- Confirm with FSA your employer is or is not PSLF qualified.
- If your employer is PSLF qualified, any of your federal student loans not held at FedLoans are transferred to FedLoan Servicing. This will allow all your PSLF eligible loans to be serviced in one place.
- If your employer is PSLF qualified, FSA will review your payments and determine your progress toward PSLF qualification.
- FSA will notify you of their findings
Once you complete your 120th qualifying monthly payment, you must submit the PSLF application. Keep in mind, you must be working for a qualified organization at the time you submit the application and when your remaining balance is forgiven.
Maximizing PSLF
The amount you ultimately pay for each income driven payment directly affects your ultimate benefit from PSLF (lower payments = larger forgiveness).
It’s important to note that you have some level of control over your AGI and filing status. It is possible to lower your AGI based on actions you take over the course of the year.
Examples of the most common AGI reducing actions are pre-tax retirement contributions, HSA contributions, and qualified moving expenses. For example, if you contribute to a deductible IRA instead of a Roth IRA, you allow your AGI to be lower which, in turn, lowers your income-based payment. This ultimately provides for greater forgiveness.
A similar scenario occurs with your tax filing status. If you are married and both you and your spouse earn an income, odds are you file taxes jointly. So here’s the scoop… you typically owe more taxes as a couple when you choose to file e time, your income-driven payments are reduced as a result of the lower AGI with separate filing. If you want to maximize PSLF, it’s very important to run the married filing separately numbers for BOTH your tax return AND your income-driven payments.
If the amount you save in income-driven payments over the coming 12 months by filing separately over jointly is greater than the tax cost of filing separately, you will benefit by filing your taxes as married filing separately. The larger the variance, the greater the benefit.
This calculation is not simple, however, it can have major impacts on your ultimate PSLF benefit. If you and your spouse both work and one or both of you have federal student loans that are PSLF qualified, make sure your tax advisor runs the analysis every year before filing your taxes!
Stay on Top of Income-driven Repayment
You also have some control over when you file for income-driven payments. Ideally, you file at the most efficient time based on your circumstances. Keep in mind your income-driven payments are based off of prior year returns or other income verification provided by you. It’s important to be aware of your deadlines and options relating to providing income verification.
Unsure About Qualifying for PSLF?
If you haven’t ironed out your exact career path but are currently employed by a PSLF qualified employer, it’s often best to position yourself for PSLF by using one of the income-directed repayment plans.
For example, most medical residents fall into the above scenario. They are working as a resident at a not-for-profit hospital but are unsure if their future employer will be PSLF qualified. On top of that, the medical resident often has limited available cash flow to make payments. Unfortunately, a large portion of this crew is defaulting to forbearance and, in most cases, this is a bad move. It’s worth paying the payday loans in Covington minimal income-driven payment to position yourself for PSLF and defer interest capitalization.
