State and Local Governments Can Use PSLF to Win in a Tight Labor Market

August 30, 2023

While many parts of our society have returned to pre-pandemic norms, employment with state and local government has not. The public sector was still struggling to recover from the Great Recession when COVID-19 dealt yet another blow in 2020, driving job losses through a mix of furloughs, layoffs, and voluntary turnover as employees sought higher-paying opportunities within the private sector. It’s no surprise that state and local government employees (and prospective ones) are seeking more competitive wages elsewhere: inflation, record-breaking credit card debt, and the imminent resumption of federal student loan payments are putting lots of financial strain on workers.

Although government employers have less flexibility when it comes to adjusting salary ranges, offering a Public Service Loan Forgiveness (PSLF) benefit is a simple, cost-effective, and impactful way to improve overall compensation for your full-time employees. PSLF enables public sector employees to have their outstanding federal loan balance forgiven tax-free after making 120 qualifying monthly payments. Since private sector employers can’t compete on loan forgiveness at all, PSLF is the key to state and local governments attracting and retaining employees in this tight labor market.

Employees are under financial pressure – and looking for a way out

The CARES Act paused federal student loan payments for millions of borrowers for three-and-a-half years, but the moratorium is ending: loan interest will start accruing on September 1st and payments will restart in October. As a result, borrowers will need to pay roughly $400 a month on average, with one out of every three families expecting to pay at least $1,000 a month toward their loans.

For public sector employees, it can be challenging to find the money for these payments on a government salary. But as an employer, you can support your employees with a digital student loan solution that helps them enroll in an income-driven repayment (IDR) plan and get on the path to PSLF.

To start, IDR plans cap borrowers’ monthly payments at a percentage of their discretionary income in order to make monthly payments more manageable. (The standard repayment plan, which all borrowers are automatically enrolled in, does not take income into consideration.) The Department of Education recently launched a new IDR offering, the Saving on a Valuable Education (SAVE) plan, ahead of the resumption of loan payments. Whereas previous IDR plans limited payments to 10% of a borrower’s discretionary income, payments under the SAVE plan will be 5% for undergraduate loans and the weighted average between 5% and 10% for undergraduate and graduate loans.

Enrolling in an IDR plan is also required in order for payments to count towards PSLF. So not only can your full-time employees lower their monthly payments to an amount that’s more in line with their budget, they will get closer to forgiveness and greater financial health with each payment. With student loan payments restarting shortly, the sooner you can offer this student loan assistance benefit to your employee population, the sooner you and your employees will benefit from the reduced stress. But implementation can be challenging without support.

Navigating PSLF is easier, faster with the right partner

PSLF is great, but it’s historically been incredibly difficult to obtain due to confusing requirements as well as misinformation and disinformation from loan servicers. In fact, up until 2021, the Department of Education had rejected 98% of applicants’ requests for forgiveness.

Adopting a digital student loan solution from a proven partner is the best way to cut through the PSLF confusion. Borrowers already have a lot to figure out with loan payments restarting: how much to pay, which loan servicer(s) holds their loan(s), and which payment methods are accepted. Sorting through this and determining how to navigate the challenging PSLF requirements is burdensome for most borrowers – even if they want lower payments and forgiveness. Rather than leaving your employees to tackle this on their own, a digital loan solution provides access to an online platform that streamlines IDR plan enrollment as well as employment certification and qualifying payment tracking for PSLF.

On your end, partnering with a digital student loan solution is an affordable, high ROI way to offer an attractive benefit to your employees while saving your HR team’s time. Administrative tasks associated with enrolling in PSLF and certifying employment are automated and carried out online so your team doesn’t get bogged down in endless paperwork. Experts answer employees’ questions and assist with their problems, leaving your HR team free to tackle other priorities. Lastly, instead of tasking HR with tracking ever-changing student loan policy in-house, the partner monitors the landscape and communicates updates to you and your employees. 

A timely benefit built for lasting impact

At a time when state and local governments are struggling to find and retain employees, you can attract talent by committing to supporting employees’ financial wellbeing and dreams of a debt-free future. According to a recent McKinsey survey of public sector employees, compensation and meaningful work are the top two reasons why people stay in these jobs. Helping your employees reach forgiveness frees them from financial stress and enables them to focus on what really matters: making an impact with their work.

At Summer, we’ve built a turnkey digital student loan solution that’s obtained over $1B in total projected forgiveness and is currently used by over 100 partners, including the City of Akron, City of Alexandria, and Connecticut through the Student Loan Fund. Schedule a call or demo with us today to find out how Summer can help your organization implement a PSLF benefit.


Are you one of the 50,000 government, education, or nonprofit organizations participating with Sourcewell? If so, you have access to streamlined, convenient, and competitive contracting. Learn more about Summer’s awarded Sourcewell contract here.

Continue reading