3 Ways PSLF Can Fail You and How To Stay Safe

What happens if you spend years working towards PSLF and then suddenly you don't qualify anymore? I'm the founder of Fitbooks and I'm also an adjunct professor at 15 universities teaching financial wellness. And in those experiences, I've helped over 50,000 new grads manage their student loans and today I'm gonna share with you the top three reasons why PSLF fails and more importantly, I'm gonna show you how to protect yourself in case it does. That being said, let's jump into it. First and most common reason why PSLF fails, people leave the nonprofit, whether that's for a higher paying job or simply because they just don't like working there. And you might say, well, that doesn't happen very often and you'd be surprised. It happens way more often than you typically think and it typically happens within two to four years of an individual working at a nonprofit. Now, the second reason why PSLF fails is something that no new grad that I talked to even accounts for, but we're seeing a lot of it lately. And that is when you work for a nonprofit and it's acquired by a for-profit entity. When that happens, you are no longer an employee of a nonprofit. You work for a for-profit company, therefore you don't qualify for PSLF anymore. And the only way you can go back to qualifying is to quit and find a new job at a new nonprofit. And the third reason that PSLF can potentially fail is because the government might change it. Now, that is one of the biggest fears that we see. However, we don't think it's gonna be going anywhere, especially the near term because it has bipartisan support in Congress. That's number one. Number two, every bill that has talked and discussed the idea of changing it has grandfathered people in. So if you're already on PSLF, you shouldn't have to worry about it. However, I understand that the fear is there because at the end of the day, the government can change whatever they want to. And so those are the top three reasons why PSLF either fails or what people fear might happen in the future and cause it to fail. Now, the most important part, how do you protect yourself in case those things happen to you? So there's two ways to protect yourself and which way you choose depends on what would happen if PSLF went away for you, meaning this. If you're on PSLF and it went away, would you pay off your loans or would you go on to regular loan forgiveness that's 20 years long and get your loans forgiven that way? So let's tackle the first way. What if you were to pay off your loans if PSLF went away? Hey guys, real quick, if you're still watching this video, it's because you're getting value from it. We enjoy making these videos and when you subscribe to the channel, it helps us grow, which allows us to keep making more and more videos. So if you get a chance, please hit the subscribe button. With that being said, let's jump back into the video. Now, in this case, the best way to protect yourself is to quote unquote save the difference. What do I mean by that? When you're on PSLF, you're on an income driven repayment plan. And so your payments are gonna be lower than if you were on a standard plan. The save the difference way of protecting yourself means that you save the difference between those two payments. I'll give you an example. Let's say your payments on public service loan forgiveness were $400 a month. However, if you were not on public service loan forgiveness and trying to pay off your loans on a standard 10 year plan, your monthly payment would be $700. So what you would wanna do is take $700 minus $400 and save that difference, or $300 in this example, every month just in case PSLF went away. And then if it did, you could take that money, throw it all at your loans, switch your strategy and start paying them off and you would still be in a good situation. Now, do you have to do that for all 10 years? No. As I mentioned earlier, the biggest risk is when people leave the nonprofit on their own for whatever the reason may be. And most of the time we see that happen within two to four years. So you could save that money for two to four years and you should be in a good spot even if that happens to you like six or seven, eight years into it, you would still be in a good spot because you have a lump sum of money saved. Now, I know that a lot of you can't afford to pay it off if you don't get public service loan forgiveness. Therefore, you'd be going on to normal loan forgiveness. Well, on normal loan forgiveness, which is like income-based repayment plans, pays you earn, there's a tax at the end of it. And so for those people that are like Fitbox members and they're just doing regular loan forgiveness, as part of their financial plan, they have to save a dollar amount every month to be able to meet the tax in 20 years. At the nonprofit, when your loans are forgiven, you don't have that tax. However, if something happens where you don't get public service loan forgiveness, you still owe that tax. Therefore, to protect yourself, you should be saving for that tax as though you're not gonna get public service loan forgiveness and try to do it for at least two to four years because like I've said before, that's traditionally the window that we see people lose the public service loan forgiveness because of one of the aforementioned reasons. So minimizing your risk within a financial plan and saving for that tax is extremely important. So if you find yourself in the spot saying, if I were not to get public service loan forgiveness, I would have to go for regular loan forgiveness and I should be saving for that tax. Well, check out this video to learn more next.