Note: This post was submitted to Student Caffé by Rebecca Safier. Rebecca writes for Student Loan Hero about education, careers, and other personal finance topics. We would like to thank her for her submission and credit her as the author of this blog post.
If you’re facing a mountain of student debt, you might be banking on the Public Service Loan Forgiveness (PSLF) program to forgive your balance. But is PSLF really as amazing as it sounds?
Although this federal program leads to loan forgiveness, it could also come with potential drawbacks. Before committing yourself to a decade of public service, make sure you’ve acquainted yourself with the program, as well as explored alternative options for loan forgiveness.
Here are five points to keep in mind about PSLF so you can decide if it’s right for you.
1. Don’t expect to see loan forgiveness until you’ve worked for 10 years.
PSLF is a federal loan forgiveness program that discharges federal student loans, including subsidized and unsubsidized direct loans, in exchange for public service. A public service job could include anything from a translator or geoscientist to a groundskeeper or call-center representative.
When it comes to PSLF, it doesn’t matter what you do so much as where you do it—specifically, you’ll need to work for a qualifying organization. Eligible workplaces include nonprofits and local, state, federal, or tribal government organizations.
Once you’ve snagged your public service job, you’ll have to make 120 qualifying monthly payments before you see any forgiveness—PSLF essentially requires at least a decade of consecutive years at eligible work sites before canceling your student loan balance.
If you’re committed to a long-term career in the public sector anyway, this 10-year requirement might not be an issue. But if you’re hoping to get rid of your student loans faster, you could look to other loan forgiveness programs, such as Teacher Loan Forgiveness or the NURSE Corps Loan Repayment Program.
Furthermore, many states offer student loan repayment assistance in exchange for only a few years of service—for some, it can be just one to three years. In addition, some companies provide a student loan matching benefit for their employees.
If a decade feels too long to be working toward loan forgiveness, you might want to explore other options besides PSLF.
2. Your loan balance could keep growing while you wait.
If you’re counting on PSLF, you’ll need to put your loans on an income-driven or extended repayment plan—if you stick with the standard 10-year plan, you’ll have no balance left to forgive after a decade of public service.
Income-driven and extended repayment plans lengthen your repayment terms to 20 or 25 years and adjust your monthly payments accordingly, which could be a big help if you’re struggling to pay your student loan bill each month.
However, the downside of extending your term is that you’ll pay more interest overall. Let’s say you owe $30,000 at a 5.05% rate. After 10 years, you’d pay $8,272 in interest—but after 20 years, you’d pay $17,716.
Although this growing balance might not be a problem if you qualify for PSLF after 10 years, it could become an issue if you decide to make a career change. If you stray from the PSLF path, you could end up ineligible for loan forgiveness and facing bigger interest payments than you would have had if you’d stuck with the standard plan.
3. Public service jobs don’t always come with high earning potential.
Although student loan forgiveness could bring a major boost to your finances, you might limit your earning potential by following a career in public service. Public service work isn’t known for high salaries, and you might be able to make more with a job in the private sector.
You could pay off your student loans more quickly with a higher income, and without the aid of loan forgiveness. You might even be in a stronger position to refinance your student loans for new terms and lower interest rates.
Although PSLF could free you from student loans, make sure your own career goals line up with the program’s criteria. If they don’t, you could be sacrificing earning potential—or even career satisfaction—for the sake of getting your loans forgiven, a trade-off that might not be worth it in the end.
4. Your private student loans aren’t eligible.
The average student loan debt for a graduate in the class of 2017 was $39,400—but not all of that debt was federal. If you have private loans, unfortunately, PSLF won’t forgive them.
Federal loan forgiveness programs—these include PSLF, Teacher Loan Forgiveness, or the loan cancellation that comes at the end of income-driven plans—only discharge federal student loans.
If you have private student loans, you might look into refinancing them for new terms and lower rates. Through refinancing, you could save money on interest and adjust your monthly payment to one that better fits with your budget.
5. PSLF might not be around forever.
The PSLF program began in 2007, so the first recipients became eligible for forgiveness in 2017. But despite 30,000 applicants to the program, only 96 had actually received forgiveness as of September 2018, according to CNBC.
What’s more, some members of Congress called for abolishing the program completely, as part of the PROSPER Act proposed in late 2017. Although this bill is unlikely to pass—especially with the Democrats set to take control of the House of Representatives in January—it shows that federal student loan policies can change depending on who’s in office.
At this point, PSLF is still running, but the future of the program isn’t guaranteed. Before devoting 10 years of your life to a career in the hopes of getting loan forgiveness, keep in mind that it might not be around forever.
Is student loan forgiveness through PSLF right for you?
Even with the potential downsides, PSLF could be a boon for many borrowers. If you’re a public servant with student loans, the program might be a great way to get relief from your debt.
But before devoting 10 years of your life to a PSLF-eligible job, make sure your personal goals align with this career path. You should also remember that federal programs can change, so the programs and plans available now could be revised or even eliminated in the future.
Outside of PSLF, don’t forget to look into other strategies for saving money on your loans, whether through loan repayment assistance programs (LRAPs) or by refinancing for lower rates. Ultimately, your goal is to get rid of your student loans, so explore all your options for conquering your student debt once and for all.