What Changes to Public Service Loan Forgiveness Could Mean for Borrowers
Posted By Marisa Sanfilippo on October 28, 2016 at 9:45 am
The PSLF program drew more borrowers than expected with higher amounts of debt. Now regulators have to figure out how to control costs.
The enormity of debt from student loans has become part of a national conversation, and the debt is beginning to weigh on the country itself – not just borrowers.
As a way to help students who choose a less lucrative career path as a public servant, the federal government offers loan forgiveness for some graduates.
The Public Service Loan Forgiveness (PSLF) program was created to help those students who enter public service careers, which often make it difficult to replay student loans. It is available for some students who become employed by a nonprofit organization or government agency after graduation from college.
But the latest data on the PSLF program has many students, policy makers, and financial aid advisers concerned. A large number of students financed graduate degrees under qualifying Direct Loans in amounts exceeding $100,000. Additionally, the program originally predicted fewer than 50,000 borrowers would enroll, but enrollment currently is more than 400,000. At the current rate, the program will cost taxpayers approximately $12 billion.
It has become clear that changes will need to be made in order to continue funding.
What does this mean for students? First, let’s review what the program is.
Who can use the PSLF program?
In order to qualify, borrowers must:
- Work full-time for a qualified employer.
- Have a Direct Federal Loan.
- Make 120 qualified payments.
- Be on a qualified repayment plan.
There’s currently no cap for the amount of the loan, but regulators are considering adding one going forward.
For a student loan to be forgiven, borrowers must be working a minimum of 30 hours per week at any of the following:
- Tribal, local, state, or federal government organizations
- Section 501(c)(3) nonprofit organization
Other organizations can also qualify, such as:
- Emergency management
- Military service
- Public safety
- Law enforcement
- Public interest law services
- Early childhood education
- Services for the disabled or elderly
- Public health
- Public education
- Public library services
- Other educational services
Only loans under the William D. Ford Federal Direct Loan Programs can be forgiven under PSLF. However, borrowers can consolidate other types of loans into a direct loan, which may then be eligible. Unfortunately, any payments made prior to the consolidation would not count toward the required 120 for the loan forgiveness.
To add to the confusion, the rules for qualified payments are equally stringent. For the payments to be applied toward the 120 total they must have been:
- Made after Oct. 1, 2007.
- Made under a qualified plan.
- For the full amount due at the time.
- Made within 15 days of the due date.
- Made while also meeting the employment qualifications.
Payments won’t count while students are still in school or when they are made during a grace period, forbearance, deferment, or default.
It’s important to note that students cannot make extra payments to get to the final total more quickly. They have to be paid as they come due. Paying ahead will lower the debt total but it will not count as additional qualified payments. Also, there are special rules for students who choose to join the Peace Corps or AmeriCorps. But, as a silver lining, the 120 payments do not have to be consecutive.
Potential PSLF Changes and Their Impact
Some proposed changes to address the new data include a cap for the program of $57,500. (President Obama recommended this in his 2015 proposed budget, but Congress didn’t act on it.) This type of cap could save tax payers nearly $7 billion. There are other proposals to end the program altogether and further modify the income-based repayment plans that are currently available.
What would this mean for students who are currently enrolled for the PSLF? According to Stacy Watts, the adult programs manager at College Now Greater Cleveland, not much. “Right now, only new borrowers could be affected, students who will have their loans disbursed after 2017,” she says.
This is good news for those who have already entered the program and those who reach disbursement before new legislative action is taken.
Issues with Student Loan Education
One of the biggest problems with student loans is the lack of quality debt counseling students receive prior to procuring any type of loan, which often leads to students struggling with debt repayment. It also means that many students are unaware that their career may make them eligible for loan repayment assistance – or not. “I think we’re going to see a wave of borrowers who thought they would qualify for PSLF be shocked when they don’t (because of) the strict requirements,” says Robert Farrington, founder of The College Investor.
Now is an excellent time for students to review their information and ensure they are following all of the guidelines. And pay attention to the changes as they roll out, since they’re likely to make things even more confusing. With more students qualified for the program than originally expected and many others considering taking advantage of the opportunity, it is an important issue to watch going forward. If caps are put into place or the number of qualifying positions is reduced, students may need to reconsider the potential return on investment of their educational choices.