3 things to know about the Public Service Loan Forgiveness program overhaul

BY Sydney LakeOctober 07, 2021, 12:41 PM
Miguel Cardona, U.S. secretary of education, speaks during a Senate Health, Education, Labor, and Pensions Committee hearing in Washington, D.C., U.S., as seen in September 2021. (Photographer: Greg Nash—The Hill/Bloomberg/Getty Images)

The Education Department on Wednesday unveiled sweeping changes to its largely failed Public Service Loan Forgiveness (PSLF) program, which was created to provide debt relief for public servants. Changes will immediately wipe out an additional $1.7 billion in student loan debt—on top of the nearly $10 billion in forgiveness for a wide variety of borrowers that President Joe Biden has announced since his inauguration. 

Congress created PSLF in 2007, and the program was established to forgive the remaining balance on direct loans for public service workers after they made 10 years’ worth of payments (120 qualifying monthly payments). But since its inception, 98% of borrowers who applied for forgiveness were denied by the program due to a number of hurdles with the approval process.

“So many Americans who dedicated their careers to public service counted on PSLF for relief only to find the odds stacked against them thanks to a host of problems that have plagued the program,” Chuck Bell, advocacy programs director for Consumer Reports, said in a statement. “Instead of getting their loans erased after a decade of serving their communities, borrowers were left with a pile of debt and broken promises.”

The PSLF program overhaul should address some of these issues by means of the three major changes below. Here’s what you need to know.

Changes to PSLF could help more than 550,000 borrowers

The PSLF program is set up to help public servants, including teachers, firefighters, social workers, and other government or nonprofit employees. 

When the program launched in 2007, the requirements to earn student loan forgiveness seemed pretty streamlined. Borrowers needed to hold a public sector job, be enrolled a repayment plan, and make 120 on-time payments on their student loans. 

The “who” in this equation remains the same—the program will still help out public servants. The overhaul will just ease the process for borrowers to apply for forgiveness.

With changes to the program, 22,000 borrowers will automatically be eligible for forgiveness “without the need for further action on their part,” according to the Education Department. An additional 27,000 borrowers could qualify for a collective $2.8 billion in forgiveness if they “certify additional periods of employment,” according to the Education Department. Long-term changes, however, are estimated to benefit more than half a million borrowers.

“All told, the department estimates that over 550,000 borrowers who have previously consolidated will see an increase in qualifying payments with the average borrower receiving another two years of progress toward forgiveness,” according to the Education Department. “Many more will also see progress as borrowers consolidate into the Direct Loan program and apply for PSLF and as the department rolls out other changes in the weeks and months ahead.”

The overhaul will count previously overlooked, ineligible payments

One of the biggest issues with the PSLF program was that it didn’t count certain payments made on federal loans. A limited waiver introduced Wednesday as part of the overhaul will allow borrowers to count payments on loans from the Federal Family Education Loan (FFEL) program or the Perkins Loan program

Borrowers have to submit a PSLF form by Oct. 31, 2022, in order to have all of their student loan payments count toward PSLF. Borrowers in the FFEL and PL programs will have to consolidate their loans into the Direct Loan program and submit the PSLF form by the same deadline. Active-duty service members will also be able to count deferments and forbearances toward PSLF.

The Education Department will also review previously denied PSLF applications for errors and will let borrowers have their forgiveness decisions be reconsidered.

“These actions will help identify and address servicing errors or other issues that have prevented borrowers from getting the PSLF credit they deserve,” according to the Education Department.

The department is working on “lasting” changes to PSLF

The Education Department is also looking into further steps to make PSLF forgiveness easier for borrowers. It will do so through a process called negotiated rulemaking.

The Office of Postsecondary Education has compiled a laundry list of issues with how PSLF has been regulated and run and ways to “make payment rules less confusing, ensure borrowers do not accidentally lose progress toward relief through deferments and forbearances and consolidation, and give borrowers a clearer process for having decisions reconsidered,” according to notes from the initial session of rulemaking this week.

The department has proposed solutions including removing certain application requirements, improving payment counting, allowing for certain deferments and forbearances to count as payments, and notifying borrowers about eligibility for the PSLF program.

“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness,” Education Secretary Miguel Cardona said in the Wednesday announcement. “The system has not delivered on that promise to date, but that is about to change for many borrowers who have served their communities and their country.”

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