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Student loans: Notoriously troubled public servant loan forgiveness program to receive overhaul

·6 min read

The Education Department (ED) is rolling out a series of major changes to a notoriously troubled Public Service Loan Forgiveness (PSLF) program for student loan borrowers in public service.

“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness," Secretary of Education Miguel Cardona said in a press release. "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."

The PSLF program, created by Congress in 2007, enables government and non-profit employees with federally-backed student loans to apply for forgiveness after proof of 120 monthly payments under a qualifying repayment plan.

Yahoo Finance recently detailed the immense difficulties one professor faced while navigating the system over 12 years before ultimately receiving debt cancellation this year. A bipartisan bill introduced in April 2021 aimed at fixing the PSLF program specifically for members of the military.

Firefighter hand crews put out hot spots near rustic mountain cabin homes on a hillside at the Dixie Fire, in Twain, California on July 26, 2021. - After battling increasingly large and deadly wildfires non-stop for weeks, and with no respite in sight, firefighters in California are admitting they are burnt out.
Firefighter hand crews put out hot spots near rustic mountain cabin homes on a hillside at the Dixie Fire, in Twain, California on July 26, 2021. (Photo by Robyn Beck / AFP)

“Teachers, nurses, first responders, service members, and so many public service workers have had our back especially amid the challenges of the pandemic," Cardona's statement added. "Today, the Biden administration is showing that we have their backs, too.”

On a press call on Tuesday night, an agency official asserted that more than 550,000 borrowers "will be helped by receiving some automatic progress toward forgiveness through the PSLF program," adding that the agency expects more borrowers to qualify in the following months.

According to ED, "just over 16,000 borrowers have ever received forgiveness under PSLF prior to this action."

The announcement was welcomed by advocates, who have spent years calling for an overhaul.

"What you see are borrowers who have done everything right ... only to run into this buzzsaw of red tape," Seth Frotman, a former student loan ombudsman at the Consumer Financial Protection Bureau (CFPB) and current executive director at the Student Borrower Protection Center (SBPC), a D.C.-based advocacy group, told Yahoo Finance Live (video above). "It's just tragic when you hear these stories."

Responding to the announcement, Frotman added in a statement that the "Biden administration is taking a critical step towards alleviating that burden for our public service workers. ... President Biden and Secretary Cardona have stepped up. With the stroke of a pen, they are improving the lives of hard-working families across the country and showing this administration’s commitment to repairing the broken student loan system.”

Boston Public School teacher Princess Bryant teaches her kindergarten class via video-conference from her apartment after schools were closed for the remainder of the school year because of the coronavirus outbreak April 28, 2020.  (REUTERS/Brian Snyder)
Boston Public School teacher Princess Bryant teaches her kindergarten class via video-conference from her apartment after schools were closed for the remainder of the school year because of the coronavirus outbreak April 28, 2020. (REUTERS/Brian Snyder)

Details of the student loan program overhaul

According to the agency, the changes announced today are "important steps toward a better and stronger PSLF program, one that will move away from the current situation in which too few borrowers receive forgiveness, and too many do not receive credit for years of payments they made because of complicated eligibility rules, servicing errors or other technicalities."

The actions taken also considered the more than 48,000 comments ED received on a request for information on improving PSLF issued over the summer.

ED's change in policy is expected to result in 22,000 student loan borrowers with consolidated loans — which were previously ineligible to be counted towards loan forgiveness — becoming "immediately eligible" for $1.74 billion in forgiveness. Another 27,000 borrowers could also possibly qualify for an additional $2.82 billion if they certify additional periods of employment. 

ED will also start an outreach program to inform borrowers who have hit 120 payments during the pause but are missing elements of their applications. ED will also notify borrowers of their option to have their denied PSLF application reconsidered. Longer-term improvements are still being considered.

The major changes to the program include:

  • Waivers for borrowers with federally-backed but not government-owned loans.
    A temporary, limited PSLF waiver that allows all prior payments by borrowers to count towards PSLF, regardless of what repayment plan or the loan program they were in.

  • This waiver would allow student loan borrowers with Federal Family Education Loans or debt from the Perkins Loan Program to have their loans/payments count towards the 120 monthly. But those with FFEL, Perkins and other non-Direct Loans have to first apply to consolidate into the Direct Loan program and submit a PSLF form.
    (Parent PLUS loans are not included in this batch — only loans taken out by students.

  • Waiver for payments not made in full or not on time.
    ED will also waive restrictions on the type of repayment plan and the requirement that payments need to be made in the full amount and be on-time for all borrowers.

  • Addressing PSLF for military borrowers
    ED will allow military service members who have paused payments while on active duty to count their deferments and forbearances towards PSLF, getting credit towards the 120 monthly payment.

  • Identifying federal employees and military borrowers for PSLF
    Additionally, ED will also automatically provide credit towards PSLF for military service members and federal employees using federal data matches. This will be implemented next year.

  • Reviewing and reconsidering applications that were denied
    ED will also review denied PSLF applications for errors and give borrowers the ability to have their decisions reconsidered. ED added that this will help "identify and address servicing errors" or other problems that stopped borrowers from getting credit towards forgiveness.

The embattled PSLF program has yielded an extremely low success rate — in the single digits for years — partly because many borrowers simply did not qualify.

In 2018, Congress provided ED with $700 million to create the Temporary Expanded Public Service Loan Forgiveness Program (TEPSLF).

As of April 30, 2021, the latest date for which federal data is available, both programs still have anemic outcomes: According to Federal Student Aid, PSLF had an approval rate of 2%. Only 3,458 out of 168,702 completed PSLF forms submitted met the requirements for loan forgiveness. TEPSLF had an approval rate of 3.4%, with only 224 forms out of 6,629 forms meeting the government's requirements.

Projections by the loan servicer handling the PSLF program also indicate that only 22% of borrowers are on track for forgiveness in the next five years, according to records obtained by the SBPC.

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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