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Lump-Sum Payments Now Count As Multiple Student Loan Payments For PSLF

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Previously, a lump-sum payment counted toward Public Service Loan Forgiveness (PSLF) as though it were a single payment. A new policy now counts such payments as multiple payments, up to a maximum of 12 payments.

The Old Rules

Under the old rules, each payment counts as a single payment, even if the amount is the equivalent of two or more payments. The loan would then be in paid-ahead status, but the subsequent payments would not count as payments.

This policy was based on a literal reading of the law, which required the borrower to have “made 120 monthly payments” to qualify for loan forgiveness, per 20 USC 1087e(m)(1).

There were, however, three exceptions to this rule:

  • The Segal Education Award for full-time AmeriCorps volunteers could be applied as a lump-sum payment to the volunteer’s federal student loans and treated as the equivalent of up to 12 monthly student loan payments.
  • The Peace Corps transition payment for full-time Peace Corps volunteers could be applied as a lump-sum payment to the volunteer’s federal student loans and treated as the equivalent of up to 12 monthly student loan payments.
  • Once a year, members of the U.S. Armed Forces who receive a lump-sum payment to their federal student loans through a U.S. Department of Defense student loan repayment program would be counted as making the equivalent number of monthly student loan payments.

The New Rules

Under the new rules, lump-sum payments and prepayments will count for up to 12 qualifying payments under Public Service Loan Forgiveness (PSLF) and Temporary Expanded Public Service Loan Forgiveness (TEPSLF).

The prepayment can count toward an equivalent number of monthly loan payments, up to a maximum of 12 months or the due date for the annual recertification for the income-driven repayment plan, whichever comes first.

The prepayments are limited to the next annual recertification date or 12 months, whichever is less, because the required monthly payment amount may change upon recertification.

To qualify, all other PSLF and TEPSLF requirements must also be met. In particular, the lump-sum payment must have been made in full and no later than 15 days after the due date. Late payments are not eligible.

Payments must also be made after the monthly statement is generated, which is generally 20 days prior to the due date, to count toward that month’s payment. If there are two applicable payment due dates, the lump sum payment will be attributed to the earlier of the two payment due dates. Nevertheless, it is best to make lump-sum payments before the overlap period to avoid any ambiguity and to ensure that the payments are not late.

The borrower must also work full-time in a qualifying public service job or set of qualifying public service jobs in the months that are covered by the prepayment. The prepayments will not be credited as qualifying payments until after the qualifying employment requirement has been fulfilled and the borrower files an Employment Certification Form (ECF).

Employer payments count as though they were made by the borrower.

The three exceptions to the old rules continue to apply as well.

The new policy has been in place for at least three months, since August 24, 2020, but has not been well publicized. It was not announced publicly by the U.S. Department of Education or the loan servicer until November 17, 2020.

Examples Illustrating the New Rules

Suppose your payment due date is on the 15th of the month and your annual recertification is due on October 1. If your monthly loan payment is $150 and you make a lump sum payment of $1,500 on May 10, that prepayment will count as five monthly payments, in May, June, July, August and September. It does not count as a payment in October, since the annual recertification due date comes before the monthly loan payment due date in October.

However, if the payment due date were on the first of the month, instead of the 15th of the month, then October would count as the sixth payment. Also, even though the lump sum payment occurred on May 10, after the May 1 payment due date, it would still count because May 10 is within 15 days after the payment due date.

Generally, the payment due date and the recertification due date occur on the same day of the month.

Limitations to the New Rules

If a borrower makes multiple lump-sum payments, the combined prepayments are subject to the 12-month/recertification-date limitation.

This policy change does not appear to be retroactive to lump-sum payments made prior to that date. However, some borrowers have previously reported being able to get the loan servicer to count prepayments as multiple payments after appealing a low qualifying payment count.

This policy applies only toward qualifying payments under PSLF and TEPSLF. The policy does not appear to apply to the 20 or 25-year forgiveness at the end of an income-driven repayment plan.

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