Education Department Overhauls Troubled Public Service Student Loan Forgiveness Program

Sweeping changes to a U.S. Department of Education student loan forgiveness program could provide relief to more than 550,000 government and nonprofit workers long frustrated by a maddening maze of rules.

Some 22,000 borrowers with consolidated loans, including those with previously ineligible loans, are immediately eligible for $1.74 billion in forgiveness. Another 27,000 borrowers could qualify for an additional $2.82 billion in forgiveness “if they certify additional periods of employment.”

“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness,” Education Secretary Miguel Cardona said in an Oct. 6 news release announcing the overhaul of the Public Service Student Loan Forgiveness Program.

“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.”

Congress created the Public Service Loan Forgiveness (PSLF) program in 2007 to entice people to pursue typically low-paying government and nonprofit jobs. Those who participated were promised that if they made their federal student loan payments on time, after 10 years of work any remaining debt on those loans would be wiped out.

However, the program has failed to deliver widespread relief. Only about 2% of processed PSLF applications have been approved since the program started, wiping out about $290 million in student debt. That’s a far cry from the roughly $116 billion in student debt that exists among PSLF-eligible borrowers.

The program has been mired in confusion since its creation. Congress intentionally limited the program to student loans made directly by the government. The Education Department has made and owned all federal student loans since 2010. However, many students took out government-backed bank loans known as Federal Family Education Loans before 2010 that were not eligible for the forgiveness program.

Hundreds of thousands of public service workers didn’t realize their loans were not direct government loans and made payments for 10 years only to learn they had paid down the wrong loans. Many reported that loan servicers often failed to inform them of the difference.

Other borrowers missed out because their payments were off by a penny or two or late by only a few days. Until now, the Education Department refused to give these borrowers credit for their payments, insisting it lacked the authority to do so.

Under the new rules, all prior payments will count as a qualifying payment, “regardless of loan type, repayment plan, or whether the payment was made in full or on time. All you need is qualifying employment.” This change will benefit more than 550,000 borrowers who previously consolidated their loans, the department said.

The department is also exploring partnerships with employers to make the forgiveness process easier, it announced. In the meantime, it is providing more information for borrowers at StudentAid.gov/PSLFWaiver. It also has published a fact sheet and has said it also will reach out directly to every borrower.

“Teachers, nurses, first responders, servicemembers, and so many public service workers have had our back especially amid the challenges of the pandemic,” Cardona said. “Today, the Biden Administration is showing that we have their backs, too.”

Feature Image: Pool / Pool / Getty Images News