One of the more controversial alternatives to New York bankruptcy for student-loan debtors is Public Service Loan Forgiveness (PSLF). I say “controversial” because many Washington politicians and policy types think it’s much too generous to debtors and should be pared back. PSLF is similar to other government income-derived repayment (IDR) programs, but, well, it is more generous than those at least: Debtors who work in public-service positions for ten years and make qualifying payments on their student loans can have their loans forgiven without any tax penalty. Other IDR programs usually take twice as long and their loan-cancelations count as income to debtors.
Congress created PSLF just over a decade ago, so the first participants are now applying for loan forgiveness. Surprisingly, the government canceled only 96 out of 29,000 applicants’ loans. The question for debtors who might be on PSLF or similar programs is what happened, and what alternatives are there?
According to Forbes, 70 percent of the 29,000 debtors who applied for PSLF didn’t meet its requirements. At least, that’s what the government decided. They may not have made enough payments, their loans may have been ineligible, or most ominously, they’re work didn’t qualify as “public service,” which is a term the government can dispute. The remaining 28 percent had problems with their actual applications, e.g. missing information.
The Forbes article did not go into much detail beyond that, but there can be any number of reasons the government rejected so many debtors. One is that many applicants were submitting longshot applications. A second more likely reason is that they did not submit the required employment certification form when they started their jobs. Finally, many may simply have been off by a payment or two. Regardless, it’s highly improbable that 99 percent of all future PSLF applicants will be rejected. This is just the first wave that signed on to the program a decade ago.
Aside from diligently completing the certification form, what options do debtors have?
One is that even if they’re ineligible for PSLF, their payments should still count toward an IDR plan that will cancel their loans after twenty years. Even if that means another ten years of payments, qualifying debtors can still at least avoid the tax penalty that borrowers on regular IDR plans normally need to pay.
Two, relatively newer borrowers should recognize that the program does not require ten continuous years of public-sector or nonprofit employment. It just requires 120 qualifying payments. Debtors who moved or lost jobs can still qualify when they resume public-service work.
The Forbes article is here.
For debtors whose loans don’t qualify for some reason, particularly if they’re ineligible consolidation loans, bankruptcy can be an option. A chapter 7 bankruptcy can free debtors’ incomes for other payments, and a chapter 13 bankruptcy can offer debtors advantages as well. Consulting with an experienced New York bankruptcy lawyer can help you strategize your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.