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How State and City Government Entities Can Help Employees Access Public Service Loan Forgiveness

Employers and Organizations

How to Educate Public Employees About Student Loan Forgiveness


Last Update: February 21, 2022

Are your public employees struggling with overwhelming student loan debt? They may not need to.

Almost all public employees qualify for student loan forgiveness. Unfortunately, many are unaware, and many more find themselves disqualified. 

As an employer, you can help. Here are some things your employees should know.

Avoid Delinquent Payments

Public employees have to make 120 qualifying monthly payments through the Public Service Loan Forgiveness (PSLF) plan to qualify for student loan forgiveness. One of these qualifications is that the payments are on time – no later than 15 days past the due date.

What else allows a payment to qualify? The payments must be:

  • Made after October 1, 2007
  • Part of a qualifying repayment plan
  • Paid for the full amount due each month
  • Sent while employed full-time by a qualifying employer

There are even rules about when your employees can’t pay:

  • While in school
  • During the grace period immediately after graduation
  • While their loan is in deferment or forbearance
  • Extra payments to get to 120 payments sooner – they will only count one full payment per month as a qualifying payment

Don’t Refinance with a Private Lender

Only certain loans qualify for the PSLF program.

Suppose your employee refinances their federal student loan with a private lender or consolidates the loan under a program other than a Direct Consolidation Loan. In that case, the employee will lose the ability to get forgiveness – even if they’ve made qualifying payments.

To qualify as a payment toward PSLF:

  • The loan must be a qualifying loan or be consolidated under a qualified plan
  • For consolidation, the payments only count after consolidation in a qualified plan

If your public employee is considering consolidating loans, they will need to determine if they’ve already made qualifying PSLF payments. If so, they may want to leave these loans out of the consolidation.

Continue Working for a Public Employer

It doesn’t matter what type of job your employee performs as long as they are employed by a qualifying employer. It’s important that they understand who is considered a qualifying employer and who is not:

  • Government (federal, state, local, tribal, and military)
  • 501(c)(3) nonprofits
  • AmeriCorps
  • Peace Corps

If an employee leaves one of these qualifying employers for a private or for-profit company or begins work as an independent contractor, they will lose their status for PSLF. 

Here are a few other things your employees need to understand:

  • They must be considered full-time employees.
  • Payments made while in qualifying employment do not expire. If they begin working with a qualified employer later, their new qualifying payments will be added to the ones made in the past.

It’s very important that a public employee does not leave public service before receiving their loan forgiveness.

The rules state that an employee must still be employed by a qualifying agency when receiving loan forgiveness. So, if they qualify and apply but quit before they receive loan forgiveness, they will no longer be eligible. 

It Doesn’t Count as Taxable Income

In the past, student loan balances that were forgiven had to be counted as income on an employee’s taxes. This could result in a large tax burden come tax time. Luckily for your employees, this is no longer the case.

The IRS now states that any amount forgiven under the PSLF program does not need to be reported as income. That means your employees will not have to pay taxes on their forgiven loans.

Keep Detailed Records

Your employees must keep detailed records to ensure they are on track for loan forgiveness.

To start, they should submit their PSLF form yearly. They should also keep the following documents in case they are needed:

  • Information with the employer name and dates of employment
  • Proof of full-time employee status
  • Proof that employer is a qualified employer

It is better to have too much supporting evidence than too little.

As a qualifying employer, the best way to help your public service employees understand PSLF is to offer a financial education platform, such as Enrich Financial Wellness. Doing so can provide them with useful information and keep them up-to-date on changes, such as the temporary adjustments made due to the COVID-19 pandemic.

After all, if your employees don't have to worry about their student loan debt, they can focus on saving for retirement – meaning they'll retire on time.

Schedule a demo to learn more about the award-winning Enrich Employee Financial Wellness Solution and how it can be customized to meet your company's goals.

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