Grim new statistics for public service loan forgiveness – and a potential solution

Public Service Loan Forgiveness (PSLF) is an essential program for millions of student borrowers. But the program was riddled with problems.

The US Department of Education recently published new statistics regarding the approval rates of the PSLF program. And the numbers remain worrying for consumer advocates. At the same time, Senate Democrats unveiled a new bill to correct elements of the program.

Here is the last one.

Public service loan forgiveness background

Public service loan forgiveness allows some federal student loan borrowers to obtain forgiveness of their student loans after 120 “eligible” monthly payments. If payments are made consecutively, this equates to 10 years, although the program does not require consecutive payments. A “qualifying payment” has three main elements:

• Payments must be made on a Direct federal student loan. Other types of federal loans, such as federal Perkins loans and federally guaranteed loans (also known as “FFEL” loans) are not eligible. This can, in some cases, be corrected by consolidating ineligible federal loans into a federal direct consolidation loan, although this can have drawbacks in some cases.
• Payments must be made as part of a income based repayment plan like the IBR, PAID, Where REFUND. Payments made under the standard 10-year plan are also eligible, although this will pay off the underlying federal loan in full within 10 years.
• The borrower must make a payment on time while employed full time for a public or government organization, or a 501 (c) (3) non-profit organization. Other nonprofits that are not 501 (c) (3) may be eligible in certain limited circumstances, although the Department of Education will make decisions on a case-by-case basis.

New statistics: how is the PSLF program doing?

For many years, student loan borrowers were not provided with clear information about the eligibility criteria for the public service loan forgiveness program. The Department of Education and its contract loan officers have done a poor job communicating the requirements to borrowers, and sometimes actively misled them.

As a result, many borrowers thought they had made substantial progress towards canceling the loan, only to find out later that they were making payments on the wrong type of loan or on the wrong type of repayment plan. So when student loan borrowers were first eligible to apply for a waiver at the end of 2017, the program had a catastrophic approval rate from 1%. In other words, 99% of borrowers who requested loan cancellation were turned down.

The Ministry of Education published new statistics last March showing marginal improvement. Out of 174,495 PSLF applications submitted and processed to date, the Department of Education has approved 3,174. This represents an approval rate of 1.8% – slightly better than initial statistics, but still surprisingly low.

However, these numbers do not tell the whole story. Thousands of student loan borrowers have submitted loan cancellation requests without meeting the strict PSLF program eligibility criteria, for all or part of their repayment period, or because they did not fully understand the requirements. program, or because their agent provided them with incomplete or inaccurate information. For borrowers who meet the PSLF eligibility criteria, things can really work out for the best.

Some of the borrowers who have been denied PSLF relief could potentially appeal through the Temporary surrender of extended public service loan (TEPSLF) program. However, according to the Ministry of Education, 1,768 TEPSLF applicants were approved, out of 27,960, for an approval rate of 6.3%.

Proposed legislative fixes

Despite the slightly better statistics, the PSLF program remains hampered by astonishing rejection rates. Senate Democrats have two proposals – one of which is brand new – to correct the PSLF program.

The first bill, called the ”Strengthening of loan remittances to civil servants during the COVID-19 crisis law”, Would allow a gradual remission of student loans over the 10 years of repayment. Currently, public service borrowers must wait the full 10 years (or 120 qualifying payments) before obtaining relief. This new bill would allow student loan borrowers to obtain a forgiveness of part of their PSLF balance for every two years of service, up to full forgiveness after 10 years. This could reduce rejection rates and provide borrowers with tools to assess eligibility more frequently. However, this bill would only apply to new borrowers who enter into loan repayment after the bill is passed – current borrowers would not be eligible.

However, current borrowers would benefit from the “What you can do for your country Take action», Another proposal from the Democrats of the Senate. Here’s what this bill would do:

• Payments made under all repayment plan – not just income-based plans – would qualify for the PSLF.
• Payments made on non-direct federal loans (such as FFEL program loans) would be eligible for PSLF, as long as borrowers consolidate their loans through the Direct Consolidation Program.
• Borrowers would get 50% of their loan balance canceled after five years in the civil service, and then the rest canceled after the second five-year period.

Taken together, these fixes would eliminate many of the reasons student loan borrowers are often denied relief under the PSLF. Currently, however, neither bill looks likely to be passed by the Republican-controlled Senate.

Public service loan forgiveness resources