Changes ahead for Public Service Loan Forgiveness program

The U.S. Department of Education this week announced a slate of temporary changes to the troubled federal Public Service Loan Forgiveness (PSLF) program, hoping to address administrative hurdles that have stunted the program’s impact. Federal officials say the added flexibility will benefit approximately 550,000 of the 1.3 million borrowers enrolled in the program.

Created in 2007, the PSLF program promised to clear the remaining federal student loan debt of public sector workers—including teachers; members of the military; employees at nonprofits; and those working for federal, state, and municipal governments—after they had served and made loan payments for 10 years. However, that promise “has often turned out to be a mirage,” The New York Times writes, noting that PSLF has cleared the debt of just 16,000 borrowers in the last 14 years.

Waivers expected to shorten path to loan forgiveness for many

Temporary waivers announced on Oct. 6 take aim at some of the technicalities that have repeatedly tripped up public servants seeking to clear their debt. To qualify for loan forgiveness, borrowers working in the public sector need to make 120 on-time payments, have a certain kind of loan, and participate in a qualified repayment plan. Only 2 percent of the applications processed by the PSLF program since 2007 have met its stringent requirements.

“The idea is a simple one, but in practice, the program has been more like American Gladiators’ obstacle course, and very few people have been able to make it to the end,” Under Secretary of Education James Kvaal said during a roundtable this week.

This week’s changes in part seek to address the so-called “wrong-loan problem.” The PSLF program restricts forgiveness to loans made directly by the federal government. All federal loans issued since 2010 qualify, but before then, most borrowers had government-backed bank loans called Federal Family Education Loans (FFEL) or federal Perkins loans. Many borrowers made payments on those for years, unaware that they wouldn’t qualify for forgiveness. Until now, the Education Department would not issue credit for those payments.

Under the new waiver—available until October 31, 2022—the Education Department will retroactively count toward PSLF any federal loan payments made while working for a qualifying employer, even FFEL or Perkins loans.

The waiver also will ease requirements related to the type of repayment plan and whether borrowers paid the exact right amount at the exact right time. Some applicants have seen their PSLF requests rejected because they had accidentally made payments that were a penny short or a few days late.

In addition, the department said it would now allow members of the military to count active-duty months toward their 120-payment requirement, even if they had put their loans on hold during that time. Inside Higher Ed reports that of the nearly 180,000 active-duty service members with student loans, just 124 of them have had loans forgiven via PSLF.

Education officials also pledged to automate PSLF eligibility for federal employees and members of the military starting next year. Moreover, the department plans to review all previously denied PSLF applications to resolve errors and invite appeals.

Expected to help hundreds of thousands

The education department estimates that the new waiver will make around 22,000 borrowers immediately eligible for $1.74 billion in loan forgiveness without any further action. An additional 27,000 borrowers could qualify for $2.82 billion in forgiveness if they “certify additional periods of employment” in public service jobs.

Overall, more than 550,000 borrowers “will now get to fast-forward on their path to forgiveness by an average of 23 payments—or nearly two years,” NPR reports.

Noting that the pandemic—and a 2003 law known as the Heroes Act—has created an opportunity to offer these waivers, education officials say they hope the changes will bring relief to borrowers who have served their communities and country. “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,” said U.S. Secretary of Education Miguel Cardona.

Looking ahead, education officials hope to make long-term improvements through the federal rule-making process. The department this week convened a committee to begin work on regulatory changes that could streamline and improve the application and loan relief process.

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