PSLF Eligibility for Government Contractors: What You Need to Know

The Public Service Loan Forgiveness program (PSLF) is a major benefit for student loan borrowers working in public service. After a total of 10 years of service, federal student loans are discharged. To qualify, borrowers generally need to work for a nonprofit organization or a government agency. But there’s one area that can cause a lot of confusion and that’s with government contractors. 

Many borrowers want to know — do government contractors qualify for PSLF? On the surface, it seems like they might qualify but in most cases, they don’t. Read on to learn more about why. 

General rules for PSLF eligibility

Student loan debt is a burden for many borrowers. Paired with potentially low wages for nonprofit or government workers, it can make student loan repayment difficult. That’s why PSLF is so attractive, as it aligns monthly payments to your income and discharges your remaining balance after 10 years of qualifying public service. But you must meet rules and requirements to qualify for this student loan forgiveness program, including the following. 

• Have federal Direct Loans from the U.S. Department of Education (if you have FFEL or Federal Family Education Loans, you can consolidate using a Direct Consolidation Loan to be eligible)
• Maintain full-time employment
• Work for an eligible employer, including tax-exempt nonprofits and government organizations
• Make monthly payments on an income-driven repayment plan (IDR)
• Complete 120 on-time qualifying student loan payments to your loan servicer, which don’t have to be consecutive 

As part of the employment criteria, you must be a direct employee of the qualifying organization. This makes most government contractors ineligible

The case for government contractors

Many borrowers who work as federal government contractors are frustrated that they’re ineligible for the PSLF Program. They’re doing work for the government, but they don’t meet all the eligibility requirements because they're contractors. 

In other words, these workers can’t get student loan forgiveness through PSLF and may have to wait a longer period and get forgiveness through income-driven repayment (IDR) plans. 

Why most government contractors don't qualify

If you’re wondering, “Do government contractors qualify for PSLF or not?” in most cases, they’re ineligible — but not all, which we’ll touch on later. The reason is the direct employee rule, outlined on the Federal Student Aid website, which states:

“You must be a direct employee of a qualifying employer for your employment to qualify. This means that employees of contracted organizations, that are not themselves a qualifying employer, won’t qualify for PSLF including government contractors and for-profit organizations.”

The Biden Administration echoed that sentiment, stating, “A government contractor isn’t considered a government employer,” on the White House website. 

The role of IRS form W-2 and EIN in determining eligibility

The W-2 form and an employer’s Federal Employer Identification Number (EIN) are used as part of assessing PSLF eligibility. The W-2 proves employee status and not contractor status. The EIN can be used to check the Employer Search Tool to see if the organization qualifies for PSLF. 

“Government contractors do not qualify for PSLF unless the state law specifically prevents their job or profession from being a government/nonprofit direct hire, such as physicians in California and Texas,” explains Meagan McGuire, a consultant at Student Loan Planner. “Otherwise, government contractors are not eligible for PSLF. You must be a W-2 employee to qualify and work at least 30 hours a week.”

Exceptions to the rule

Do government contractors qualify for PSLF or not? Though the majority don’t, there are some notable exceptions to be aware of, especially if you work in healthcare. 

1. Your state laws prevent direct hiring

Some state laws don’t allow an organization that typically would qualify for PSLF to hire direct employees. Instead, the organization works with a group that employs those providers and offers services. For example, California and Texas prohibit physicians from being employed by a private nonprofit hospital. 

A new ruling allows for physicians in California and Texas to qualify for PSLF, even if they’re hired by a for-profit medical group. So long as they work full-time and provide services in a nonprofit facility, they should be eligible. This new rule went into effect July 1, 2023. 

Physicians in California working for Kaiser Permanente can now qualify for PSLF, which wasn’t the case before this change went into effect. If you qualify under this new rule, the California Hospital Association says that this rule includes retroactive eligibility for 10 years. 

2. You use the EIN of a qualifying employer

According to the Department of Education, borrowers who fall under this exception can use the EIN of the qualifying employer they’re providing services for on the PSLF form. 

You’d use the EIN of the organization that technically qualifies for PSLF and not the entity that is employing you directly. Given the example above, you’d use the nonprofit hospital EIN instead of the medical group that’s hiring you for your services. 

3. You receive certification by the qualifying employer’s authorized official

In addition to using the EIN of the qualifying employer, borrowers must get employment certification by an authorized official from the organization. The official must confirm and certify that you’re providing services in lieu of a direct employee because of current state laws. 

4. You work for a professional employer organization (PEO)

Some workplaces use a professional employer organization (PEO) to handle things like payroll. In that case, your checks and maybe even your W-2 might come from the PEO and not the actual organization where you perform your services. 

The good news is that if you perform services at an eligible organization, you can still qualify for PSLF. You’ll use the EIN of the organization where you work — not the EIN of the PEO. This can help you avoid some trouble when using the PSLF Help Tool and avoid any confusion. 

Don’t leave PSLF eligibility to chance

Borrowers often ask whether government contractors qualify for PSLF. Based on the exceptions above, the answer clearly isn’t always straightforward. 

“It could be common for someone to start out as a contractor for the government before becoming FTE (full-time employee) status. If that's the case, the contract time period doesn’t count toward PSLF, but borrowers are eligible as soon as they become a full-time government W-2 employee,” says McGuire. 

If you’re concerned about your PSLF eligibility and unsure how to move forward, don’t leave it up to chance. Get a custom student loan plan with the experts at Student Loan Planner to determine whether or not you can pursue PSLF. 

And if you don’t qualify for PSLF based on your employment, our student loan experts can help you determine your repayment strategy options. Book a session now.