Public Service Loan Forgiveness changes promise $1.74B in quick debt relief for 22,000 borrowers

Dive Brief:

  • The U.S. Department of Education on Wednesday announced major adjustments to a troubled program that was supposed to wipe away debts for public service workers like teachers and nurses who made a decade’s worth of on-time payments on their student loans — but the program has been dogged by technical problems, issues with loan servicers and low approval rates.
  • Changes to the Public Service Loan Forgiveness Program (PSLF) will make 22,000 borrowers who have consolidated loans eligible right away for $1.74 billion in debt forgiveness, according to the Ed Department. An additional 27,000 borrowers may qualify for $2.82 billion more in forgiveness if they can certify they worked for qualifying employers.
  • Education Department officials view the changes as temporary and time-limited. They aim to put permanent changes in place by next fall through a negotiated rulemaking process that is underway.

Dive Insight:

Congress created the PSLF program in 2007. It allows students who borrow from the federal government in order to attend college to have their debt forgiven if they meet certain requirements. They have to make 120 monthly payments on their loans under a qualifying repayment plan — generally an income-driven repayment plan. They also have to work for a public-sector employer like a government organization or the U.S. military, or for a tax-exempt 501(c)3 organization.

But the program has been rife with horror stories. Borrowers struggled to certify that their jobs qualified, with one watchdog group finding thousands of public service workers were blocked from the program because of administrative issues. Others may have been confused by detailed requirements for which loan programs qualified and when payments counted. Congress expanded the program in 2018, creating the Temporary Expanded Public Service Loan Forgiveness Program (TEPSLF). 

Between November and April, just 2.1% of more than 168,000 processed PSLF applications met the program’s requirements. Only 3.4% of over 6,600 processed forms met requirements for TEPSLF.

Specifics of the overhaul announced Wednesday include a limited PSLF waiver that will count all payments student borrowers made under different loan programs, as long as they were working for a qualifying employer. It will apply to Direct Loan borrowers, those who already consolidated their loans into that program, and borrowers with other types of federal loans who apply to consolidate their loans into the Direct Loan program by Oct. 31, 2022.

More than 550,000 borrowers who have previously consolidated their loans could see payments they made in the past count toward their forgiveness under that waiver, the Ed Department estimated. On average, borrowers are expected to gain two years of progress toward forgiveness.

The department is also attempting to adjust payment tallies for borrowers who may not have had their payments counted because of technical requirements. It also will count the months military members spent on active duty toward PSLF if their loans were in deferment or forbearance. And it will start trying to automatically give members of the military and federal employees PSLF payment credit using federal data. 

In addition, the Ed Department plans to review PSLF applications that were denied and fix errors. It also wants to simplify the application process.

The department will put the changes in place over the next year.