Public Service Loan Forgiveness: How do I apply?

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Applying for PSLF

You may only apply for final forgiveness after making 120 qualifying payments on your eligible loans while working full-time in qualifying employment.  In the meantime:

• The Department of Education is developing a procedure to apply for forgiveness.
• You should keep track of your qualifying employment by keeping your pay stubs, W-2s and any other supporting documentation.

TIP: You must be in qualifying employment at the time you apply for and when you receive forgiveness, so even after you finish making your 120 qualifying payments, be sure to remain in qualifying employment until you receive final forgiveness.

Forgiveness and Taxes

Forgiveness on the balance of Federal Direct loans under the Public Service Loan Forgiveness program is not considered taxable income.

The U.S. Department of the Treasury has confirmed that public service loan forgiveness under the College Cost Reduction and Access Act meets the requirements of Internal Revenue Code Section 108(f) and is therefore not taxable income to the borrower.

• September 19, 2008 letter to members of Congress confirming nontaxability of Public Service Loan Forgiveness

Generally, income from the cancellation of indebtedness is taxable, but Section 108(f) allows the forgiveness of certain student loans to be excluded from taxable income if the student loans are forgiven as a result of the borrower working for a certain period "in certain professions for any of a broad class of employers."

The Treasury Department indicates that student loans, including Federal Direct Consolidation loans, forgiven pursuant to the College Coast Reduction and Access Act’s public service loan forgiveness provision, meet the requirements of this section, and the forgiven amount is not subject to tax.

Although the Treasury's letter does not bind the IRS to this position, it is a good indication of its position on the issue.