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A public service job for Public Service Loan Forgiveness (PSLF) means working an average of 30 hours a week for a U.S. government agency at any level, a 501(c)(3) nonprofit, or another nonprofit that provides specific public services. Your job title doesn’t matter. Your employer does.
For-profit companies never qualify, even government contractors and staffing agencies placing you at a hospital or school. Labor unions and partisan political organizations are excluded too.
The Education Department’s 2026 rule that would have let it disqualify nonprofits with a “substantial illegal purpose” was vacated by two federal courts on June 30, 2026. The Department is appealing, but the rules on this page are the ones in force today.
A public service job, for PSLF purposes, is any full-time job at a qualifying employer. Federal Student Aid (FSA) puts it plainly: qualifying employment “isn’t about the specific job that you do for your employer, it’s about who you work for.” A janitor at a public school qualifies. A nurse at a for-profit hospital does not. That one distinction explains most of the confusion in the 40-plus reader comments on this page, and it is the first thing to check before you count on student loan forgiveness.
Here’s who qualifies, who doesn’t, how FSA defines “full-time,” what happened to the 2026 employer rule, and how to check your own employer in about two minutes. If you already know your employer qualifies, skip ahead to which payments count.
Table Of Contents
Why This Is Important
So What Exactly Are Public Service Jobs?
Government Organizations
501(c)(3) Organizations
Not-For-Profit Organization That Is Not A 501(c)(3) Organization
AmeriCorps And Peace Corps
What Counts As Full-Time For PSLF?
Contractors, Staffing Agencies, And 1099 Workers
What Are Not Considered Public Service Job Organizations?
What Happened To The 2026 PSLF Employer Rule?
How To Check If Your Employer Qualifies
Thoughts On The PSLF
Frequently Asked Questions
Why This Is Important
PSLF has forgiven the loans of more than 1.1 million borrowers, and employer eligibility is still one of the main reasons a PSLF application fails. Federal Student Aid’s cumulative PSLF report shows $87.6 billion discharged for 1,183,600 borrowers through September 30, 2025, including the formal program, TEPSLF, and the 2021–2022 waiver. The program crossed 1 million borrowers in October 2024.
That is a long way from where PSLF started. FSA began accepting forgiveness applications in 2017, ten years after the program’s October 1, 2007 start date, and in the first two years it rejected roughly 99% of them. The reasons were mostly mechanical: not enough qualifying payments, missing information, the wrong loan type, and employers that didn’t qualify. The program was working as written. Borrowers hadn’t been told how it worked. Our PSLF checklist covers the loan-type and repayment-plan pieces. This page covers the employer piece.
One more reason to get this right in 2026: since July 1, 2026, the Repayment Assistance Plan (RAP) counts for PSLF but only if every payment is made in full and on time, and the Tiered Standard Plan does not count at all. Certifying the wrong employer for a year under those rules costs you twelve payments you can’t buy back cheaply. Here’s which payments and periods count.
So What Exactly Are Public Service Jobs?
FSA recognizes three types of qualifying employers, and any full-time job at one of them is a public service job for PSLF:
A U.S.-based government organization at any level: federal, state, local, or tribal. The military counts as federal service.
A nonprofit that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
Any other nonprofit that devotes a majority of its full-time-equivalent employees to providing one or more of these public services: emergency management, military service, public safety, law enforcement, public interest law services, early childhood education, public service for individuals with disabilities and the elderly, public health, public education, public library services, and school library or other school-based services.
Full-time AmeriCorps and Peace Corps service also counts as qualifying employment, and so does military service as federal employment.
What you do at that employer is irrelevant. FSA’s PSLF FAQ is explicit that eligibility turns on the employer, which is why the mayor’s assistant, the school district’s teacher aide, the county’s tax clerk, and the nonprofit hospital’s billing manager all qualify, while the surgeon employed by a for-profit physician group generally does not. If you’re weighing a job change for forgiveness, our PSLF strategy page for 2026 walks through the trade-offs.
Includes the military, public schools and colleges, and special districts such as transit and housing authorities. Any job counts.
501(c)(3) Nonprofit
Yes
Charities, private nonprofit schools and colleges, nonprofit hospitals, religious organizations. Religious work hours count.
Other Nonprofit (501(c)(4), 501(c)(6), Etc.)
Only If
Must devote a majority of full-time staff to a listed public service: public health, public safety, public education, legal aid, and eight others.
AmeriCorps Or Peace Corps (Full-Time)
Yes
Service counts as employment. Payments during service must still be under a qualifying plan.
Payroll Company (PEO) For A Qualifying Employer
Yes
You’re treated as a direct employee of the nonprofit or agency, not the payroll company.
For-Profit Company Or Government Contractor
No
Includes staffing agencies and physician groups, unless state law bars the hospital from hiring you directly.
Labor Union
No
Being a union member is fine. Being employed by the union is not.
Partisan Political Organization
No
Campaigns and party organizations are excluded by rule.
Bank Or Credit Union
No
Banks are for-profit. Credit unions are tax-exempt under 501(c)(1) or 501(c)(14), not 501(c)(3).
Source: Federal Student Aid. The College Investor.
See If Your Job Is Eligible For PSLF At StudentAid.gov
Enter your employer’s Employer Identification Number (EIN) from box b of your W-2 into FSA’s PSLF Employer Search. It tells you whether the employer is eligible, ineligible, or needs review, and it’s the same database FSA uses when it processes your PSLF form. If your employer isn’t listed, you can open a review case and upload your W-2. Here’s the rest of the PSLF form process.
Government Organizations
Any U.S. government employer at any level qualifies: federal agencies, the military, state agencies, cities, counties, tribal governments, public school districts, public colleges and universities, public child and family service agencies, and special governmental districts such as transit authorities, water districts, bridge districts, and housing authorities. FSA lists those examples in its qualifying-employer FAQ, and our PSLF checklist covers what government employees still have to certify.
The role doesn’t matter. Mail carriers employed by the U.S. Postal Service qualify. So does every job in a public school building, from the superintendent to the teacher assistant who was told by a servicer that only “teachers” count. That advice confuses PSLF with Teacher Loan Forgiveness, which is a separate program with its own rules.
Two exceptions FSA calls out: a government contractor is not a government employer, and serving as an elected member of Congress is not qualifying employment. If you’re a federal employee with older FFEL loans, your employer qualifies but your loans may not until you consolidate.
501(c)(3) Organizations
A 501(c)(3) nonprofit qualifies automatically, whatever its mission. The IRS grants that status to organizations formed for religious, educational, charitable, scientific, or literary purposes, public-safety testing, amateur sports competition, and preventing cruelty to children or animals. Most private K-12 schools, private colleges and universities, nonprofit hospitals and health systems, and tens of thousands of charities are 501(c)(3)s.
Religious organizations are 501(c)(3)s and qualify. FSA’s current FAQ says all compensated hours count toward full-time status, including time spent on religious instruction, worship services, or proselytizing. That is a change from the pre-2021 rule, so older advice (including some of our own replies in the comments below) that said ministry work doesn’t count is out of date. One wrinkle: churches often don’t register their tax-exempt status with the IRS, so they may not appear in the employer search. Upload your W-2 when you request an eligibility review, and read how FSA’s green banner confirms you’re tracked once it’s accepted.
Two more 501(c)(3) rules that trip people up. A limited liability company that is a disregarded entity of a 501(c)(3) under IRS rules qualifies as a 501(c)(3) employer. And if you’re thinking about forming your own nonprofit to qualify for PSLF, the 30-hour rule and the W-2 rule both still apply to you.
Not-For-Profit Organization That Is Not A 501(c)(3) Organization
A nonprofit that isn’t a 501(c)(3), such as a 501(c)(4) social-welfare organization or a 501(c)(6) chamber of commerce, qualifies only if it devotes a majority of its full-time-equivalent staff to one of the eleven public services listed above. The same test applies to an LLC that is a disregarded entity of a 501(c)(4) or 501(c)(6). Our nonprofit forgiveness page has more on the tax-status question.
This is where most of the reader questions on this page land, and the answer is usually no. A 501(c)(4) wastewater utility that is jointly owned by two localities is more likely to be a governmental district (which qualifies outright) than a nonprofit providing “public safety,” so ask your HR department which it is. A regional transit nonprofit that provides federally mandated paratransit for the elderly and disabled has a real argument under “public service for individuals with disabilities and the elderly.” A chamber of commerce that runs a few classroom sessions a year does not devote most of its staff to public education, and in our experience those certifications get denied. If that’s you, other forgiveness programs may fit better.
If your employer is in this category, the employer search will often return “ineligible” or “needs review.” Don’t panic. Submit the PSLF form with the employer’s EIN, have the employer certify the public service it provides, and keep records. Our PSLF checklist covers what to keep.
AmeriCorps And Peace Corps
Full-time AmeriCorps and Peace Corps service counts as qualifying employment for PSLF, even though volunteers aren’t employees in the usual sense. FSA states this directly on its PSLF page, and the full list of forgiveness programs includes the separate AmeriCorps education award.
The catch is the repayment side. Volunteers often have their loans in deferment or forbearance during service, and months without a qualifying payment don’t count unless you were in one of the deferment or forbearance types FSA accepts or you later buy them back. If you’re serving now, enroll in an income-driven plan with a $0 payment instead of deferring, because $0 payments under a qualifying plan count.
What Counts As Full-Time For PSLF?
Full-time for PSLF means an average of at least 30 hours a week at qualifying employers, counted over the period you’re certifying, regardless of whether your employer calls you full-time. FSA’s definition adds three rules that help part-timers and educators, including nurses working two clinic jobs:
Two part-time jobs can add up. If you work 15 hours a week at a public library and 15 at a nonprofit clinic, the combined 30 hours is full-time. Each employer must qualify and each certifies its own hours.
Teachers on an 8-month contract count for the whole year. Anyone working a contractual period of at least 8 months in a year, such as K-12 teachers, is treated as full-time for all 12 months.
Adjunct and non-tenure-track faculty multiply each credit or contact hour taught per week by at least 3.35 to get their hours.
Paid vacation, paid leave, and FMLA leave count as hours worked. Unpaid volunteer time doesn’t. If an earlier PSLF form marked you part-time under an employer’s own definition but you worked 30 or more hours, you can resubmit for the same period and FSA will review it under the current rule. That can add months to your count without a buyback.
Contractors, Staffing Agencies, And 1099 Workers
You must be a direct employee of the qualifying employer. If a staffing agency, a for-profit physician group, or any contractor issues your W-2 or 1099, your employment does not qualify, even if you spend every working hour inside a public hospital or a government building. A 1099 means FSA sees you as a contractor, not an employee, and none of those months count.
There is one exception, and it is narrower than the “Texas and California doctors” shorthand you may have read. FSA’s rule applies where state law prevents a qualifying employer from hiring people directly for a position, most commonly states that bar hospitals from employing physicians, so the hospital contracts with a physicians’ group instead. In that case you report the qualifying employer’s EIN on your PSLF form, not the group’s, and an official of the qualifying employer certifies that your position can’t be filled by a direct employee under state law. Doctors and nurses are the borrowers this affects most.
Payroll companies are a different story. If a Professional Employer Organization (PEO) produces your W-2 under contract with a qualifying employer, FSA still treats you as a direct employee of that employer. Union membership doesn’t matter either way. What matters is whether the hospital, school, or agency employs you or the union does. If you work for a for-profit company and PSLF is off the table, check whether your employer offers student loan repayment assistance instead.
What Are Not Considered Public Service Job Organizations?
These employers never qualify for PSLF, no matter what work you do there:
For-profit companies, including for-profit hospitals, for-profit colleges, and government contractors
Labor unions
Partisan political organizations
Nonprofits that aren’t 501(c)(3)s and don’t devote most of their staff to a listed public service
Banks and credit unions are the most common surprise. A community bank that hires high-school tellers and offers senior checking accounts is still a for-profit bank. A credit union is tax-exempt under 501(c)(1) or 501(c)(14), not 501(c)(3), and doesn’t provide a listed public service. Bank employees with federal loans are better served by RAP or IBR than by chasing a certification that will be denied.
Being a foster parent isn’t employment at all, so it can’t qualify, though other forgiveness programs may apply. The same goes for being a student, a stay-at-home parent, or a self-employed consultant whose clients happen to be nonprofits.
No matter which category your employer falls into, you also need to meet the other four PSLF conditions: Direct Loans (or a Direct Consolidation Loan), a qualifying repayment plan, 120 qualifying monthly payments made after October 1, 2007, and qualifying employment at the time you apply for forgiveness. Our student loan basics page explains the loan types.
What Happened To The 2026 PSLF Employer Rule?
The Education Department’s rule letting it disqualify employers with a “substantial illegal purpose” never took effect. On June 30, 2026, a federal judge in Massachusetts vacated the rule in full, one day before its July 1 effective date, finding it exceeded the Department’s authority under the Higher Education Act, was arbitrary and capricious, and violated the First Amendment. The same day, the U.S. District Court for the District of Columbia granted summary judgment against the rule in a second case brought by nonprofits.
The rule, finalized October 31, 2025, would have let the Secretary of Education strip PSLF eligibility from nonprofits and governments it found engaged in activities including immigration-related work, gender-affirming care for minors, and certain protest conduct. The Department had estimated fewer than 10 employers a year would be affected, and past qualifying payments could not have been clawed back.
On August 27, 2026, the Department appealed both rulings to the First Circuit and the D.C. Circuit. As of this update, neither ruling has been stayed, no employer has lost eligibility under the rule, and the eligibility rules described on this page are the ones FSA applies. Briefing is expected to run into late 2026 with decisions possible in 2027. We’ll update this page if a court reinstates the rule. In the meantime, the right move is the boring one: keep certifying employment every year through the PSLF Help Tool.
How To Check If Your Employer Qualifies
Checking takes a few minutes and costs nothing, and it belongs at the top of the PSLF checklist. Here’s the order that saves the most time:
Run the EIN through the PSLF Employer Search. Use box b of your W-2. “Eligible” means you’re done with this step. “Ineligible” for a for-profit is final. “Needs review” or “not found” is common for churches, small nonprofits, and governmental districts.
Submit a PSLF form through the PSLF Help Tool anyway. FSA processes the form, certifies the employer, and updates your qualifying payment count. Do this every year and every time you change jobs. Since FSA took over PSLF processing on May 1, 2024, the count shows up under “My Loans” on your StudentAid.gov dashboard, and the green banner is how you’ll know you’re tracked.
If the employer has closed or won’t sign, upload W-2s or pay stubs for each year as alternative documentation. FSA will use them to classify the period as full-time or part-time.
If you’re about to consolidate, certify every employer first. Payment counts on loans consolidated after September 1, 2024 are carried over using a weighted average, and uncertified months are lost in that math. Consolidation after July 1, 2026 also limits you to RAP or the Tiered Standard Plan, and only RAP counts.
Once your employer checks out, the next question is which repayment plan gets you to 120 payments at the lowest total cost. Our free Student Loan Calculator app runs RAP vs. IBR side by side using your income and balance, and it flags when a plan change would cost you PSLF credit.
Thoughts On The PSLF
Eligibility is binary and it is about the employer, so settle it first. Before you take or keep a job for the forgiveness, confirm the EIN in the employer search, confirm you’ll average 30 hours, and confirm your W-2 will come from the qualifying employer and not a contractor. Then certify every year so a problem surfaces after 12 payments, not 120, when buying back the gap is far cheaper.
If the answer is no, don’t try to make it yes. Chambers of commerce, unions, banks, and for-profit contractors have been denied consistently for a decade. Your better options are the other forgiveness programs, an income-driven plan with RAP’s 30-year forgiveness, or for high earners with no forgiveness path at all, refinancing, which permanently gives up federal protections and should never be done by anyone who might still qualify for PSLF.
For borrowers who have confirmed they will never work for a qualifying employer, aren’t using an income-driven plan, and have the credit to beat their federal rate: compare rates at our best refinance lenders page. Refinancing federal loans ends PSLF, IDR, and federal forbearance eligibility for good.
If the answer is yes, the rest of the program is paperwork and patience. Here’s how to qualify for PSLF step by step, and here’s what PSLF reforms have been made through executive action over the years if you want the history. Readers who need a push to stay motivated through ten years of payments can start there.
Was this post helpful? Let us know in the comments if you’ve had trouble getting an employer certified.
Frequently Asked Questions
Does My Job Title Matter For PSLF?
No. PSLF qualifies employers, not jobs. A teacher assistant, custodian, or payroll clerk at a public school district qualifies the same way a teacher does, as long as the district issues the W-2 and the hours average 30 a week. The only job-specific test is the one that applies to everyone: full-time hours. Here’s how to qualify for PSLF.
Does Working For A Church Count For PSLF?
Yes. Churches and other religious organizations are 501(c)(3)s, and under FSA’s current rules all paid hours count toward full-time status, including worship services and religious instruction. A church treasurer, a pastor, and a parochial school teacher all qualify if the church or school employs them directly and pays them on a W-2. Older guidance that excluded religious work no longer applies. Our nonprofit forgiveness page covers the rest.
Do I Qualify If I’m In A Union?
Union membership doesn’t affect PSLF. What matters is who employs you. A unionized nurse employed by a nonprofit or state-owned hospital qualifies. Someone employed by the union itself does not, because labor unions are excluded employers. Here’s which payments count once you’re eligible.
Can I Switch Between Government And Nonprofit Jobs?
Yes. Each of your 120 payments is evaluated on its own, so you can move from a county job to a 501(c)(3) to a federal agency and keep every qualifying month. Payments don’t need to be consecutive either. A year at a for-profit pauses your count but doesn’t reset it. Submit a PSLF form for each employer before you leave, because certifying old employers later is harder.
Does A Chamber Of Commerce Or A 501(c)(4) Qualify?
Only if the organization devotes a majority of its full-time-equivalent employees to one of the listed public services, such as public health, public safety, or public education. Most chambers of commerce don’t meet that test, and we’ve seen those certifications denied repeatedly. A 501(c)(4) utility or transit authority that is actually a governmental district qualifies as a government employer instead, so ask HR how the entity is organized. Can you start your own nonprofit instead?
My Employer Search Says Ineligible But HR Says We Qualify. Who’s Right?
Submit the PSLF form with the employer’s EIN and let FSA decide. The search database isn’t complete, and “needs review” cases are common for small nonprofits and governmental entities. If FSA denies the employer, the employer, not you, can request reconsideration with documentation of the public service it provides. Keep your own copies of every form and letter. If you’re close to 120 and the denial would cost you months, PSLF buyback may still be an option.
Do Parent PLUS Loans Qualify For PSLF?
Only if they were consolidated into a Direct Consolidation Loan and placed on a qualifying plan. FSA now states that Parent PLUS loans and consolidation loans containing them are ineligible for RAP, and that those loans can’t continue to qualify for PSLF on the strength of past IBR or ICR enrollment. Parent PLUS borrowers had until June 30, 2026 to consolidate and preserve a path. If you missed it, read that page before assuming anything.
Is TEPSLF Still Available If I Was On The Wrong Repayment Plan?
Yes, as of this update. Temporary Expanded PSLF is still listed by FSA as open on a first-come, first-served basis until its funding runs out, and it covers payments made under the graduated, extended, and consolidation standard plans. The Tiered Standard Plan doesn’t count toward TEPSLF. Here’s how TEPSLF differs from PSLF.
Editor: Clint Proctor
Reviewed by: Chris Muller
The post What Are Considered Public Service Jobs (For PSLF Eligibility)? appeared first on The College Investor.
Visible has a new offer for customers who bring their own phone, and the price works out to just $12.50 per month for six months.
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The plan includes:
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Taxes and fees included
OFFER LINK
Important Terms
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You must bring your own compatible phone
$75 upfront payment
Regular $25/month pricing starts in month 7
Valid only on the standard Visible plan
Visible+ and Visible+ Pro are excluded
Cannot be combined with other service promotions
No promo code required
Offer ends October 29, 2026 at 11:59 PM ET
Guru’s Wrap-Up
This is a really cheap way to try Visible if you’re okay with the standard plan.
At $12.50 per month, you’re getting unlimited service on Verizon’s network for half the regular price. The main thing to keep in mind is that this is the base Visible plan, so you’re not getting the faster hotspot or other extras that come with Visible+ or Visible+ Pro.
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The Social Security Administration’s recent cost-of-living adjustment (COLA) announcement likely made many retirees happy.
Earlier this year, Social Security benefits received a 2.8% COLA, which many seniors blasted as insufficient. On Oct. 14, a 3.6% Social Security COLA was announced for 2027, which is clearly a much more generous boost.
Image source: Getty Images.
Now that you know what the 2027 COLA is officially, you can apply that number to your monthly benefit to see how much your Social Security checks will increase in the new year. But if you’re on Medicare, it may be too soon to run that calculation.
Don’t forget about Part B premium hikes
You’d think calculating your raise for 2027 would be a simple matter of multiplying your monthly Social Security check by 3.6%. But no so fast.
If you’re enrolled in Medicare, as you may know, your Part B premiums get paid out of your Social Security benefits automatically. This means that if there’s an increase in the cost of Part B, it will reduce your COLA to a smaller amount.
During years when there’s a large Part B hike and a very small COLA, it’s possible for seniors to end up with no Social Security raise at all. Next year, that’s unlikely. Even if the cost of Part B increases significantly, a 3.6% COLA should be enough to far outpace it and leave seniors with something.
The average monthly Social Security benefit today is $2,088. A 3.6% COLA amounts to a $75 raise, not accounting for Medicare costs.
Last year’s Medicare Part B hike was a fairly large $17.90 per month. But even a similar increase in 2027 won’t completely wipe out the upcoming COLA for the average Social Security check.
Still, the fact that you’re now forced to wait on a Medicare announcement may be a big annoyance. And that’s understandable. But before you set your mind on any given increase to your monthly checks, it’s important to build in a buffer in case Medicare Part B’s standard premium increases quite a lot.
Some seniors could lose their COLA entirely
If your income has increased in recent years, you may have another Medicare surprise waiting in 2027 — IRMAAs. Short for income-related monthly adjustment amounts, IRMAAs are surcharges higher earners pay on their Part B premiums.
IRMAAs come out of Social Security benefits, too. And a large IRMAA could wipe out your 2027 COLA completely.
The silver lining is that if that happens, it means your income is likely high enough that you probably weren’t relying on that COLA so heavily to begin with. But it’s still a helpful thing to have on your radar so you aren’t caught off guard.
Leaders in the corporate world are familiar with a sports metaphor: They want to get a project across the finish line or make sure workplace standards are up to par. But many seemingly fail to carry forward the value athletes have in rest.
ServiceNow president and Chief Financial Officer Gina Mastantuono, who has espoused the benefits of fitness in both individual health and leadership, said that while the importance of recovery has broken into culture outside of athletics, it hasn’t fully permeated the vocabulary or habits of business leaders. Speaking at the Fortune Most Powerful Women Summit in Santa Barbara, Calif. on Tuesday, Mastantuono said many senior employees still embody toxic ideas about overworking.
“There’s always been this—if you have to work 14-hour days and you get four hours sleep, and that shows that you’re working the hardest and you deserve the most,” she told Alicia Hatch, U.S. Sports chief commercial officer and women’s sports leader at Deloitte. “And in fact, that is such a terrible example for the people around us.”
Research has consistently shown the value of boundaries and the establishment of work-life balance. A University of Florida meta-analysis of nearly 200 studies, for example, found recovery from work is associated with better sleep, improved mental health, and increased long-term satisfaction with one’s life. But internalizing that rest is important is a different matter, Mastantuono noted.
“Recovery is part of the performance; it’s not secondary,” she said. “Muscle doesn’t grow when we pump out at the gym. It grows when we’re sleeping at night and letting the muscles recover.”
Mastantuono has noticed the benefits of recovery in her own life, attributing better work-life balance to a honed ability to listen instead of reaction, and maintain calm under duress and pressure, which has enabled her teams to execute more effectively.
“When we do focus on taking care of ourselves, then we are much better bosses, much better colleagues, much better parents,” she said.
Janet Evans, a four-time Olympic medalist and swimming and chief athlete officer of LA28, the organizing committee for the 2028 Olympic and Paralympic Games in Los Angeles, was well-versed in the importance of recovery in the context of competition, but has similarly needed reminders about taking a breather. Evans told Hatch about LA28 CEO Reynold Hoover, a three-star ex-U.S. Army Lieutenant General who frequently incorporates military parlance into in-office conversations.
“No one’s guns are drawn. No one is shooting each other,” Evans recalled Hoover saying. “So Janet, you’re gonna figure this out tomorrow.”
Mortgage rates have now fallen for five days in a row.
That puts the average 30-year fixed mortgage around 7.375%, a three-week low and roughly a quarter point below where they were earlier this month.
The strange part is that it happened right as we received two hotter-than-expected inflation reports in CPI and PPI.
Oh, and a hot retail sales report to boot.
The big question now: is this real, or just a tech selloff that will snap back next week? It could be a little bit of both.
Hot Inflation, But Lower Mortgage Rates? What Gives?
Consumer prices (CPI) came in hotter than expected on Wednesday, then wholesale prices (PPI) followed suit on Thursday.
As I’ve said before, that’s typically a recipe for higher mortgage rates. Sometimes much higher rates, especially in our current higher-for-longer environment.
Rates did start the day higher on Wednesday, which was the normal reaction to a hot inflation report.
But recovered nearly all of it (and then some by some accounts) by the close of business that day.
Then on Thursday we got an even bigger drop in rates, propelled by the tech selloff and accompanying flight to safety in bonds.
The 10-year bond yield, the bellwether for mortgage rates, nearly went below 5%, falling almost double-digits on the day.
It was a super unusual event that had a lot of folks scratching their heads, and for good reason.
So what gives? Clearly inflation isn’t abating, so what else was scaring investors out of stocks and into bonds?
[Compare mortgage rates and monthly payments side by side with my mortgage rate calculator.]
It Appears AI-Related Debt Is Now Helping Mortgage Rates
One of the side stories over the past few months, other than inflation and the conflict in the Middle East, has been the massive AI buildout.
I noted a while back that all the AI spending and related bond issuance could be crowding out other investments, namely investment in government treasuries.
Well, it seems this week investors finally got spooked that perhaps those juicy yields are telling them not all is well.
And that accepting a guaranteed rate of return above 5% is actually a pretty solid deal, especially if the stock market begins to crack.
When investors get nervous about stocks, they tend to flee to the safety of government bonds.
But that hasn’t happened for a long time, until this week, when stocks finally sold off and bonds became the darling of the market.
This is why mortgage rates finally reversed course and went a low lower.
Will This Bond Rally Actually Last?
Before we get too excited here, there are a couple issues.
First, a lot of prospective home buyer’s stock portfolios are getting pummeled right now.
That doesn’t owe itself to making the largest purchase decision of their lives.
Instead, they might say hang on, I’m just going to keep renting for now until this all shakes out.
Second, there’s no guarantee this bond rally even lasts. I always say nothing moves in a straight line, whether up or down.
Maybe the bond market simply needed a break, and we’ve yet to see the worst of it.
I wouldn’t get too confident here that the worst is over and that mortgage rates are going to continue dropping.
Sure, celebrate the fact that they’ve come down from recent highs, but remember they remain well above levels seen a year ago and even earlier this year.
To that end, bond yields are already higher today again and mortgage rates might snap their winning streak as well.
Read on: How are mortgage rates determined?
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 20 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.
Pulling equity out of your home to buy your next rental can feel like free money, but it isn’t. Whether you use a HELOC or a cash-out refinance, if you don’t run the numbers the right way, it can eat up your cash flow…fast. But if you get it right, the equity you’ve already built can fund your next down payment without draining your savings, while growing your portfolio!
Welcome back to another Rookie Reply! Today’s first question comes from an investor who has owned a long-term rental for eight years, with significant equity. Now, she wants to use that equity to buy her next rental, but doesn’t know how to account for the new debt. We break down how a HELOC (home equity line of credit) and a cash-out refiactually work, and how Tony used a HELOC on his own home to help cover his next down payment! We also run through the one test every deal has to pass before you tap your equity.
Ever wanted to help a family member find a stable place to live? We go head-to-head on whether to buy a condo or build an ADU, and share how to protect your investment (and your family relationships) if plans change. Finally, if you’re ready to hire a property manager so you’re not the one taking every tenant call, we’ll walk you through how to vet one, which fees to inquire about upfront, and the questions to ask before you hand over the keys!
Whether you’re tapping your equity, housing someone you love, or handing off the keys, this episode will help you make your next move with confidence!
Ashley Kehr: Today’s rookie replies about the decisions that happen after the first deal looks possible. A lot of rookies know the strategy headline, but the real risk is in the next layer, the refinance payment, the HOA rules, the property manager, and the people who will actually help you operate the assets.
Tony Robinson: Today, our questions are coming from rookies who are asking about things like how to underwrite a refinance before it actually happens, or a family member trying to buy housing for a disabled relative and a new property manager asking how investors actually find property managers.
Ashley Kehr: This is the Real Estate Rookie Podcast. I’m Ashley Kerr.
Tony Robinson: And I’m Tony J. Robinson. And with that, let’s get into our first question, which today comes from Cassandra in the BiggerPockets Forums. Cassandra says, “Hey guys, I’m new here with the question about underwriting when a cash out refi, burr, HELOC, or loan is part of your plan. I often hear in the podcast, especially the real estate podcast, talking about using your home’s equity as a vehicle to finance your next purchase. I currently own one long-term rental that I’ve had for about eight years and a 2.5 COVID era interest rate and an MTR, an accessory dwelling unit on my residential property. I have significant equity in my first home, the long-term rental, and I’m considering taking out some equity to help me buy my next deal, but I have no experience with this.” Everyone makes it sounds like a burr or other strategies like this are super easy to do because you add value or do a light rehab and you can just “take the money out for another home.” But the truth is that money still isn’t yours to keep. You still have to pay it back to the bank, so it’s not something you can just get free and clear. So how do you factor this into your underwriting? I feel like no one talks about that part. How do you know you’re getting a good deal even though after you refinance and take the money out, you have an even bigger bill or mortgage to pay? There’s no way to really know what your interest rate or monthly payment will be or even what your new home value will be when you’re initially looking at trying to buy that property. Okay, so this is a great question, right? Cassandra’s basically asking, if I want to use the equity for my current property, how do I account for that cost as I go look to purchase my next property? But let’s just define a few things here for Ricky’s because she threw out a few terms. I just want to make sure that we get those defined for you first. So she said cash out refi, burr, HELOC. Those are all slightly different ways. Well, slightly different strategies and ways of accessing your capital. Let’s talk about HELOC versus cash out refi. A HELOC is a home equity line of credit where your original mortgage stays in place. So for Cassandra, her 2.5% COVID era interest rate loan, that stays in place, but she then adds basically a second mortgage in addition to her current property. So the current mortgage stays there, but she gets the second mortgage that allows her to tap into some of that equity. And a home equity line of credit operates like a credit card where you really only get billed for what you use. If you’re not using it, you’re not paying for it. Once you use it, you got to pay it off like you would a credit card. A cash out refinance is replacing your current mortgage with a new mortgage and you get the difference between the balance of what you originally owed and what the balances of your new mortgage. So if your original mortgage was $300,000, your new one’s $400,000, you get that difference of 100K as part of your new loan. So I just wanted to define those so folks understand as we talk through what this looks like. I actually just did this on my own primary where before we moved out, we pulled the HELOC and then we use that HELOC as part of our down payment for our next property. And the way that we did the math was we said, okay, once we pull this HELOC, we know what the rate’s going to be, at least ballpark, and we just want to make sure that we account for that in the underwriting of this new deal. And can our old house, can the one that we’re moving out of with its rents cover both the current mortgage and this new second mortgage? That’s the way that we did it. But if you’re looking at it from an investment perspective, then you simply say for the deal that I’m about to buy, if I also include the payment for this HELOC, can this new rental cover its own mortgage, its own expenses and the HELOC payment as well? So that’s one strategy to make sure that you’re accounting for those costs.
Ashley Kehr: Cassandra, you have a really good point asking about the interest rate. You don’t know what your interest rate is going to be when you’re ready to refinance, whether that’s three in the months from now, six months from now, 12 months from now. And obviously it’s easier to estimate when you are closer, when you know you’re going to be refinancing in three months. But what you can do is look at the worst case scenario. Worst case, what do you think this interest rate will be? There was a lot of people during COVID that went and got these bridge loans and needed to refinance later on, but interest rates were like 3%, so they were getting these good deals. But then when interest rates shot up, those weren’t good deals anymore because their mortgage payment had gone up so much. And some of them couldn’t even refinance because the bank wouldn’t lend to them because it wouldn’t make sense on the deal anymore. So you are asking a really great question. So the first thing is when you’re doing a bur, what is going to be your timeframe? So the shorter you can make your timeframe, the better, the less risk of interest rates changing rapidly. Especially if you’re a rookie, you shouldn’t be taking on a huge full gut rehab that’s going to take over a year to get done anyways. So you’re starting with something smaller. All of my first properties were cosmetic rehabs. I wasn’t ripping down vaults. I wasn’t putting in all new plumbing, anything like that. They were mostly cosmetic. So it was a very short period of time before I had to go and refinance. But you’re going to run the numbers with putting some caution in place and you’re going to look at what’s the worst case scenario of the interest rate. So play around with it. What would happen if the interest rate jumped two points? If it went from say you’re getting 7% now and then it went all the way up to 9%, what would that look like? Would there be any cash flow left? So that would be my recommendation is use a worst case scenario number. And I don’t know exactly what that would be, I would say depending on the timeframe, but try and look and see what’s your worst case of what percentage does this property no longer cash flow for you? And then you’re going to have to try and gauge whether you’re going to take that risk that you can refinance in a period of time before interest rates jump that much. For interest rates to jump up 2%, I don’t see that happening within a three month period. Maybe in a six month period that actually could happen. Over a year period, it definitely could. So I think gauging what your timeline is for your rehab to refinance along with looking at the worst case scenario of what’s the highest your interest rate actually could be before you’re losing money and kind of gauge that as to like, okay, how much do I feel comfortable with this deal?
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Ashley Kehr: Cassandra’s next question is about underwriting the next debt payment before she makes a move. Our next question is about underwriting something harder to put in a calculator, a family driven housing decision. Okay, so here’s Elizabeth’s question. “My brother is disabled and needs a stable place. He receives disability. After a series of unfortunate events, he is not in a position to receive any housing vouchers. My father is helping him find a place, but my brother is a difficult person and often finds himself kicked out of roommate situations. While this is not ideal for a first time investment situation, it is the reality. So here are some of the options I’ve come up with. Invest in a tiny house in my dad’s property, but I have no idea how to recover the investment if I do.” So I think in this scenario, Elizabeth is saying she would buy a tiny home and place it onto her dad’s property. So the second option is to invest in a relatively lower price condo nearby, which would be 99,000. If we did this, we would put down half the value of the sale price, so 50,000 and mortgage the rest so that the mortgage payment plus the HOA fees, utilities, and the weekly cleaning fee would be in range of my brother’s disability income while still giving him enough to live on. So here’s the advice that I would need. We live in Washington state. My brother lives in Texas. Who would you recommend for accounting and educating us on the tax income implications? Two, what other considerations am I missing for option two? And three, how would you recover your investment of either the tiny house on the property of a parent or looking at the condo? Thank you in advance. So great question. And I also love that this is something you want to do for your brother. And I think that real estate investing is something that gives us the opportunity to do things for the people that we love and we care about that a lot of other investments or careers wouldn’t allow us to do. So the first question is that she needs advice on recommendations for accounting and educating them on the tax income implications. So I’ll give you my two cents and then we can give you a recommendation of an actual professional because remember everybody who’s been listening, I failed my first ever CPA exam, so I am not the person. So for the tiny home, so purchasing the tiny home, because you’re putting it onto a lot that you don’t own, you will not get any of the real estate tax benefits from that. So I potentially don’t see any tax write-offs like depreciation, property taxes, things like that. If you are charging your brother rents though, you will have rental income and you can offset some of the expenses you may have, like if you’re going to be covering any of the utilities or any expenses you’ll have to have to maintain or repair the property, you’ll be able to write off to offset the income you’re collecting from your brother. So that’s one thing to think about with the tiny home. The second thing is the condo. So the condo, you will be owning a piece of real estate, so you will have more tax benefits than you would if you were just then putting the tiny home on your dad’s property. For the condo, when you sell the property, since you’re purchasing this as an investment property, you will have tax implications for the sale of that. The same with the tiny home as if you’re purchasing it, you’ll have to sell it at some point. With the condo, you could get more tax benefits with it because you’re owning the piece of property where with the tiny home, you wouldn’t.
Tony Robinson: There’s another way too that we can approach the kind of tiny home is can we actually build a true ADU on a fixed foundation? And one of the things that she mentioned was how will I actually recover the investment into that property if I do? There are companies out there because ADUs are becoming more and more popular, so naturally the markets respond and there are lending options out there that help folks finance the cost of ADUs. And much like when the short-term rental industry started picking up a lot of steam post – COVID, there weren’t a ton of financing options in 2020. There are many, many, many today. The same thing is kind of happening in the ADU space where you’re seeing more lenders offer financing options to build out ADUs. So that is one way that you could potentially, not even necessarily recoup your costs, but just have less costs in general to get into it. And then on the other hand, say that you were just going to kind of pay cash to build out this property, maybe the way that you can recoup that cost is by then refinancing your parents’ property. I don’t know what their interest rate is or what that looks like, but now that they’ve added this ADU, if they go back and get it reappraised, does that then give them the ability to get some cash back to repay the cost of building this out? I don’t know if there’s any right or wrong answer to this, Ash. It’s a very kind of deeply personal situation and a lot of kind of emotional part inside of here, but my gut I think would be to probably do the ADU on the back of the parents’ house because I just feel like from a mathematics perspective, it’s what I think would probably make the most sense.
Ashley Kehr: I love these moments, Tony, but I’m going to disagree with you. We’re going to get into a heated debate right now. I’m going to go with the condo because with the condo, it’s two family members. It’s Elizabeth and her brother. With the tiny home, it’s her investment, her dad’s property, and then her brother living there. I think about what if the dad and the brother get into a dispute? The dad doesn’t want the brother there anymore. They don’t like living there. The brother doesn’t want to live there. It’s not like, are you going to be able to go and now rent this tiny home out on your dad’s property to somebody else? So I like the condo because it’s less personal because this is the dad’s home because she does say we will put half down. So I don’t know if the dad’s chipping in or something onto the condo or whatever, but at least it’s not the dad living there and it’s not his home or whatever. So I think it makes it personally less complicated for the family if it is the condo. If it doesn’t work out with the brother and they decide that it’s not working out anymore, they can at least take the condo and rent it or sell it to recoup their investment. Where with the tiny home, I feel like that’s more restricted as to how they can recoup their investment if the brother doesn’t end up living there anymore with it being the dad’s property. So that’s how I look at that situation. So I’m going to say the condo.
Tony Robinson: That is actually a great point, Ash. And the only thing that comes to mind for me is maybe a counter. And we’ve talked about this before and guys, I’m not an ADU expert in any sense because I’ve never done an ADU, but I know that we’ve interviewed Leika, Dave, Thatch Point has talked about this as well, where they’re building these ADUs and they’re actually separating them off as their own parcel. And again, there are probably implications to the initial, the main homes, maybe appraised value or even potentially the mortgage. And I’m not sure what that approval process looks like, but I wonder if they are able to do that, does that then solve that situation? So the brother’s still close, she can hopefully recoup back some of that cost of building it out and she then doesn’t have to worry about the co-mingling of her investment with her parents’ property.
Ashley Kehr: One last thought too as to how I’ll be nice today and I will say one positive towards your choice, your situation is that she did say the brother didn’t live well with roommates and things. So maybe it won’t work out in the condo because he’ll be in apartments and he won’t get along with the neighbors or something like that, where at least at the dad’s house, he’s with the dad and you don’t have to deal with people complaining because they’re not getting along or things like that too. So there is another personal side where maybe it actually is more beneficial, but I think financially the condo is the safer bet as an investment. But also looking at the HOA too is making sure they allow it for rentals and what you can do with it as far as that too, if the brother does move out too. All
Tony Robinson: Right. Our last question today guys comes from Blanca Munoz and she is asking from the property manager side, but the answer is actually incredibly useful for rookie investors too because it tells you what a good property manager should be doing for your own portfolio. So the question is pretty straightforward. It says, how do investors find property managers and are investors simply interested in hiring property managers? So let’s answer this question, but again, we’ll talk about it from maybe more so from the perspective of being an investor. Well, first I think rookies need to decide, do I want to self-manage or do I want to hire a manager? And there are different reasons why different people come to those conclusions. When I bought my first long-term rental, I just didn’t have the confidence that I could self-manage it myself. It was several thousand miles away. I’d never done anything like that before. Didn’t necessarily have someone in my corner who could guide me through that process. I was working a full-time job. I just had all these things swirling in my mind to say, I don’t know if I can do this. So I made the decision before I even bought the property that I was going to hire a property manager, just lifestyle, all those things, skillset, confidence, I just didn’t have it. So I knew that I wanted to hire someone. And my approach for finding that person was I just searched, I think I went on even just Google. I think I even checked in the BiggerPockets forums. It was a smaller town though, Shreveport, Louisiana. It’s not a major metropolitan area, but I found a handful of property managers. I emailed them all and just said, “Hey, here’s who I am. I’m looking. I don’t have anything yet, but here’s what I’m looking for in this market.” And I just sent them a few questions that I think I scraped from somewhere in the BiggerPockets forums like, “Hey, ask these questions.” And I was just trying to get a sense of who they are, how they operate, how many units are they managing, how long have they been in business, some kind of key highlights from their management agreement, like what do they charge for, what’s included, just trying to get a good sense of who they are and how they operate. And I think of the, I don’t know, five or six that I emailed, only two of them actually replied to my email. So that weeded out a lot of them from the beginning. And then when I actually went out there, when I was closing on the property, I met with a couple of them in person and the ones who I liked more, that’s who I ended up going with. So that was my motivation for hiring a manager, and then that was my process for actually trying to source or identify which manager was a better fit for me personally.
Ashley Kehr: Your first step is going to go to biggerpockets.com/pmfinder. I found a nice little link for you guys to go to, and you can search and find property managers in the market that you’re looking at. For me, I definitely did it wrong when I was looking for a property manager when I decided I didn’t want to do it anymore. I didn’t want one of the big huge companies that manages thousands of rentals and commercial buildings and all of this. So I looked for smaller ones. My mistake was that I found a property management company that was in its growth phase. So they had never done any large apartment complex before. And with my partner’s properties, we were giving them all together to property management. He had large apartment complexes and they would be his first. And that’s very different than managing single family and small multifamily units. So not getting clarification on what their experience is as far as managing. Then the second thing was not getting clarity on the fees and if the fees can change. So after probably a year of having management in place, they sent a letter to every owner saying that they are going to start doing inspections in every single unit twice a year and it’s going to be like a $80 fee to the owner to do it. Well, okay, that doesn’t 80 bucks, but you’re doing it twice a year. If you have one property, that’s going to be a decent amount of your cash flow. But also too, if you have a large apartment complex, one was a 40 unit and $80 per unit, that adds up to quite a bit of money. And then once they go in, they would say like, “Okay, here’s all of these different things that we think you should do.” And some of them needed to be done. At one point they said that the smoke detectors should be updated in the 40 unit apartment complex. “Okay. Yeah, we should do that. That’s a safety. We don’t want them to fail. Let’s update it. They need them. They quoted us a price to just like, if I were to walk into Lowe’s and buy it off the shelf, that’s the price. Between the two 40 unit apartment complexes, we’re buying 80 of these. So 80 of them, we can’t go and get bulk pricing somewhere. So asking about the cost, the pricing, a lot of that stuff, especially at a larger scale is something I did not do ahead of time. So if they’re doing a turnover and they’re doing the remodeling, are you getting a bid? What is their project management fee? I think theirs was like 10% on top of doing the project, which is fine. They’re coordinating it all, getting the materials, things like that, plus the hourly labor. So I would just become knowledgeable about what all those fees are and how their maintenance process works. So some maintenance companies, they’ll let their tenants know and we will respond within 48 hours. For an issue like this, we will resolve it within four days. They have kind of expectations they put out to the tenants when they rent with them. So ask, do they have anything like that? How does a tenant get a hold of the property manager on the weekend? So if it is an emergency, is there someone on call? Does it go to a voicemail? What is that process? I didn’t ask enough questions about the tenant side of things. And when your tenant is not happy, it’s ultimately going to cause problems for you. Even if you have the property manager as the middleman, over time, you’re going to see more vacancy because people don’t want them as a property manager, don’t want to move in there. They leave because it’s not great property management. And then eventually the issues are going to have to come to you because they’re going to raise a big enough stink about things. So I would say just ask as many questions as you can. Ask AI, be like, “Here’s the property management company I’m looking to interview. Scroll through anything and find me any Facebook posts, any reviews, anything that mentions this company in this market, Reddit.” They could be anywhere, especially if it’s bigger companies. And I want you to give me a summary of what you found about this company and then give me 50 different questions that I should ask them and then you can kind of weed through them and see which ones you actually want to ask the company to. But that’s where I would start. Well, thank you guys so much for joining us today on this episode of Real Estate. Rookie, if you have a question, you can leave it in the BiggerPockets forums and we may answer it for you on the show. I’m Ashley. He’s Tony and we’ll see you guys next time.
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American Express has announced that effective February 17, 2027 the 4x categories on the Business Gold for ads and wireless will be narrowing to select merchants.
Effective February 17, 2027, eligible purchases of online, television, and radio advertising made from media providers located in the U.S. will be limited to purchases made directly with Meta, Google, Amazon, Microsoft, GoDaddy, and Yelp; eligible purchases for monthly wireless telephone service charges made directly from a wireless telephone service provider located in the U.S. will be limited to purchases made directly with Verizon, AT&T, T-Mobile, Frontier, Comcast, Charter, Spectrum Mobile, UScellular, Optimum, Ultra Mobile, and Mint Mobile.
The American Express business gold currently earns 4x points on your top 2 categories where your business spends the most each billing cycle with an annual calendar year cap of $150,000:
Purchases at U.S. media providers for advertising in select media (online, TV, radio)**
U.S. purchases made from electronic goods retailers and software & cloud system providers
U.S. purchases at restaurants, including takeout and delivery
U.S. purchases at gas stations
Transit purchases including trains, taxicabs, rideshare services, ferries, tolls, parking, buses, and subways
Monthly wireless telephone service charges made directly from a wireless telephone service provider in the U.S
American Express recently replaced FedEx with UPS on this card as well for the $240 flexible credit benefit.
