- The Civil Service Loan Cancellation Program cancels government and non-profit worker loans after 120 payments.
- Studies show that only 6.7% of eligible borrowers apply for the PSLF, and of these, 98% are refused.
- Most applications are denied due to misspelled words, lack of payment requirement or missing documents.
- Read more stories from Personal Finance Insider.
The Public Service Loan Forgiveness Program forgives federal student loans from the U.S. government and nonprofit workers after 120 qualifying monthly payments.
While some people are optimistic about this debt repayment option, the program is notoriously difficult to navigate. According to a study conducted by Melanie Hanson at the Education Data Initiative, only 6.7% of eligible student borrowers apply for student loan forgiveness. Recent data from the Department of Education’s federal student aid office shows that 98% of borrowers who apply are consistently turned down.
The application process can be daunting and frustrating, but Tony Aguilar, co-founder and CEO of the free student loan repayment assistance app Chipper, has helped more than 5,600 people get their federal student loans forgiven by helping them navigate the PSLF application process.
In Aguilar’s experience, three common mistakes usually trip people up.
1. Misspelled words
“They’re so strict about how you fill out the forms,” Aguilar says of PSLF.
He tells Insider about a borrower who was repeatedly turned down for no clear reason. After weeks of combing through the form, Chipper’s team finally figured out why.
“When we submitted the documents, we indicated that the borrower’s school was Cypress Fairbanks ISD,” says Aguilar. They refused the request because we omitted the hyphen between “Cypress” and “Fairbanks”. »
Aguilar adds: “It was the most frustrating experience. Anyone filling out these forms has to be very clear, cross the t’s and dot the i’s.”
2. Does not meet the qualifying minimum payment requirement
Aguilar says most of its new customers don’t take advantage of repayment plans that can lower your monthly payments while still qualifying for PSLF. Instead of missing payments you can’t afford, talk to your lender to see if another payment plan can help.
PSLF requires 120 qualifying payments, which equals 10 years of one-time monthly payments. In addition to the standard repayment plan offered by the lender, three repayment plans, listed below, can offer significantly lower monthly payments that are also eligible for PSLF.
Remember that to qualify for the PSLF or the payment plans below, you must have public – not private – loans. If you refinance your public loans with a private lender, your loans become private and you are no longer eligible for the PLSF.
Here are the three payment plans that still make your payments eligible for PSLF, according to the federal government’s student aid website:
- A income-based repayment plan allows you to make lower monthly payments proportional to your income, but extends the duration of the loan to 20 to 25 years instead of 10 years. You will need to report any changes in your income over time, and your monthly balance will increase or decrease as your income changes. If your income is low enough, you may be eligible to pay $0, which can still count towards the 120 payments eligible for PSLF.
- Similar to IDR, a income-contingent repayment plan allows you to make lower monthly payments over 12 years, equivalent to 20% of your discretionary income, which is the income left over after paying your taxes, housing and bills.
- the Pay-As-You-Earn Reimbursement Plan allows you to make lower monthly payments equal to 10% of your Discretionary Income, which will never exceed the standard repayment plan originally offered by the lender.
When choosing repayment plans, Aguilar says the key is to make the smallest possible monthly payments eligible for PSLF, so you can maximize the rebate offered at the end of a 10-year repayment journey.
3. Not providing the correct documents
The aforementioned study by the Education Data Initiative also found that, among denied applications, 30.7% of applications were denied because they did not provide sufficient documentation.
Aguilar says the best solution to this common problem is to consult with a student loan expert to make sure your PSLF application is as complete as possible.
Aguilar adds, “A lot of borrowers we work with, they’ve applied on their own two or three times, and they’ve been rejected for some reason. Most of them would have quit, but when they see there’s resources like Chipper to help them manage the process from start to finish, there’s a different perspective.”