Lester Freeman
Public Service Loan Forgiveness (PSLF) is a federal program that can erase your remaining federal student loan balance after 120 monthly payments (10 years' worth) while working for the government or a non-profit organization. The PSLF underwent temporary changes during the pandemic, with all federal student loans placed into interest-free administrative forbearance from March 2020 to October 2023. While switching loan plans, it is important to consider the impact on your PSLF progress. Some sources suggest that switching from an IBR plan to REPAYE, for instance, may reset the qualifying payments, while others indicate that the payments will not be affected. It is recommended to seek official confirmation from the Education Department or FedLoan Servicing before making any changes.
Does switching loans reset PSLF?
| Characteristics | Values |
|---|---|
| Does switching loans reset PSLF? | No, switching loans does not reset PSLF. However, it is important to choose the correct repayment plan for PSLF upfront and stick with it for the 120 payments. |
| Payments | Payments generally don't count if they're made while in school, in deferment or forbearance, during a grace period, or if loans are delinquent or in default. Payments do not need to be consecutive. |
| Switching employers | It is possible to change jobs, switching between qualifying and non-qualifying employers. However, payments only count toward PSLF when working for a qualifying employer. |
| PSLF application | The PSLF application can be submitted online through the Education Department or by mailing a paper application. The applicant must be working full time for a qualifying employer at the time of application. |
| PSLF certification form | It is recommended to submit a PSLF certification form annually to stay on track for forgiveness. |
| Repayment plan | It is important to choose the best repayment plan upfront. Switching from PAYE to SAVE is usually not a good idea due to the interest subsidy and lower upfront payments of SAVE compared to the cap on payments of PAYE. |
| Income-driven repayment (IDR) plan | PSLF borrowers are usually on an IDR plan that caps monthly bills at a set percentage of their income. |
| Temporary changes due to the pandemic | All federal student loans were put into interest-free administrative forbearance from March 2020 until October 2023. The Education Department temporarily adjusted the rules to include months spent in the pandemic payment pause, provided the borrower worked a qualifying job during that time. |
What You'll Learn
Switching from PAYE to SAVE
The Biden administration has encouraged borrowers to enroll in the SAVE plan, a new income-driven repayment option with lower payments and a pathway to student loan forgiveness. However, switching to SAVE from PAYE may not be the best move for some borrowers. It could increase their monthly payments or lengthen their time before qualifying for student loan forgiveness.
The "PAYE Now, SAVE Later" strategy suggests that borrowers continue making monthly payments toward loan forgiveness and wait for the election results in November 2024. If President Biden is re-elected, borrowers could consider switching to SAVE if it's projected to save them more money over time than PAYE. On the other hand, if former President Trump is re-elected, the SAVE plan would likely be in jeopardy, and borrowers might want to secure a spot on PAYE before the deadline of July 1, 2024.
The main difference between PAYE and SAVE is the time to loan forgiveness. PAYE requires 20 years of payments before loan forgiveness, while SAVE requires between 20 and 25 years. Additionally, in PAYE, if you leave the plan, interest can only be up to 10% of the principal balance. In contrast, if you leave the SAVE plan, your interest will not capitalize.
Borrowers should carefully weigh their options and understand the benefits, drawbacks, and eligibility rules of each plan before making a decision. The "PAYE Now, SAVE Later" strategy may not make sense if switching to either plan is projected to increase the borrower's payment substantially and costs over time.
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Switching from IBR to REPAYE
The Revised Pay-As-You-Earn plan, or REPAYE, is the U.S. Department of Education's newest income-driven repayment plan. REPAYE is designed to be a cheaper repayment plan than IBR, with a payment formula of 10% of the borrower's "discretionary income" compared to 15% for IBR. For example, a single borrower with an Adjusted Gross Income (AGI) of $40,000 and a family size of one would have a monthly IBR payment of approximately $280, compared to a monthly REPAYE payment of around $190.
However, it's important to note that REPAYE treats married borrowers differently than IBR. REPAYE will consider spousal income in almost every circumstance, while IBR does not. This means that some married borrowers may not benefit from the 33% savings. Additionally, REPAYE treats graduate student loan borrowers differently than other income-driven repayment plans.
To switch from IBR to REPAYE, borrowers must first enter the 10-year Standard repayment plan for one month. If a borrower cannot afford that payment, they must go into forbearance for that month. Either way, when a borrower leaves IBR, any outstanding interest will be capitalized and added to the principal balance.
It's important to note that leaving the Income-Based Repayment (IBR) plan can be trickier than leaving other plans. To leave IBR, borrowers generally must make at least one month's payment under a standard repayment plan. After making that payment, borrowers can switch to another plan. Additionally, if borrowers switch out of IBR, any unpaid interest may be added to their loan balance.
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Switching from REPAYE to PAYE
If you're considering switching from REPAYE to PAYE, it's important to understand the differences between these income-driven repayment plans and how switching might impact your loan repayment strategy. Here's a detailed guide to help you make an informed decision:
Understanding REPAYE and PAYE:
REPAYE (Revised Pay As You Earn) and PAYE (Pay As You Earn) are federal income-driven repayment plans that are designed to make your student loan payments more manageable. Both plans calculate your monthly payments as a percentage of your discretionary income, but there are some key differences to note:
Eligibility:
REPAYE is generally more inclusive, as most people with federal Direct Loans are eligible. It doesn't require you to demonstrate a partial financial hardship, which is a key criterion for PAYE. If you have mostly unsubsidized loans, REPAYE might offer better numbers due to the interest subsidies available even with unsubsidized loans.
Payment Calculation:
Under PAYE, your monthly payments are calculated as 10% of your discretionary income. However, with REPAYE, the payment can be higher than the standard 10-year monthly payment, making PAYE more attractive for those seeking lower monthly payments. Additionally, PAYE's 10-year payment cap ensures that your payments won't increase indefinitely with your income, which could be a concern with REPAYE.
Spousal Income Inclusion:
If you're married and considering switching to PAYE, one significant advantage is the ability to exclude your spouse's income from the payment calculation by filing taxes separately. This benefit doesn't extend to REPAYE, where your spouse's income may be considered, potentially increasing your monthly payments.
Switching Considerations:
When deciding whether to switch from REPAYE to PAYE, timing is crucial. If you anticipate an increase in your income, switching to PAYE before that happens could be advantageous. This way, you can take advantage of PAYE's payment cap, ensuring that your monthly payments don't increase proportionally with your income. However, it's important to remember that switching might not always be beneficial, especially if you have a large loan balance that won't be covered by the 10-year standard payment cap.
In conclusion, while PAYE offers more generous terms in many cases, it can be harder to qualify for than REPAYE. Carefully consider your financial situation, income expectations, and loan balance before making a decision. Remember that you'll need to contact your loan servicer to initiate any switch between repayment plans, and always weigh the potential benefits against any consequences, such as interest capitalization.
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Switching from IBR to PAYE or SAVE
Impact on Monthly Payments
IBR (Income-Based Repayment) plans typically require borrowers to pay a percentage of their discretionary income. The percentage can vary depending on when you took out your loans. For those who borrowed after 2014, IBR payments are usually set at 10% of discretionary income, while older loans may require payments of up to 15%. In contrast, both PAYE (Pay As You Earn) and SAVE (Student Loan Debt Relief) plans generally cap payments at 10% of discretionary income. This difference in percentages can result in significantly lower monthly payments under PAYE or SAVE compared to IBR, especially for borrowers with higher incomes.
Loan Forgiveness Timeline
The timeline for loan forgiveness also varies between these plans. Under the "old" IBR plan, borrowers were required to make 300 payments or 25 years' worth of payments to qualify for loan forgiveness. However, switching to SAVE can reduce this timeline. With SAVE, borrowers with original principal loan balances of $12,000 or less can have their remaining balances forgiven after just 10 years of payments. Additionally, for those with undergraduate loans, the SAVE plan typically offers forgiveness after 20 years, while IBR forgiveness for similar loans may take up to 25 years.
Stability and Uncertainty
One advantage of IBR over PAYE and SAVE is its stability and legal standing. IBR is the only Income-Driven Repayment (IDR) plan that is currently part of federal law. In contrast, PAYE and SAVE were created by the Department of Education and may be more vulnerable to legal challenges. Additionally, SAVE is currently tied up in court, creating uncertainty about its future. Switching to IBR can provide stability and peace of mind, especially if you are concerned about the potential risks associated with SAVE.
Qualifying Requirements
It is important to note that switching to IBR may require you to demonstrate partial financial hardship. This means that if your income is too high or your loan balance is too low, you may not qualify for IBR. On the other hand, PAYE and SAVE might not have the same qualifying requirements, making them more accessible to borrowers with higher incomes or lower loan balances.
In summary, switching from IBR to PAYE or SAVE involves weighing the benefits of potentially lower monthly payments and an accelerated path to loan forgiveness against the uncertainty surrounding the SAVE plan and the higher payments typically associated with IBR. The right decision will depend on your individual circumstances, risk tolerance, and financial goals.
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Switching employers
If you are planning to switch employers while pursuing Public Service Loan Forgiveness (PSLF), it's important to understand how this decision may impact your loan repayment and eligibility for forgiveness. Here are some key points to consider when thinking about switching employers:
First and foremost, it is important to note that switching employers will not reset your progress towards PSLF. The PSLF program only requires that you make 120 qualifying monthly payments, and these payments do not need to be consecutive. This means that if you switch employers and have a gap between qualifying employment, your previous qualifying payments will still count towards the required 120 months.
Additionally, you are not required to stay with the same employer throughout the entire PSLF process. As long as you are working for a qualifying employer at the time of loan forgiveness, you can change jobs or even have periods of unemployment without losing your progress. This flexibility can be beneficial if you are considering career changes or relocations.
However, there are a few important considerations to keep in mind. When switching employers, ensure that your new job still qualifies for PSLF. To qualify for PSLF, you must work full-time for a government agency or a non-profit organization. If you switch to a job in the private sector or a non-qualifying position, your new employment may not count towards PSLF, and you may lose future progress.
Another consideration is the potential impact on your income and loan payments. If you switch to a lower-paying job or experience a period of unemployment, your income-driven repayment plan calculations may change, affecting your monthly loan payments. Make sure to update your loan servicer about any changes in your employment or income to ensure that your payments remain manageable.
Finally, keep in mind the importance of careful record-keeping. When switching employers, ensure that you submit any necessary employment certification forms to your loan servicer to document your qualifying employment. Maintaining accurate records will help you track your progress towards the required 120 qualifying payments and ensure that you receive credit for all your eligible months of service.
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Frequently asked questions
No, switching from one income-driven repayment plan to another does not reset the number of qualifying payments made toward PSLF. However, it is important to choose the correct repayment plan upfront and stick with it for the 120 payments required for PSLF.
Yes, you can switch from PAYE to SAVE for PSLF, but it is almost certainly not a good idea. The main difference between the two is that SAVE has lower upfront payments and an interest subsidy, while PAYE has a cap on payments.
Yes, you can switch from IBR to REPAYE for PSLF. This may be a good idea as IBR is based on 15% of your salary, while REPAYE and PAYE are based on 10%.
No, you cannot switch to the 10-Year Standard Repayment plan after starting PSLF. It is important to choose the correct repayment plan upfront and stick with it for the duration of the PSLF qualification period.
It is generally not advisable to switch repayment plans after your income increases. However, you may be able to switch to an income-contingent or income-based plan, but it may not make sense financially.
