After years of dealing with a broken loan forgiveness system, public servants with student loan debt have a silver lining: By the time the interest-free payment pause on federal student loans expire, one-sixth of their Public Service Loan Forgiveness (PSLF) payments would’ve been on the house.

Borrowers holding federal student loans working in certain public service jobs can make at least 10 years of qualifying payments to have the remainder forgiven by the Department of Education (ED). If a borrower had been on PSLF since March 2020, as of September 2021, 19 months of on-time payments would have been made by the federal government on their behalf.

“In other words, nonpayments are basically ‘free money’ for borrowers on track for PSLF, and thus this federal forbearance period is actually partial forgiveness,” student loan startup Savi said in an email.

Public service workers include employees of a qualifying nonprofit, a government agency, a public university or public school, a fire department, and full-time members of the military. Congress created the PSLF program in 2007.

When the payment pause ends in September 2021, if it is not extended, “many public sector student loan borrowers will essentially be 19 months closer to full forgiveness without having made any additional payments,” Aaron Smith, co-founder of Savi, told Yahoo Finance. “This is life-changing relief for millions of student loan borrowers, particularly our front-line workers.”

Terms and conditions

When the payment pause on student loans first went into effect in March 2020, ED’s Federal Student Aid office said that borrowers who are on the right plans “will receive credit toward PSLF or TEPSLF for the period of suspension as though you made on-time monthly payments in the correct amount while on a qualifying repayment plan.”

However, the “free money” process doesn’t work if unemployed.

According to ED, if a worker who is on a PSLF plan had lost their job during the payment pause — either laid off or furloughed — if they had updated the employment certification form, they’d find that while their student loans would be paid monthly by ED, their unemployment means that payments from that period wouldn’t count towards their 120 number.

But public sector employees who lost their job can still get back on the PSLF track once they find employment with a qualifying employer again, but the payments made by the government during this period of unemployment don’t count towards PSLF.

All U.S. borrowers currently owe roughly $1.5 trillion in federal student loans (while more than $100 billion is owed in private student loans).

‘Light at the end of the tunnel’

The PSLF benefit is a silver lining in an otherwise bleak environment, given ED’s track record.

Many PSLF borrowers recounted stories of how convoluted the process was, and expressed frustration when denied debt relief. Some borrowers have even testified in Congress about how fruitless the process had been. Recently, a report by the Student Borrower Protection Center found that a number of military service members were finding the process difficult to navigate, with over 200,000 with $3 billion in debt.

According to data from Federal Student Aid as of November 2020, around 227,000 borrowers filed a PSLF application, out of which 6,493 were approved — around 2% of the applications filed.

That’s roughly $290 million in student loans discharged via PSLF. The main reasons for rejection included inadequate number of qualifying payments, missing information, or the fact that the borrowers did not have any “eligible loans.”

But for Sandra Gonzalez, a school social worker from San Diego and a first-generation college student, PSLF has “light at the end of the tunnel for paying off” her student loan debt.

Gonzalez acknowledged that her line of work meant she wasn't going to be paid high wages. “I don't do it for the money, but because I care about my community and those people I work with,” she said. Some borrowers even take on jobs in public service, because of the promise of PSLF after 10 years.

The fact that 19 months of the pause will count towards her forgiveness “is incredible,” she added. “It has given some breathing room for myself, and countless other people I know.”

Still, what comes after September will be tricky, especially while it’s unclear if any federal student debt will be canceled through Congress or an executive order.

“We’re still seeing a lot of anxiety, misinformation and fear about what will happen come September from the borrowers we talk to daily,” Savi’s Smith said. “The message for policymakers is that we need to continue to educate borrowers on what the COVID-19 relief means for them and provide clearer guidance on the rules.”

—

Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami.

Read more:

• This platform matches student loan borrowers with U.S. government jobs

• Trump v. Biden: Here's what's at stake for student loan borrowers

• 'The federal government is AWOL’ on student loan protections, California attorney general says

• Warren and Schumer urge student debt cancellation of up to $50,000 for all federal borrowers

• Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.