The Public Service Loan Forgiveness Program (PSLF) was signed into law through executive order in June 2014 by former President Barack Obama. The program could potentially forgive student loan debt for thousands or even millions of individuals, including full-time employees of not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
Under the PSLF, qualifying full-time employees will have their remaining loan balances under qualifying student loan plans forgiven if they have made 120 qualifying payments. Full-time employment is determined by either meeting your employer’s definition of full-time or working at least 30 hours per week, whichever is greater. Qualifying payments are those made on-time, under a qualifying repayment plan and after October 1, 2007. As a result, the first group of individuals that can qualify for the PSLF will qualify in October 2017.
A qualifying loan for the PSLF is any loan received under the William D. Ford Federal Direct Loan Program. If you have received other federal student loans under the Federal Family Education Loan Program or the Federal Perkins Loan Program, these do not qualify under the PSLF.
PSLF could not only help thousands or even millions of Americans benefit from debt relief, but also loan amounts forgiven under the PSLF Program are not considered income by the Internal Revenue Service. Therefore, you will not have to pay federal income tax on the amount of debt that is forgiven after the 120 qualifying payments have been made.
It remains to be seen what will be the future of this program given the recent tax reform discussions as well as several campaign promises by the current administration of President Trump. These promises include a change in the cap for income-based repayment plans, as well as changes in student loan forgiveness developed solely for income-driven repayment programs. However, unless the potential new reforms under President Trump change or eliminate this program, individuals who think they qualify should apply for benefits under this program.
Article written by:
Tobin Perrill, CPA