The Biden administration outlined major changes to the federal Public Service Loan Forgiveness Program on Wednesday – a promise made by the government to provide debt relief to teachers, nurses, firefighters and others who go into public service jobs, but one that’s been mired by complicated eligibility rules and servicing errors that have made it nearly impossible to benefit from.
“Borrowers who devote a decade of their lives to public service should be able to rely on the
promise of Public Service Loan Forgiveness,” said Education Secretary Miguel Cardona. “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 burdensome technical rules and mismanagement have haunted the public service loan forgiveness plan since it was first established in 2008.
Not only must borrowers be employed in a public sector job, but they are required to make 120 on-time student loan payments and participate in a qualified repayment plan. In addition, the loans borrowers took out must be a specific type to qualify – the federal Direct Loans versus Federal Family Education Loans – and they are not allowed to defer payments or go into forbearance.
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But thousands of borrowers who have worked in qualified public service jobs have been blocked from qualifying for the program, and thousands more who thought they were making on-time repayments through a qualified repayment plan – even told by their loan servicer that they were doing so – were later told those payments did not qualify because they had been made under the wrong repayment plan. Moreover, when borrowers consolidated their loans, their on-time payments that they had been making toward the 120 payments required under the program were wiped clean and they had to begin all over.
Another major issue: Service members who are on active duty can qualify for student loan deferments and forbearances that help them through periods in which they have difficulty making payments. But those deferments and forbearances granted while they served have never been counted toward their public student loan forgiveness.
In fact, the rules surrounding how a borrower can qualify and count payments toward the program have been so onerous that only 16,000 borrowers have ever received forgiveness under the plan since it was first offered in 2008, according to the Education Department.
A 2019 report from the Government Accountability Office found that only 1.3% of applicants were approved for loan forgiveness.
Department officials estimate the new changes would help more than 550,000 borrowers who has previously consolidated their loans, including 22,000 borrowers who will be immediately eligible to have $1.74 billion in federal student loans discharged and another 27,000 borrowers who could potentially qualify for $2.82 billion in forgiveness if they certify periods of their employment.
“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.”
Specifically, the changes announced on Wednesday will allow borrowers to count prior payments they made as going toward payments made under the public service loan forgiveness program – regardless of what type of loan program they have or consolidated previous loans into – so long as they worked for a qualified employer.
The department will also simplify what it means for a payment to qualify for public service loan forgiveness, addressing one of the most pressing concerns voiced in the 48,000 comments received on the issue – that too many payments do not count toward the forgiveness program due to technical requirements like the timing and amount of payments made. In some instances, department officials said, borrowers missed out on credit toward public service loan forgiveness because their payments were off by a penny or two or late by only a few days.
In addition, the department plans to allow months that military service members spent on active duty to count toward the program, to review applications that were denied for the program, increase outreach to those who do qualify but have not signed up for the program, simplify the application process and make additional long-term improvements.
Overhauling the public service loan forgiveness program has been a stated priority for the Biden administration, which posted a public request for comments and information on how to make it better in July – a request that received more than 48,000 responses.
The announcement is just the latest of several major changes to federal student loan repayment and forgiveness policies by the Biden administration, which has now approved more than $11.5 billion in loan cancellation for more than 580,000 borrowers.
Currently, the department is overseeing a negotiated rulemaking process in an effort to overhaul regulations related to for-profit colleges, including borrower forgiveness, as well as other issues related to public service loan forgiveness, including potentially expanding or refining the definition of “public service.”
Democratic lawmakers were quick to cheer the announced changes to the public service loan forgiveness program.
“This is the comprehensive and sustainable solution that student borrowers deserve, and it will be a major victory for thousands of nurses, teachers, first responders, and other public service workers,” Rep. Bobby Scott, Virginia Democrat and Chairman of the Education and Labor Committee, said in a statement.
“The Public Service Loan Forgiveness program was not designed to be a puzzle or a contest,” he said. “It was designed as a tool to recruit talented people into public service and recognize their contribution to our communities.”
Republicans, while largely agreeing that the program was mismanaged and caused widespread confusion, were much less enthused with the Education Department’s proposed fix, which they say amounts to “an abuse of executive authority.”
“We agree this program is in desperate need of reform,” Rep. Virginia Foxx, North Carolina Republican and ranking member of the Education and Labor Committee, wrote in a letter to Cardona on Monday. “However, such reforms require Congressional action, and we encourage you to work with us to fix the federal loan and repayment program.”
Cardona will publicly announce the changes to the public service loan forgiveness program with Under Secretary of Education James Kvaal on Wednesday afternoon during a roundtable event alongside a member of the Army National Guard, a math teacher and an epidemiologist – all of whom stand to benefit from the changes.