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It seems like we have been receiving lots of comments about the definition of “employee” for PSLF purposes. Some commenters have argued that the IRS definition of employee should control, so let’s parse through the comments.

From Joshua R.I. Cohen (The Student Loan Lawyer) on July 17, 2018 (http://www.holdfasttodreams.org/the-evolving-pslf-employment-certification-form-independent-contractors/#comments):

Independent contractors do not qualify. The non-profit that pays you as an independent contractor is not your employer, they are your client. You are not employed by them. You are a 1099 contractor, not a W-2 employee. Perhaps you should review the IRS code. I think many folks will be disappointed to learn they don’t qualify when they apply for PSLF.

From Joshua R.I. Cohen (The Student Loan Lawyer) on July 17, 2018 (http://www.holdfasttodreams.org/busting-myths-pslf-and-independent-contractors):

Id’ love to talk to your “student loan lawyer” because I think they have it completely wrong. If you are a private contractor, you are the employer. The non-profit you contract with isn’t your employer – they are a client. You are a vendor – not an employee. I think you’re gonna have a lot of disappointed folks with the information you are providing.
Joshua Cohen – The Student Loan Lawyer

Also, I don’t see the quote you mention on page 5. Perhaps the newly revised form removed the language (and your argument).

Our student loan attorney (who also happens to hold a Masters of Law in Taxation) responded:

It’s strange that Mr. Cohen, a lawyer, would call the paying nonprofit a “client” of the independent contractor. Perhaps it’s because in Mr. Cohen’s setting as a lawyer, there is an attorney-client relationship, where the client pays the lawyer (and the lawyer can be an independent contractor). The term “client” is not used, nor defined under PSLF. As for Mr. Cohen’s claim that a private contractor is an “employer” and “vendor,” then it must follow that he is also claiming the nonprofit is the employee (must be false). And again his term “vendor” is not used, nor defined under PSLF.

*Hold Fast to Dreams wants to quickly note that the quote from page 5 (and its evolution) can be found here: http://www.holdfasttodreams.org/the-evolving-pslf-employment-certification-form-independent-contractors

Although the Employment Certification Forms (ECF) keeps updating, student borrowers aren’t just confined to relying upon the most recent ECF. The older ECF definitions will serve as a legal basis for reliance, just as in the ABA cases against the Department of Education.

Mr. Cohen also mistakenly refers to the IRS code for the legal definition of “employee,” suggesting that the “IRS code” should be reviewed for PSLF purposes. Referring to the “IRS code” for PSLF purposes is incorrect. Instead, the PSLF legal definition of employee should be used. As he should know, the term “employee” is defined in various ways under US law. There’s a legal grab bag of “employee” definitions under federal and state law, from the Fair Labor Standards Act, each state’s Workers’ Compensation statutes, National Labor Relations act, etc., but they should NOT and do NOT apply to PSLF because they are not the PSLF law.

But for argument’s sake, Mr. Cohen’s suggestion to look at the “IRS code” (probably means Internal Revenue Code (IRC)) is incorrect as well. First of all, since a directive from Congress in 1978, the IRS has prohibited the IRS from issuing any regulations or revenue rulings to clarify the worker classification issue. See § 530, Revenue Act of 1978, (P.L. 95-600), as amended by P.L. 96-167, P.L. 96-541, P.L. 97-248 and P.L. 99-514. Currently, the IRS resolves worker classification issues by reference to:

1. Certain statutory rules classifying workers as independent contractors or employees;
2. The twenty common law factors;
3. The safe harbor provisions of § 530 of the Revenue Act of 1978;
4. Mitigation provisions under IRC § 3509;
5. Relief from payment of income tax pursuant to IRC §3402(d);
6. Classification Settlement Program.

Many people incorrectly focus on the IRS categorization of employee and independent contractor for PSLF, perhaps because it’s the most popular definition, the one people are most familiar with. The IRS wins the popularity contest on that one.

Now back to PSLF. PSLF law has its own definition of employee and PSLF does not rely upon “IRS code.” Instead, Congress created the PSLF definition of “employee”: “Employee or employed means an individual who is hired and paid by a public service organization” (see 34 CFR 685.219 – Public Service Loan Forgiveness Program; https://www.law.cornell.edu/cfr/text/34/685.219).

Further, the most recent PSLF ECF (Exp. Date 05/31/2020) section from page 5 of the ECF clarifies the term “employee”:

“EMPLOYMENT ELIGIBILITY. To qualify for PSLF, you must be an employee of a qualifying employer. An employee is someone who is hired and paid by the employer. You may physically perform your work at a qualifying or non-qualifying organization, as long as you are an employee of a qualifying employer. If you are working at the location of or with an organization under contract with your employer, the organization that hired and pays you must be a qualifying employer, not the organization where you perform your work.”

So the key to the definition of “employee” for PSLF purposes is whether who hired and paid you is a qualifying public service organization (under PSLF law), not whether you’re getting a 1099/W-2 (under the Internal Revenue Code). Look under the appropriate law, and you’ll find the appropriate definition.

On the other hand, the Department of Education has drawn the line where the contractor does not qualify. In the Final Regulations of PSLF, the Department of Education mentioned: “Several commenters recommended that contract employees who serve organizations that are tax exempt under section 501(c)(3) of the Internal Revenue Code should be considered as employees of a public service organization.” The Department of Education responded: “Contract workers at these institutions who are not paid by the institution, but are paid by a for-profit company contracted to provide certain services to the institution would not be covered.” Therefore again, we see the importance of who hires and pays you. The key to the definition of “employee” for PSLF purposes is whether who hired and paid you is a qualifying public service organization (under PSLF law).

That line can also be seen from the Department of Education website section about qualifying employment (https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service#full-time-employment):

“Government contractors: For-profit government contractors are not qualifying employers. You must be directly employed by a qualifying employer for your employment to count toward PSLF. If you are employed by an organization that is doing work under a contract with a government agency or other organization, then it is your employer’s status, not the status of the organization that your employer has a contract with, that determines whether your employment qualifies for PSLF.”

Ultimately, readers and student loan borrowers should consult with FedLoan Servicing and the Department of Education for their individual cases.

From Hold Fast to Dreams:

So there you have it! Readers of this blog should understand that their individual situation may vary and they should ultimately consult with FedLoan Servicing and the Department of Education to determine whether their employment qualifies for PSLF. Lawyers can be wrong, or maybe they can be right according to the court. It’s tough to call something right/wrong, especially in such a new law like PSLF, where there has not been too much litigation. But one of the best ways to fit within PSLF is to just simply fit under the PSLF legal definitions as squarely as possible. Please consult with FedLoan Servicing or the Department of Education for further information for your individual situation.

Thank you Mr. Cohen for bringing this discussion and please let us know any further thoughts.

Through the years, the PSLF Employment Certification Form (ECF) has received further clarification of independent contractors and how exactly they fit within the PSLF rules.

In the earliest PSLF ECF (Exp. Date 11/30/2014), there was little guidance concerning independent contractors, besides what was just in the law. On page 2, it says:

“For purposes of eligibility for PSLF, full-time employment is defined as:

(1) Working in qualifying employment in one or more jobs for the greater of:

(A) An annual average of at least 30 hours per week or, for a contractual or employment period of at least 8 months, an average of 30 hours per

week; or”

On page 3, it also says about the same:

“Full-time means working in qualifying employment in one or more jobs for the greater of:

• An annual average of at least 30 hours per week or, for a contractual or employment period of at least 8 months, an average of 30 hours per week; or”

In the next PSLF ECF (Exp. Date 12/31/2017), which we described in our previous post, there was additional information about a “contracted employee.” This confusing term combines the opposing (under IRS definitions) words “contract” and “employee.” Under PSLF law, employee is defined as: “Employee or employed means an individual who is hired and paid by a public service organization.” So PSLF has a different definition of employee than the IRS. Back to the “contracted employee” term, page 5 of this PSLF ECF version states:

“Employment Eligibility. To qualify for PSLF, you must be an employee of a qualifying organization. An employee is someone who is hired and paid by the organization. You may physically perform your work at a qualifying or non-qualifying organization, so long as your employer is a qualifying organization. If you are a contracted employee, the organization that hired and pays you must qualify, not the organization where you perform your work. The type or nature of employment with the organization does not matter for PSLF purposes.”

Now the most recent PSLF ECF (Exp. Date 05/31/2020), perhaps in response to the confusion surrounding the term “contracted employee,” the Department of Education has trashed that term.  Instead, we have a better idea that they were talking about an independent contractor on page 5: “If you are working at the location of or with an organization under contract with your employer…”. Hooray for clarity! The entire section from page 5 of the ECF is below:

“EMPLOYMENT ELIGIBILITY. To qualify for PSLF, you must be an employee of a qualifying employer. An employee is someone who is hired and paid by the employer. You may physically perform your work at a qualifying or non-qualifying organization, as long as you are an employee of a qualifying employer. If you are working at the location of or with an organization under contract with your employer, the organization that hired and pays you must be a qualifying employer, not the organization where you perform your work.”

We’ll keep track of the ECF versions and keep you updated! Let us know your thoughts below.

Well, it looks like the ABA lawsuit is crawling along still. The last filing was in early March 2018, where the ABA was urging the court to hurry up schedule a status conference or alternatively, oral argument. The ABA also included a few declarations from ABA hiring attorneys who have experienced difficulties filling vacancies after news that the ABA was not a PSLF-qualifying employer.

Read the March 2, 2018 brief from ABA: PLAINTIFFS’ MOTION FOR SCHEDULING OF STATUS CONFERENCE OR, IN THE ALTERNATIVE, ORAL ARGUMENT

EDIT (07/02/18): The ABA has filed a motion for Hearing Status Conference, in-person or telephonic on June 15, 2018, asking the court for some discussion things are at a standstill.