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PSLF and LRAPs: The facts on loan forgiveness

Student Loan

It’s never too early or too late to start thinking about paying off law school loans.

In some cases, if you go to the right school, make the right amount of money, and follow confusing steps that may go horribly awry at any point, you may get your legal education for free.

You may have heard of the Public Service Loan Forgiveness (PSLF) program, which began in 2007. You may have also heard of school programs, which are often called loan repayment assistance programs, or LRAPs. These separate but often interrelated programs can help graduates working in public interest or government positions pay off their student loans after graduation.

If you believe these may be an option for you, following all the steps and meeting all requirements is very important—but more on that later.

PSLF: The requirements

To qualify for PSLF, you must be working full time at a government agency, a 501(c)(3) nonprofit, or certain other types of nonprofits that provide public services. The loans you’ve taken out to fund your education must also have been Direct Loans or federal loans later converted to Direct Loans.

Private loans aren’t eligible for forgiveness by PSLF.

As for the actual loan forgiveness aspect of the program, there are two more requirements. First, you must pay off your loans on an income-driven repayment plan. These plans base your monthly loan payment on how much you earn. Some examples are PAYE, REPAYE, IBR, and ICR.

You’ll have to complete an application to get on one of these income-driven repayment plans, ideally before you start paying off loans. However, if you’ve already started working and making payments, you can apply later.

Finally, you’ll need to make 120 qualifying payments on your loans. A qualifying payment is one that’s made on an income-driven repayment plan, for the full amount, no later than 15 days after your due date, and while you’re working full time in a qualifying employment type. Since PSLF began in 2007, only payments made after Oct. 1, 2007, can be counted toward the 120-payment requirement.

After all these steps, you can apply for loan forgiveness, and the remaining balance on your loan is forgiven.

PSLF: The ideal outcome

You take out the right kind of loan. You set up the right kind of payment plan—in advance. You find a government or qualifying nonprofit job that starts after a post-bar vacation, and you love it so much that you stay there or in similar employment for 10 years.

Along the way, you make 120 on-time payments, once a month for 10 years, and file all the necessary documentation on time every year. At the end, you apply for loan forgiveness, and it’s granted.

If you had Direct Loans from undergrad or other graduate degrees that you’re also paying off, you can get even more benefit from the PSLF program since those can also count for PSLF. The icing on the cake? The amount of your loan that’s forgiven under PSLF doesn’t count as taxable income, meaning there’s no tax bomb waiting for you at the end.

PSLF: The reality

Quite unfortunately, the first batch of PSLF hopefuls found that many things could go wrong along the way, ultimately preventing them from getting the loan forgiveness they’d been relying on for 10 years. In October 2017, the first students who participated in the program began qualifying for forgiveness— or so they thought.

Between October 2017 and June 2018, 28,000 people applied for forgiveness. Only 96 qualified, according to the U.S. Department of Education. More than 70 percent of denials resulted from borrower error; borrowers hadn’t had the proper type of employment, hadn’t met the minimum number of payments, or had taken out ineligible loan types.

Over the next 18 months, the numbers didn’t look much better, according to reporting by The New York Times.

In response, Congress authorized a $700 million fix-it fund to help those who’d taken out the wrong kind of loan. However, this fund came with confusing rules. As of May 2019, only 661 out of 54,000 borrowers had been granted forgiveness through the temporary funding.

Most were denied because of a U.S. Department of Education rule—which hadn’t been stipulated by Congress— saying those who wanted to apply for the fix-it fund first had to apply for the regular PSLF program (and, of course, get rejected).

Sometimes borrowers had confirmed that their employment qualified under PSLF by asking the DoE to review the employment certification forms. They were told years later the policies had changed and previously acceptable employment no longer qualified. The debacle resulted in a lawsuit with four public-interest lawyers as plaintiffs.

Three won their case this year.

Another thing potential PSLF hopefuls might consider is that life circumstances change. The program doesn’t reward people who work in public interest long enough to make 119 qualifying payments or those who leave paid positions due to health issues or to take on such unpaid work as being caretakers for relatives. There’s no path forward for those who make a career switch from qualifying employment to the private sector.

Finally, and most nebulously, the Trump administration has eliminated the program in budget proposals. So keep an eye on developing policy changes.

LRAP: The requirements

With your school’s LRAP, general advice on the rules are rather useless—every school has its own requirements. The most general explanation is fairly straightforward: By meeting your school’s requirements for maximum income level, qualifying employment, and loan repayment plan, you’ll get money from your school to make your monthly loan payments.

Law schools have a wide range of requirements with their LRAPs. The most generous LRAPs might allow students to make $100,000 a year in public interest positions and still have their monthly loan payments covered by the school. Others might have a salary cap. Still others might have tiers, where there’s an upper limit for full loan bill payment and then higher tiers in which schools give grads a smaller percentage of their loan payments.

What LRAPs consider in calculating how much money they’ll award depends on the program. But they typically look at income and assets. Getting married and having children may affect how the school recalculates your monthly amount.

There are also perks tied to each LRAP, and many schools tout them as benefits of attending the school. Some programs allow you to get money for undergrad loans, get a two-year deferment to go back to school or start a family, or buy into the program for a shorter amount of time without having to pay the money back to the school.

While you don’t get much control over these perks, they’re still worth investigating. They might affect how and when you decide to marry, start a family, or make a career switch.

LRAP: The ideal outcome

You meet maximum income, qualifying employment, and qualifying loan type requirements set by your school. You provide paperwork showing why you qualify. Your school gives you the money to pay your monthly loan bills for 10 years. You diligently make your payments using this weird Monopoly money. Then, using PSLF, your loans get forgiven entirely.

LRAPs are often structured to dovetail nicely with the federal program. The 10-year program length allows people to use the school’s money to pay of the PSLF loan bills each month, and often, borrowers simultaneously meet the PLSF requirements.

Then, when the 10 years are up, borrowers can apply to the federal PSLF program, and, like witchcraft, they get their legal education absolutely free.

Perhaps the strongest LRAPs are ones that aren’t tied to the federal program. A number of top schools have LRAPs wipe out debt even if your employment wouldn’t qualify under PSLF or if PSLF ends up getting eliminated.

Some LRAPs are in a league of their own. Yale, for example, has an LRAP-like program that doesn’t even require you to work in public interest— the school just forks over money based on income and loan size to any graduate who took out loans.

LRAP: The reality

The good news is that there will likely be time to familiarize yourself with your school’s LRAP before graduation, and you can approach your school’s financial aid office with questions. While you can’t control how “good” your school’s LRAP is, you should at least take some comfort in the fact that schools take great pride in their LRAPs and want them to work for students.

LRAPs from top schools often offer more flexibility to borrowers.

Godspeed, debtors

So, yeah, loan forgiveness programs for law students are a bit of a mess.

The biggest hurdle is qualifying for PSLF. In theory, as the program enters its third year of actual forgiveness, awareness about following the requirements will have spread.

Borrowers taking out loans in the late 2010s and early 2020s won’t be nearly as in the dark about the particulars of the program as those taking out loans in the mid- 2000s. That’s a major advantage.

By the time you have to start paying off your loans, you’ll have three years of legal education and skills under your belt. Use them! Read about the specifics of your loan, stick to deadlines, and continue monitoring your situation. Then, it’s absolutely possible to pull it off.

The most important things to remember are:

Check—Check, double check, and triple check that you’re meeting the requirements every year. For PSLF, don’t rely on your loan servicer to tell you when you may have become ineligible.

Investigate—See how, if at all, your school’s LRAP applies to you and relates to the federal program.

Track—Keep up to date with any policy changes that could affect your loan forgiveness eligibility. While it’s unlikely current borrowers will be affected, this information could become out of date in the next couple of years.

Consider—Life changes might help or hurt you. Consider whether making those changes is more important than maximizing loan forgiveness benefits. It would be ridiculous to tell you to not marry because it could push you into a higher-income tier of your school’s LRAP.

Loan forgiveness is supposed to help you live the life you want, not the life you feel tied to because of a decision you made when you were 22.

Katherine Vega Katherine Vega is a 2L at the Washington University School of Law in St. Louis and a member of the Student Lawyer editorial board.