paying your loans, the months deferred will not count towards PSLF

8. You do not need to submit an annual update of your employment, employer status, and loan repayment, but it is strongly encouraged in order to keep track of your progress and ensure accountability 

   1. Submitting the PSLF form requires electronic or manual completion by the employee and a designated human resources (HR) representative​

9. You are not taxed on the amount of loan dollars forgiven ​

 

More about AGI and Income-Driven Repayment Plans

• Income-driven repayment plans have different percentages (%) of your AGI that are used to determine your monthly payment​

  • Your monthly payment will be higher if your plan requires paying 15% of your AGI per month compared to a plan that requires paying 10% of your AGI per month

  • Generally, you should choose an income-driven repayment plan that requires the lowest possible monthly payment if aiming to have your loans forgiven using PSLF

• Your AGI is determined based on your pay stub or your tax filing from the prior year

  • You can file your taxes separately from your spouse so that your income represents only your salary when submitting your updated information via FAFSA​

  • You do need to update your salary via FAFSA every year

• Your AGI is determined by your overall salary (as determined by your employer) minus all pre-tax contributions​

  • Pre-tax contributions include disability insurance, retirement contributions (except Roth accounts), health savings accounts, flexible spending accounts, dependent care benefits, health insurance, dental insurance, and more​

  • Optimizing or increasing your spending on pre-tax contributions will lower your AGI and, consequently, reduce your monthly payment according to an income-driven repayment plan

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PSLF Example

Debt - $200,000 of Direct loans

Loan interest rate - 8.5%

Employer - General Hospital with 501c3 status

Salary - $120,000

Adjusted Gross Income (AGI) - $90,000

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Standard Repayment Plan

Number of monthly payments: 120

Monthly payment: ~ $2480

Total amount paid towards Direct loans: ~ $298,000

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Income-Driven Repayment Plan (PAYE through Federal Student Aid) and PSLF

Number of monthly payments until loan completion: 240

Number of monthly payments until qualifying for PSLF: 120

Monthly payment: ~ $560

Total amount paid towards Direct loans: ~ $67,000

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