Public Service Loan Forgiveness (PSLF) Program - Eligibility, Taxes, and Consolidation

Learn all about Public Service Loan Forgiveness (PSLF) programs, its eligibility and requirements, how to apply for it and more in this article given below.

Updated by Sharan Kumar on 11th February 2020

 In the year 2018, the first batch of public service employees became eligible for public service loan forgiveness (PSLF) program. These employees were the first ones to have their Direct student loans forgiven with this program.

With the growing popularity of this program and also an increase in the number of income-driven repayment plans, a greater number of people are becoming eligible for loan forgiveness. You could be eligible for the same program as well. 

Have a look below and find out.

You might just save yourself a world of trouble if your loans are forgiven.

Table of Contents

What is Public Service Loan Forgiveness Program? 

To put it in simple terms, Public Service Loan Forgiveness or PSLF is a program run by the Federal Government for the employees who work full time in a public or non-profit sector and hence qualify for the same. It turns out to be for a variety of employers. Full-time employees are considered only if they have been working for more than 30 hours per week.

Most often the terms for the qualification of a federal student loan applicant for Public Service Loan Forgiveness is when you have made 120 on-time payments (10 years). It can lead to the rest of your federal student loans being forgiven.

Most of the employers that qualify for the PSLF program are as follows.

  • The government (including military, law enforcement, schools, and universities)

  • Peace Corps or AmeriCorps

Tax-exempt non-profit 501(c)(3) companies (including tax-exempt hospitals, charitable organizations, educational institutions, and others. It’s also important to note that if you’re a member of the clergy or your work is religious in nature, it may not be possible for you to receive an exemption. (To qualify, you must spend at least 30 hours per week on work that has nothing to do with convincing, conducting worship services, or providing religious instruction.)

Other non-profit organizations that provide one of the following services -

  • Law Enforcement

  • Public interest law services

  • Early Childhood Education (including licensed or regulated healthcare, Head Start, and state-funded pre-kindergarten)

  • Emergency Management

  • Military Service

  • Public Safety

  • Public Health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in healthcare practitioner occupations and healthcare support occupations, as such terms are defined by the Bureau of Labor Statistics)

  • Public Service for individuals with disabilities and the elderly

  • Public Library Services

  • School library or other school-based services

  • Advocacy, political groups, or labor unions are not qualified as employers

  • Public Education

How does the 120-payment system work?

To be genuinely eligible for this program, one is required to have made 120 timely payments on your student loans. These payments that are qualified must meet the following criteria -

  1. You are a full-time employee (worked greater than 30 hours per week)

  2. Your loans have not been in default, deferment or forbearance. The payment made was after Oct 1, 2007.

  3. The payments made were on time and in full within a period of 15 days of your due date.

  4. You are under a qualified repayment plan (A very important part of the requirements is being under a qualified repayment plan), such as the income-driven repayment plans. This might also include the $0 payments that accumulate interest if you earn a wage below the poverty line. Payments that are made under the standard repayment plan would qualify for PSLF for Direct Consolidation loans if only the max tenure was set to 10 years. In the instance where you have a Direct Consolidation loan, make sure that you combine it with an income-driven repayment plan.)

  5. Since the 120 payments for your public service loan forgiveness program do not have to be consecutive, you will be eligible to take a couple of years off the work and come back and join in where you started.

  6. Be careful if you plan on consolidating your loans because when you do consolidate your loans, the number of payments required by you to make resets to the 120 payments regardless of how many payments you have made so far

Be sure to consolidate the loan carefully and at the beginning of your loan forgiveness process. There is not another best time to consolidate your loans.

Ways to get the best out of your PSLF -

  • Keep your payments to the bare necessary amounts.

  • Keep payments to as little as once a month and not more.

  • Switch to an income-driven repayment plan ASAP.

  • Considering consolidating your loans? Do it right after graduating from college.

Wondering when your 120 loan payments clock starts?

You are eligible to begin making payments when your grace period that includes the in-school deferment and the post-graduation 6 months or so time period has passed. If you believe you will be able to handle making payments sooner rather than later and want to get as little to pay in the form of interest as possible then consolidate your loans and begin making payments ASAP.

Consider yourself lucky as the 120 monthly payments are cumulative and not consecutive. In the sense, they are not necessarily required to be made from a single employer straight up for 10 years without breaks.

You could work for 3 years at a non-profit and then work at a private sector for another couple of years and get back into a government job for 7 years totaling 10 years of public service. After this, you qualify for the Public Service Loan Forgiveness. It makes sure that there is an encouragement in the flexibility and mobility of the workforce between the government and not for profit sectors respectively.

For PSLF, you can go for the plans that are available under income-driven repayment which are REPAYE, PAYE, and IBR. You could continue making payments and switch between part-time and full-time status, in the meanwhile slowly building up credit towards 10 years of full-time credit required.  

Even if you do not manage to get the Public Service Loan Forgiveness, you could get the 20-25 year IDR forgiveness on the same payment plan. Although if you do not get the Public Service Loan Forgiveness plan, you would be obliged to pay taxes on the forgiven balance. This does not apply with the forgiveness granted with the PSLF where no taxes are owed.


Consolidating your loans will definitely restart your PSLF process back to 120 payments. Always remember, consolidating your loans will restart the payments required to be made to become eligible for the PSLF. So do not consolidate if you have already made a number of payments that are eligible under the program.

The greatness of the program

One of the greatest and best student loan forgiveness programs is Public Service Loan Forgiveness as it is a tax-free benefit.

Keep in mind that this program is different from the private sector IDR in the sense that this program is a tax-free benefit. Whereas, the private sector employees although they are paid better, sometimes have to save up for the future tax penalty. Also, non-profit or government employees are not required to cover this extra cost.

Most of those who borrow loans do not mind working for 10 years for the reason that at the end of those 10 years, they no longer have to worry about the loan amount that they had to pay.

It would be wise to keep aside the account to put your money into a brokerage. It is to make sure your assets grow during the period you wait for forgiveness. This, however, will likely end up back in your pocket and not be wasted on paying the loan as the Public Service Loan Forgiveness (PSLF) gets approved.

Jobs that are Eligible for PSLF

You need to be working in a Public Service Job to be eligible for PSLF.

Public Service Jobs include:

  • Work for the government

  • Work for a 501(c)(3) organization

  • Work for a not-for-profit organization that is not a 501(c)(3) organization that provides a public service as its primary purpose

  • Work with AmeriCorps in a full-time capacity or volunteer with the Peace Corps

Government Organizations

If you work with a federal, state, local, or tribal government, you are eligible for the PSLF.

This includes role within the government organization - from assistant to the mayor. You must be a full-time employee of the government, so 1099 contractors are not eligible.

It also includes the military, DOD, and all branches of the Federal government.

501(c)(3) Organizations

A not-for-profit organization that falls under the IRS code 501(c)(3) is also eligible to not pay federal income taxes.

They fall under the following categories:

  • Religious: Churches, synagogues, and any other organization that exists for religious purposes

  • Educational: Many public schools 

  • Charitable: Organizations that focus on providing charitable services.

  • Scientific: A scientific corporation that, for instance, ships equipment to poorer countries so they can have access to advanced research tools.

  • Literary.

  • An organization that does testing for public safety.

  • Animal protection organizations.

  • Organizations protecting the rights of children.

  • Organizations fostering national or international sports competition.

Not-for-Profit Organization That Is Not a 501(c)(3) Organization

An organization may not be a  501(c)(3) organization but may still be a  not-for-profit organization that provides a qualifying public service.

Certain not-for-profit organizations that provide a public service may not be tax-exempt at all.

Some not-for-profit organizations may enjoy some tax exemptions but not necessarily under the 501(c)(3) code.

AmeriCorps and Peace Corps

You must have an approved, full-time AmeriCorps position.

The Department of Education also considers volunteering in the Peace Corps equivalent to working in a public service job.

Loans that are eligible to be Forgiven by PSLF

Any loan received under the William D. Ford Federal Direct Loan (Direct Loan) Program 

Loans from these federal student loan programs don't qualify for PSLF: 

  • Federal Family Education Loan (FFEL) Program 

  • Federal Perkins Loan (Perkins Loan) Program

However, they may become eligible if you consolidate them into a Direct Consolidation Loan.

Student loans from private lenders do not qualify for PSLF.

If you consolidate your loans, only qualifying payments that you make on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF. Any payments you made on the loans before you consolidated them don’t count.

Qualifications required for PSLF

To qualify for PSLF, you must

  • be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization;

  • work full-time for that agency or organization;

  • have Direct Loans (or consolidate other federal student loans into a Direct Loan);

  • repay your loans under an income-driven repayment plan; and

  • make 120 qualifying payments.

How to apply for PSLF

The first step is to apply annually to the PSLF program through the submission of the Employment Certification form even when you change employers.

Mail it to -

U.S. Department of Education

FedLoan Servicing

P.O. Box 69184

Harrisburg, PA 17106-9184

Following this, your loan servicer will change to FedLoan Servicing. Further ahead FedLoan Servicing will proceed with reviewing your loan payments prior to now to check how many qualified loan payments have been made by you so far. If you are employed by multiple people make sure you submit multiple Employment Certification forms.

Submission of necessary documents - Every year, you must keep submitting Employment Certification forms. But keep a copy of your IRS W-2 and other supporting documents so as to prove that you have been working as a full-time employee. This makes it an easier job for FedLoan Servicing to keep track of your payments. (You should also be able to dodge quite a number of hassles once your 120 payments are complete.)

FedLoan Servicing has its own account access area where you have the liberty to check the number of payments that you have successfully made.

After making payments - Once you have made 120 complete full-time payments (well done on that job), you become eligible to apply for federal student loan forgiveness programs.

After this, you can either directly upload the form to or mail it to the FedLoan address given above.

Once FedLoan Servicing approves your loan, it will inform you and you shall also receive notifications of loan balances which will be nullified.

Qualifying loans for PSLF program

Since PSLF is a program given out by the federal government, private student loans are ineligible for loan forgiveness.

The loans that are eligible for PSLF are as follows -

  • Direct Subsidized Loans

  • Direct Unsubsidized Loans

  • Direct PLUS Loans

  • Direct Consolidation Loans

If the loan isn’t on the list above, it’s not qualified for loan forgiveness.

Do Direct Consolidation Loans qualify for the PSLF program?

Yes, they are eligible for loan forgiveness, but there are some drawbacks or clauses one has to watch out for.

First of all, if you consolidated your loans with your spouse together to a direct consolidation loan, and the only one who meets the employment requirements is either one of you, the portion that you own in the loan is forgiven whereas the rest is not. 

Also, any joint consolidation loans which belong to the federal family education loan (FFEL) program will not be eligible for this program.

Lastly, if at any time you consolidate your loans, you will be resetting your 120 payment requirements and in the process nullify any previous eligible payments you have made.

Do FFEL loans qualify for forgiveness via the PSLF program?

Until the month of June 2010, Federal Family Education Loan (FFEL) Program loans were one of the largest federal loans to be issued to student borrowers. Since these weren't issued by the US Department of Education, hence, they do not qualify for the PSLF. One way of getting it done would be to consolidate it into a Direct Consolidation Loan.

If you are sure your employer qualifies for this program and your application for PSFL got rejected, then this most probably means that you might have non-qualifying loans.

If you have loans that you took before the month of June in the year 2010, then you should be paying a little more attention to the types of loans that you currently have. Most of the loans made on or after the year 2010 will be made through the Federal Direct Program. 

Loans from 2010 or earlier are probably from the FFEL loan program, which sadly does not qualify for the Public Service Loan Forgiveness program. You should be able to fix this issue with Loan consolidation that converts the loans you have into Direct Consolidation Loan. However, this will probably reset your timeline for payment since technically it becomes a new loan.

Affect on tax benefits with loan forgiveness

When you have an income-driven repayment plan, you should be looking at the taxable income that you make and reduce that as much as possible by making contributions that can be exempted from taxation as much as possible to get more Public Service Loan Forgiveness programs. The simplest way to achieve this is to pay the max amount to all your pre-tax accounts.

In the instance where you are married, you may also have your spouse do the same. This will lower your total income as a whole economic unit. The most usual references for pre-tax savings accounts are your 401K and your Health Savings accounts. 

Here are a few other accounts that will help you reduce your taxable income and increase the Public Service Loan Forgiveness programs that you may be able to receive.

  • 403b

  • 401k

  • HSA

  • 457 (in addition to the 403b)

  • Solo 401k (indicated for income that you accumulate from any side hustle)

  • Traditional IRA

If you have lost anything greater then $3,000 in investments, you should be able to write that off against ordinary income. There are a few other write-offs as well that are plausible for real estate investing that have been noted for those that have side hustles or other incomes from businesses outside their main sources of income.

Regardless of the amount of loan taken, the amount remaining or the interest that is accumulated so far on the loan, the entire balance of the loan amount that is to be paid is forgiven and it is not taxable.

Considering Health Savings account for the bigger picture

Health Savings account can help you reduce your pre-tax income to a good amount. For instance, if you are single at that moment, your contribution to a health savings account can be up to $3,500. Whereas, You could also receive an indirect match from the Federal Government for about 10 cents on the dollar that you contributed.

married individuals are able to contribute up to $7,000 to their Family Health Savings account if this wasn't enough of a good reason as it was a triple exempted account.

For example, let us say you put in $4,000 into your health savings account for the family and your income after adjustments for the poverty line set by the Federal government is $100,000.

PAYE or REPAYE would expect you to make yearly payments of $10,000 towards your Federal student loans. After you save about $4,000 through your health savings account, your income becomes $96,000 and you'd be required to make $9,600 payments every month on your student loans.

Since you get your student loans forgiven tax-free later on this, it does not make any difference to the health savings accounts, hence, this becomes pure savings. It is one of the best-missed parts of someone going through for the Public Service Loan Forgiveness (PSLF) Program to save the money.

What happens if my loan goes to default?

Considering that you are on an income-driven repayment plan, repayment of your student loans must be at the top of your priorities list as these student loans must never be defaulted upon to be eligible for the PSLF Program. 

If in certain circumstances you default on your payments towards the loan, that payment will not be considered for the qualifying repayments. It also includes the time you spend getting your loan back to normal status. 

Make sure to stay out of default on your student loans by making repayment of those loans a priority. In such a situation where your income takes a dive due to some circumstances, for say if you lost your job, you could be considered resetting your repayment plan in the middle of the year.

Can it be reserved?

Yes, it definitely is a possibility. But, Public Service Loan Forgiveness has strong and wide backing from some powerful sets of individuals and to support that we have some really high costing grad school programs. Hence, the chances that the current borrowers do not end up receiving the PSLF at all is very unlikely. This is mostly due to political reasons.

The number of lawsuits would be insane in such a situation. It is sort of to say that the PSLF program is a contract that is set between the borrowers and the federal government that would be difficult to be broken. 

The Public Service Loan Forgiveness program will end up causing labor market imbalances that are yet to be realized. It would also cause a huge rift between the public and private sector employees.

For such reasons, we do expect the days of the PSLF program to be numbered. But the odds at those who are currently borrowers who wouldn't be able to receive the full benefit is at about 10% or lower. This also includes the part that is regarding the risk posed by the means of testing the program.

Summary - Final Thoughts

Since the program gives you complete forgiveness without the need to pay a cent back nor with any taxation on the amount that is forgiven, we can conclude that it is a pretty amazing program to consider. But then again, it requires a good amount of patience to follow through with the rules and more to get your loan forgiven.

Sometimes there can be those who are in doubt about the PSLF and those who currently have an outstanding debt might have their outstanding student debt reversed. Although this might be true, one must not worry about this and in the same instance must not offer to pay more on a loan that in the eventuality has a good chance of being forgiven. 

You should rather put that money elsewhere, in say a taxable savings account or mutual fund and or a brokerage account. It will build your savings at a faster rate in comparison to inflation and in the instance that repeal does occur, you should then cash out on this and begin repaying the loan but at a much faster rate and with much higher payments and finish off much quicker.

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Frequently Asked Questions

  • 1.Who qualifies for Public Service Loan Forgiveness?

    Public Service Loan Forgiveness Quick Checklist - Full forgiveness of Federal student loans after 10 years (120 qualified payments) Government or Non-profit employment 501(c)(3).

  • 2.Does my employer qualify for PSLF?

    To actually get loan forgiveness, you have to make 120 qualified' payments on your student loans. Qualified payments have to meet the following criteria: You were employed full-time by a qualified employer. Your loans were not in deferment, forbearance, or default.

  • 3.What qualifies as a public service job?

    Jobs with federal, state, local or tribal government organizations, public child or family service agencies, 501(c)(3) non-profit organizations, or tribal colleges or universities should be considered 'public service jobs'.

  • 4.Who is a public service worker?

    Public service is a service that is provided by the government to people living within its jurisdiction, either directly (through the public sector) or by financing the provision of services.

  • 5.Is the post office a public service job?

    Yes, it is. Teachers, military, police officers, postal workers, accountants, planners, recreation workers, emergency personnel, office staff – any job at any level of government.