For some time, a public policy controversy has raged over the excessive debt burden that a high percentage of college students owe after graduation. These debt loads are attributed to the skyrocketing of tuition at public and private institutions over the last few decades. Instead of addressing this problem head-on, Congress has introduced a series of Federal loan programs that make it easier for undergraduates to borrow money by providing attractive loan terms.
The magnitude of the student debt burden is staggering. Over 43 million student borrowers are in debt by an average of $39,351 each. The outstanding federal loan portfolio is currently over $1.6 trillion. A sweeping solution to the debt problem that has long been discussed is to forgive some or all of the outstanding student loan debt. This would have the positive impact of boosting the discretionary funds available to tens of millions of Americans who will spend it to increase the demand for goods and services in the economy.
More than 35 million borrowers qualified for general student debt relief under the CARES Act of 2020, a pandemic relief package funded at $2.2 trillion that was signed into law on March 27, 2020. No action was taken pursuant to this aspect of the law until October 6, 2021, when the U.S. Department of Education (ED) announced changes to the Public Service Loan Forgiveness Program (PSLFP). The Federal government has determined that the ED can use flexibilities provided by the HEROES Act of 2003, which allows the Secretary of Education to waive certain rules for federal student aid programs retroactively during a national emergency such as the COVID-19 pandemic.
The PSLFP was signed into law by President Bush in 2007. Its primary objective was to eliminate cost-related barriers to higher education and incentivize careers in public service for a new generation. It allowed students interested in becoming teachers, first responders, social workers, public defenders, and other service providers to afford the degrees required to launch those careers by promising to forgive the balance of certain types of Federal loans after 120 payments were made, in addition to some other requirements.
Former students first became eligible for loan forgiveness in 2017 — ten years after PSLFP was launched. But the balance of the loans of only about 3% of applicants were forgiven. Many borrowers in public service had their PSLFP applications denied because they didn’t “have the right type of Federal loan.” They were told by ED to consolidate into a Direct Loan to be eligible, however, they would not receive credit for any previous payments upon consolidation; they would need to make an additional 120 payments to qualify for forgiveness. Now, for a limited time, borrowers may receive credit for past periods of repayment on the types of federal loans for which they did not receive credit in the past.
In November 2021, Richard Cordray, Chief Operating Officer of the Federal Student Aid agency (FSA) within the ED, sent a letter to borrowers who have applied for the PSLFP in the past and been denied. His announced significant changes to the program, as follows:
“The changes are real and significant. Our new approach will add months or years of service credit for huge numbers of student loan borrowers by counting certain payments that had been ineligible. In some cases, borrowers will earn full loan forgiveness based on the changes.”
Temporary Changes to Rules
Some requirements of the PSLFP remain unchanged. Student loan borrowers must:
- Make 120 payments or the equivalent.
- Be employed by government (Federal, state, or local) or a 501(c)(3) not-for-profit organization or a similar entity.
- Work full-time.
- Have Direct Loans or have consolidated into Direct Loans
The changes to the rules for the PSLFP are temporary. They were established on October 6, 2021 and expire on October 31, 2022. The temporary changes stipulate that student loan borrowers may:
- Receive credit for periods of repayment made on Direct, Federal Family Education Loan (FFEL), or Perkins loans.
- Past payments under any program or plan count for non-consolidation loans through Sept 30, 2021.
- Past payments made on loans made prior to consolidation count, even if made on the wrong repayment plan.
- Past payments that were late or for less than the amount due count for non-consolidation loans through Sept 30, 2021.
- Past payments made on loans made prior to consolidation count, even if paid late, or for less than the amount due.
- Need to be employed full-time for a qualifying employer in order to receive credit for repayments.
- Can receive forgiveness even if not employed or not employed by a qualifying employer at the time of application.
Loan Consolidation
In the past, students who had loans through FFEL, Perkins, or other programs that were not Direct Loans were not eligible for the PSLFP unless they consolidated their loans into the Direct Loan program. Under the new temporary rules, students must consolidate into the Direct Loan program by Oct. 31, 2022 but will receive credit for prior payments made toward FFEL, Perkins, or other federal student loans. Consolidating to a Direct Loan is a prerequisite because only loans processed by FedLoan Servicing, part of the Federal Student Aid Office, may be forgiven.
Borrowers can look into the Student Aid website’s Aid Summary page to verify the types of loans they have taken out. In the “Loan Breakdown” section, they’ll see a list of each loan, even if the loan has been paid off or consolidated into a new Direct Loan.
It’s important for borrowers with FFEL Program and Perkins Loans to consolidate them into a Direct Loan by Oct. 31, 2022. They will not receive credit for payments if they consolidate after that date. After consolidation, they must submit a Public Service Loan Forgiveness & Temporary Expanded PSLF Certification & Application Form to FedLoan Servicing that covers all periods of qualifying employment unless they have done so in the past.
Borrowers who worked full-time for a qualifying employer between January 1, 2008, and December 31, 2010, but did not submit a PSLF form that covers that period because they hadn’t yet consolidated their loans will need to submit a new, amended PSLF form to get credit for any payments that they may have made in that period. The form must be submitted by Oct. 31, 2022 and should be submitted to FedLoan Servicing either directly or by using the PSLF Help Tool. For those borrowers who had previously submitted a PSLF form that was denied due to the borrower having taken out non-qualifying types of loans, these payments will automatically be re-categorized and counted.
Pursue with Diligence
Student borrowers seeking loan forgiveness under the PSLF program should pursue the matter doggedly. Richard Cordray, in his November 2021 letter, acknowledged the problems that applicants have experienced and stated:
“We are working as quickly as possible to update your account and give you clear and accurate information. This may take several months. We may not be able to answer specific questions right away as we focus on addressing millions of borrower accounts. But we will get the changes made, and I pledge that to you today. We ask for your patience as we move forward.”
Borrowers May Receive an Additional Payment
If a student loan borrower has made more than 120 payments on a Direct Loan or a consolidated Direct Loan, they will automatically receive a refund for the qualifying payments made in excess of 120. They will receive a notice when their loans are forgiven, provided that their employment has been certified for all 120 qualifying payments.
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