Change Comes to Public Service Loan Forgiveness
Most of the reforms are temporary, but they’ll still help hundreds of thousands of borrowers chart a renewed path toward loan forgiveness.
A federal loan forgiveness program known for its ineffectiveness will undergo major reforms over the next year, the Department of Education announced Wednesday. The overhaul is intended to fulfill a “largely unmet” promise to wipe away the student debt of teachers, military service members and others working in the public sector.
Most of the changes are temporary. But the department estimates that as a result of the reforms, 22,000 borrowers will have $1.74 billion in loans discharged immediately, and over half a million borrowers will see their progress toward loan forgiveness increase automatically.
Only 2 percent of the applications processed have met the requirements for loan forgiveness under the Public Service Loan Forgiveness (PSLF) program, which is intended to provide student borrowers with a discharge of their loans in exchange for a decade of work at a government or not-for-profit employer.
“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,” said Under Secretary of Education James Kvaal during a roundtable Wednesday.
The department received more than 48,000 public comments over the last several months from borrowers describing confusing requirements, a lack of accurate information about the program, improperly counted and uncounted payments, and bureaucratic red tape as barriers to earning forgiveness.
“When I first came on as secretary of education in March, I had a conversation with students who were trying to get through this process, and it didn’t work out for them. And at the end of the call, I was frustrated,” said Secretary of Education Miguel Cardona during the roundtable. “The hoops they had to jump through and the runaround -- it almost felt like the process was designed to get them to be frustrated and just say, ‘I’m done.’ We’ve got to fix that.”
The input the department received from borrowers helped to inform the actions it’s planning to take, chief of which is its offering of a limited PSLF waiver to count any loan payments that a borrower made while working for a qualifying employer toward PSLF, regardless of the type of loan or repayment plan. Typically, only direct loan payments qualify for PSLF, so any payments that borrowers made on Federal Family Education Loans or federal Perkins loans didn’t count toward the 120 payments needed for forgiveness.
Borrowers who have already consolidated their FFEL or Perkins loans into direct loans and have certified their employment for PSLF will automatically have their payment counts adjusted, which will be reflected on their accounts in the coming months. Those who still have FFEL or Perkins loans will have to submit a consolidation application into the direct loan program and a PSLF form before the waiver ends on Oct. 31, 2022, to have their previously ineligible payments counted.
The waiver will also allow payments made before Oct. 31 that weren’t counted due to technical requirements -- some borrowers have missed PSLF credit because their payments were off by a penny or late by a few days, according to the department -- to be counted toward PSLF. Those who haven’t yet applied for PSLF but do so by the time the waiver ends will also be able to take advantage of the temporary payment simplification.
The department’s actions to improve PSLF were applauded by advocacy organizations and politicians who have been critical of the program’s failures, including the American Council on Education, the Student Borrower Protection Center, the Student Debt Crisis Center and the National Education Association.
“For too long, those who give the most to our communities and our country have been given the runaround and forced to shoulder debts that should have been canceled,” said Seth Frotman, executive director of the Student Borrower Protection Center. “The Biden administration is taking a critical step towards alleviating that burden for our public service workers.”
National Education Association president Becky Pringle said the reforms wouldn’t have been possible without the activism of NEA members, who sent letters and public comments to the department regarding the PSLF program.
“This is a welcome step towards keeping the promise of PSLF and canceling the student debt of every educator who has served their commitment to their communities,” Pringle said.
Senator Elizabeth Warren, a Democrat from Massachusetts who has expressed her displeasure with the PSLF program and student loan administration over all, said she is glad that Cardona is “undertaking this major overhaul” of the program “to fulfill our promises to borrowers.”
“Teachers, firefighters and other public servants deserve relief from the burden of student debt,” Warren said.
Lawmakers on the other side of the aisle weren’t as welcoming of the administrative reforms. The top Republican on the House Education and Labor Committee, Representative Virginia Foxx of North Carolina, criticized her Democratic colleagues for failing to address the root causes of the student debt crisis. Foxx and fellow committee member Representative Greg Murphy, a Republican from North Carolina, sent a letter to Cardona Tuesday urging him to pursue PSLF reforms through congressional rather than executive action.
“Each year Americans take on more and more student debt, and each year taxpayers are on the hook for more and more of it,” Foxx said following the announcement. “Today’s announcement makes it clear -- Democrats are happy to allow the Biden administration to be judge, jury and executioner if it pleases their progressive base.”
Other Changes
Outside of offering the limited PSLF waiver, the department outlined five other actions it will be taking to improve the PSLF program.
That includes allowing military service members to count their months spent on active duty toward loan forgiveness, even if their loans were in deferment or forbearance. This is intended to help resolve a problem highlighted Sunday on CBS’s 60 Minutes, where service members can pause their student loan payments while on active duty, but that period of time is ineligible for PSLF. An April report by the Government Accountability Office found that of the close to 180,000 active-duty service members with student loans, only 124 of them have had their loans forgiven through PSLF.
“Student loans should never be a deterrent for entering into public service, including the military,” said Senator Maggie Hassan, a Democrat from New Hampshire who co-sponsored a bill to make the change for service members. “This is a common-sense fix that will support public servants and ensure that they are able to give back without the worry of student debt.”
Service members and other federal employees will start receiving credit for PSLF automatically next year through data matching between the department and other federal agencies. The data match will also identify borrowers who may be eligible for PSLF but can’t receive credit automatically because they don’t have direct loans.
Additionally, the department will complete a review of all applications that have been denied for PSLF, as well as a review of processing practices by the Pennsylvania Higher Education Assistance Agency, the servicer responsible for managing the PSLF program. PHEAA has been accused of “unfair and deceptive acts,” making processing errors, and providing misinformation that prevented borrowers from crediting payments toward PSLF, though PHEAA denies the allegations.
Following the completion of an internal data review of denied applications and an independent external review of PSLF processing, borrowers will be able to use a temporary reconsideration process to have their application reviewed again if they believe there were errors in its processing. A permanent process is under consideration through the regulatory process.
The department plans to simplify the PSLF application process by improving the Office of Federal Student Aid’s database of qualifying employers and creating an option to sign applications digitally. It will also be exploring ways to automate PSLF certification for state, local and tribal government employees and allowing employers to sign employment certification forms on behalf of their employees.
Beginning this fall, the department will reach out to borrowers to better inform them about PSLF and notify those who are close to receiving loan forgiveness.
“We think this is a really important package of steps that we’re taking today, but we know this is not the end of the road,” Kvaal said. “It’s a complicated problem, and there’s more work to do. But we do think this is a very meaningful and important step to keeping our promise to public servants.”
Long-term and permanent changes to the PSLF program are being pursued through the negotiated rule-making process, the first session of which began this week. The department is proposing regulations that would streamline the application process and better define who is eligible for the program and how PSLF requirements can be met.