Student Loan Forgiveness – Why I Opted Out

opt out of pslf
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The Public Service Loan Forgiveness (PSLF) Program is the only program that offers forgiveness on all qualified loans tax-free after 120 qualified monthly payments.

Only Direct loans in good standing are eligible for forgiveness. Federal Family Education Loan (FEEL), private loans and defaulted loans are excluded.

Qualified payments do not need to be consecutive. However, non-qualified payments are not ideal and will increase the total amount you have paid.

You are required to work at least 30 hours per week or what is considered full-time at your place of employment (whichever is greater). You can also work two part-time positions totaling to 30 hours as long as you are working for qualified employers that are considered:

  • Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
  • Not-for-profit organizations with qualifying public services
  • Any local, state, federal, or tribal government organization
  • Volunteer organizations, like the Peace Corps and AmeriCorps

Lastly, you are required to enroll under a qualified Income-Driven Repayment Plan described below

Only Direct loans in good standing are eligible for forgiveness. Federal Family Education Loan (FEEL), private loans and defaulted loans are excluded.

Qualified payments do not need to be consecutive. However, non-qualified payments are not ideal and will increase the total amount you have paid.

You are required to work at least 30 hours per week or what is considered full-time at your place of employment (whichever is greater). You can also work two part-time positions totaling to 30 hours as long as you are working for qualified employers that are considered:

  • Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
  • Not-for-profit organizations with qualifying public services
  • Any local, state, federal, or tribal government organization
  • Volunteer organizations, like the Peace Corps and AmeriCorps

Lastly, you are required to enroll under a qualified Income-Driven Repayment Plan described below

Note: If you are not in the PSLF program, you may receive a large tax bill. You may be exempt or partially responsible for your tax bill on forgiven loans if you qualify for insolvency meaning your total liabilities > total assets immediately before your loans are forgiven. Then again, why would you plan to have a negative net worth 20-25 years from now? Here’s a great post on insolvency.

You can find additional loan forgiveness plans with their details listed at studentloanhero.com and at studentaid.ed.gov

I Made 11 Qualifying Payments Under The PSLF Program – Then I Quit

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Photo by Andrew Neel on Unsplash

As a physical therapist, there are many opportunities to work in non-profit organizations, so the PSLF program was a clear choice to affordably repay my debt.

After many hours of research, I successfully enrolled in the PSLF program and I planned to work for a hospital-based outpatient clinic for 10 years to have my loans forgiven.

I estimated that I would have paid 1/4th of what I initially borrowed by the end of the PSLF program. If working for the same employer did not work out, I figured I would find another qualified employer easily. 

All being said and done, I thought my plan was foolproof. I made 11 qualifying payments.

Then I decided student loan forgiveness is no longer for me.

What Changed?

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Photo by Jordan Ladikos on Unsplash

What I failed to consider was the possibility of not enjoying where I worked. I spent the first year of my career in a toxic work environment. There were many people who were fun to work with, but it only takes one person to make your work-life a living hell.

I knew it was really bad when I stopped enjoying life outside of work. It worsened after workplace bullying ensued even after I fractured my leg in a car accident. After receiving both informal and formal advice, I decided to get a fresh start in my career. I began to look for other qualified employers defined by the Public service loan forgiveness (PSLF) program.

There was no luck even after months of searching. I can admit I was picky with potential employers for fear that I would end up in another toxic environment.

Related: How I Overcame Career-related Identity loss

Things were not getting better at work. So I decided to stop framing my employment opportunities around eligibility for student loan forgiveness and prioritized my health and happiness. Within a week, I gladly accepted an offer in the private sector.

I still had the option to put my progress on loan forgiveness on pause while making unqualified payments and re-enter once I find a qualified employer. To me, loan forgiveness no longer made sense. If I was going to make payments, I wanted to have my hard-earned money going to a greater purpose than to delay uncertain prospects of loan forgiveness. I altered my repayment strategy and paid off my student loans as aggressively as possible.

Why I Am Grateful For My Decision

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Photo by Zachary Nelson on Unsplash
  1. More career opportunities: My employment outlook is no longer limited to specific types of organizations. After a couple of years, I had more time to search for employment at a fantastic local company with supportive colleagues, a flexible work schedule, and a competitive compensation package.
  2. Weight of uncertainty is gone: I no longer have the uncertainty of whether my loans will be forgiven under the PSLF program as you are only eligible to apply for loan forgiveness after making 120 qualified payments. As the program was created in 2007, the first recipients of this loan forgiveness were in 2017. Apparently, there has been some difficulty with recipients receiving loan forgiveness reported by NPR here.
  3. More time, more focus: I no longer need to spend precious time submitting annual re-certification paperwork, ensuring my qualifying payments are up to date, and ensuring HR completes my employment verification correctly. Instead, I spend the extra time and energy to review my financial plan and investments.
My thought process summarized
  • Simplified Taxes: My wife and I now simplify taxes by filing jointly allowing opportunities to claim tax credits and deductions that are not available to those filing separately. Most borrowers will file separately to keep their monthly payments low. We can also take advantage of ROTH IRAs that would otherwise be unavailable to us.
  • More motivation to earn more: I can now work over-time, take on multiple jobs, or even build side-hustles without the negative feedback of paying more towards my student loan balance that would be forgiven regardless if I were still enrolled in the PSLF program.
  • Having options: Best of all, I owe the federal government nothing. With my debt and uncertainty out of the way, I can allocate time and energy to my passions and life goals. That includes having the option to transition to private practice, owning a business, or even consider semi-retirement without having to worry about loan forgiveness qualifications.

Things to Consider If You Are Going The Public Service Loan Forgiveness Route

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Photo by Noah Silliman on Unsplash

Political Landscape Changes

With news about the Trump Administration dismantling PSLF and other repayment options, it is uncertain whether or not you will be a beneficiary or a victim of this program.

Additionally, only 1% of those who committed to 10 years’ worth of minimum payments and public service received forgiveness. Part of this was due to loan servicers providing inaccurate information. I should know, as a skeptic, I asked the same question to 3-5 different Fedloan servicing representatives and received different answers.

A lot can happen in 10 years. The political landscape may directly or indirectly impact how much you may benefit. For example, revised tax laws may make it even more beneficial for those married filing jointly making it more difficult to make the decision of whether to file jointly or not.

In addition to tax laws, the program itself might change as to where there may be a cap on the forgiven amount. There may change the income-based repayment percentage. The program may be terminated entirely, there could be many changes depending on the agendas on either side of the political aisle. While it is likely that those enrolled in the PSLF would be grandfathered in, they are not obligated.

building during day
Photo by Joshua Sukoff on Unsplash

It is evident that the current U.S. government will be looking to free up their budget at the expense of students nationwide. Trump’s budget plan for 2019 proposed to cut funding for education by 5%. That’s not all, the U.S. State Secretary of Education, Betsy Devos, is proposing a plan to cut $13 billion of funding for student loan forgiveness and debt relief for those who borrowed after July 2019. This will make it more difficult for students who seek student loan forgiveness.

Update: Whether or not these cuts actually took place is unclear and difficult to research. What I know is that these proposed cuts keep on coming. Here is a proposed 12% cut in education for 2020. Don’t let this get you down though. I have heard of people having their loans forgiven.

Of course, speculation should not be a primary driver of such big decisions but is worth the consideration especially when we’re talking about a 10-year plan that could swing either way depending on many internal and external factors. I would put this at the bottom of your list since there is a long list of “what ifs” and your time is better spent on what is.

Personal Factors

Do you plan on relocating? Despite the number of qualified employers in my area, it was difficult to find one to suit my interests.

How much will your monthly payments be based on your salary? How much more will you pay based on bonuses, raises, or other income sources? Use this calculator to help.

Have you talked with your spouse or partner about your debt (and their debt) and how it might affect your future goals?

If your monthly payment is less than your monthly accrued interest, you will see your student loan balance increase each month. Can you tolerate the accumulating mountain of student loan debt with the uncertainty of loan forgiveness looming over you?

Tax-related Considerations

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Photo by Scott Graham on Unsplash

There are many tax-related considerations when enrolled in an income-based repayment plan especially when it comes to filing status. If you are married filing jointly, your monthly payments will be based on your combined annual gross income instead of just yours alone. This will obviously increase your monthly payments towards your debt that would otherwise be forgiven. The higher your debt-to-income ratio is, the greater likelihood it is that a single or married filing separately status would yield a lower monthly payment towards your student loans.

However, the recommendation is typically to consult with your financial advisor each year due to potential changes in tax laws as well as potential life changes that can make married filing jointly more beneficial.

One other consideration when married filing jointly is that it will limit your ability to contribute to a ROTH IRA, an extremely powerful retirement investment vehicle. As of the last update to this article, you, unless you lived in separately for more than half the year or earned less than $10,000 you cannot contribute to a ROTH IRA. And who wants that right? For more details on this, you can check out this Investopedia article.

Summary of considerations for public service student loan forgiveness

  1. Can you tolerate potential changes in career satisfaction, career stability, and qualifying employment options as your debt potentially doubles?
  2. Can you handle the uncertainty of how new laws may affect student loan forgiveness qualifications?
  3. Do you believe you and your current/future spouse will be able to deal with the potential complications when it comes to determining the trade-offs when it comes to tax filing status?

For me, 10 years’ worth of that level of uncertainty and stress was not congruent with how I envisioned my life. Don’t even get me started on the 20 – 25 years deal with income-driven repayment plans. Instead, I chose a path of certainty where the success rate would be near 100% within a relatively short period of time. For me, this short period would be 2 years.

However, I understand some people do not have the option to pay off their debt due to the degree of debt they face. If you owe 4 or more times as much as you could possibly make within a year, loan forgiveness may be your only option. Generally, if you have a debt-to-income ratio of 2:1, you have a good chance of working hard to pay off your loans within 2-4 years if you work hard and save at least 50% of your income.

If you made the decision to pay off your debt aggressively, make sure you sign up for my free guide below.

Updated: June 21, 2020


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Comments (2)

What happened to your loan balance when you opted out. Did they tack the interest back on the top of your loan? or did the money you paid in while in the forgiveness program come off your principle? or was your student loan balance the same as when you went into the program?

Hi Mary! Thank you for stopping by. Nothing changes loan balance when you change repayment plans. Whether you are going from a 10-year standard repayment plan, income-based repayment, income-contingent repayment, Pay As You Earn (PAYE), Revised Pay as You Earn (REPAYE), or Public Service Loan Forgiveness (PSLF) program. Your monthly payments are based on a calculation using your principal, accrued interest and weighted annual percentage rate. And depending on your plan, your adjusted gross income and family size at the time when you enroll or change plans. The loan servicer cannot reverse interest or principal that you have paid in the past under a different repayment plan.

Since my monthly payments under the PSLF were significantly lower (under $200) than the 10-year standard repayment plan (~ $1,200) where at least half was accruing interest, my monthly payments under the PSLF did not touch the principal. This answers your last question. My loan balance was $7,000 higher than when I went into the program, of course, this is expected with any of the income-based repayment plans. If you would like to continue this conversation or discuss further details, feel free to email me at Art@flexcents.com.

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