The Biden administration this week has announced sweeping new changes to transform the troubled Public Service Loan Forgiveness (PSLF) program. The actions will allow borrowers to get payments counted towards student loan forgiveness that would otherwise have been rejected due to strict PSLF eligibility criteria.
“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness. 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,” said U.S. Secretary of Education Miguel Cardona in a statement on Wednesday. “Teachers, nurses, first responders, servicemembers, and so many public service workers have had our back especially amid the challenges of the pandemic. Today, the Biden Administration is showing that we have their backs, too.”
Advocates praised the move by the administration. “Countless public servants across the country believed in the promise of loan discharge when they made their decision to work in the public sector,” said Student Defense President Aaron Ament in a statement. “Unfortunately, the failures of the Department and its servicers made it nearly impossible for public servants to obtain relief. Today’s announcement is a step in the right direction in addressing the student loan crisis facing our country.”
Here are the details on the new changes to the PSLF program.
Public Service Loan Forgiveness (PSLF) Changes: How The Program Worked Before
Public Service Loan Forgiveness (PSLF) wipes out the federal student loan debt for borrowers who are employed in positions in government and nonprofit organizations. But, because of opaque requirements established my Congress, the program is not that simple.
Although PSLF is often described as a 10-year program, Public Service Loan Forgiveness technically requires 120 “qualifying payments” before a borrower can get their federal student loans forgiven. And a qualifying payment has very specific eligibility criteria:
- Payments must be made on Direct federal student loans. Not all federal student loans are “Direct” loans. In particular, Family Federal Education Loan (FFEL) program loans issued before 2011 do not qualify for PSLF. FFEL loans can enjoy the benefits of PSLF if they are first consolidated into a federal Direct loan, but payments made prior to Direct loan consolidation would not count. Direct loan consolidation also effectively restarts the clock on repayment for both Direct loans and FFEL loans.
- Payments must be made under a type of repayment plan based on your income such as IBR, PAYE, or REPAYE. Payments made under the 10-year Standard plan also can count, although this would repay the underlying federal loan in full within 10 years. Other federal student loan repayment plans — like Graduated and Extended repayment plans, and Standard or fixed repayment plans on terms longer than 10 years — do not qualify. Payments must also be made on time, within a 15-day window of the payment due date. Periods of deferment and forbearance do not count.
- The borrower must work as a full-time employee of either a domestic government or public entity, or a 501(c)(3) nonprofit organization. Other nonprofits that are not registered 501(c)(3) nonprofits could qualify in certain limited circumstances, although the Education Department makes determinations on a case-by-case basis.
Low Approval Rates For Public Service Loan Forgiveness (PSLF)
The Public Service Loan Forgiveness program has long suffered from abysmal approval rates. When student loan borrowers first became eligible to apply for loan forgiveness through PSLF in 2017, the
initial approval rate was only 1%.
More recent statistics suggest that the program has only marginally improved to a success rate of about 2%.
The failures of the program are largely due to the complex requirements established by Congress, coupled with poor administration of the program by student loan servicers and lax oversight by the Department of Education. A
report released earlier this year from the federal Consumer Financial Protection Bureau (CFPB) found that “student loan servicers gave incorrect information to borrowers” about the requirements of PSLF, resulting in “missteps that could cost consumers thousands of dollars.”
Biden Administration’s Changes to Public Service Loan Forgiveness (PSLF)
In its announcement this morning, the Biden administration indicated that it would be using executive action to enact sweeping reforms to the PSLF program:
- Payments made on federal Direct loans and on FFEL loans will be counted towards PSLF.
- Payments made under any repayment plan can be counted towards PSLF, including non-income-driven repayment plans.
- Payments made prior to Direct loan consolidation can be counted towards PSLF.
- Military deferments will count towards PSLF, even if no payments were made.
- The Department will conduct a full review and audit of rejected PSLF payments and will adjust borrowers’ PSLF payment counts accordingly.
Combined, these actions will allow thousands of borrowers to accelerate their progress towards loan forgiveness through PSLF, and many may be able to get their loans completely forgiven immediately. The Department estimates that over 22,000 borrowers will receive immediate student loan forgiveness from the changes, and another 550,000 borrowers will get an average of two more years of progress towards loan forgiveness.
There are limitations, however. In most cases, borrowers will have to affirmatively apply for PSLF, and they may have to consolidate their loans as well to get payments on FFEL loans to qualify. And there is a deadline — the relief is being offered temporarily through October 31, 2022. The Department indicated that it would release more information and instructions for borrowers in the coming weeks.
Longer-Term Changes to Public Service Loan Forgiveness (PSLF)
While the sweeping relief announced by the Biden administration is only temporary, the administration is embarking on a parallel path to enshrine many of these changes permanently into law via new federal regulations. This week, the administration has begun holding
negotiated rulemaking hearings, the first step in a long process to rewrite federal regulations governing key federal student loan programs, including Public Service Loan Forgiveness.
120 payments and you get to move on with ya life
this is a good indication of further improvement to me
