I have heard a lot of talk recently from coworkers and on podcasts such as The White Coat Investor regarding PSLF and the recent news articles stating that 98% of those who applied for public service loan forgiveness were denied. I think the White Coat Investor did an excellent job explaining why this happened based on a deeper review of the data from these applicants and the program rules. There is not a plethora of clear information and guidance out there regarding this program and calling the customer service line does not instill much confidence at times. It makes since that media outlets would want to sensationalize this story to grab your attention. But what if this is true and your chances of getting loan forgiveness really are slim to none?
I am currently using the PSLF program and have been for almost 4 years. I have approximately $142,000 in student loans from PA school including built up interest from being on income based repayment plans since graduation. My loans are direct loans. I consolidated them to 2 direct subsidized and direct unsubsidized loans right after graduation. I have worked for a non-profit organization the entire time I have been in the program and recertify annually. I am hopeful that I am following the rules and feel that I am based on research of the program requirements. But there is a chance that I may be wrong and there is also the possibility that this program may not exist when I am ready to apply for forgiveness (although this is highly unlikely, more likely those enrolled would be grandfathered in). So what should one be doing to ensure that no matter what happens, the loans will be gone after 10 years? Create a side fund.
To be completely transparent, I do not currently have a side fund. This is something I have not been able to start given my family’s current financial situation (this is why I started educating myself about investing and finances). But I believe this is really important and something I will be adding to my financial plan. The basic premise is that you put money aside each month in a separate fund so that once 10 years is up, you either have an extra chunk of money left over because your loans were forgiven, or you pay the balance off using the fund. Keep in mind that you will most likely have paid back the bulk of the loan, minus interest, at 10 years. For a great read about this topic, head over to The White Coat Investor Blog. If you want to read more about the PSLF program in the future, leave a comment or send me a message.