Public Service Loan Forgiveness Program

Public Service Loan Forgiveness Program

Summary prepared by Hannah Locop, GPNP Program Manager

 

Since 2007, the Public Service Loan Forgiveness (PSLF) Program has improved employment and retained talent in the nonprofit and public sectors by promising debt forgiveness to employees who dedicated a decade of work and made 120 qualifying payments towards their federal student loan debt. In fact, between 2007 and 2016, job growth in the nonprofit sector has outpaced that of the private sector 3-to-1, according to a 2016 national study by Johns Hopkins University.

Despite helping to recruit and retain top talent for the sector, the PSLF program recently denied 99% of its 28,000 applicants debt cancellation, according to the New York Times.

The following is a brief summary of the PSLF program and the current situation facing borrowers. For full resources regarding requirements and qualifications, please consult the Federal Student Aid website.

History

The PSLF program was instituted at the U.S. Department of Education as a part of the College Cost Reduction and Access Act of 2007. At the time, various types of loan programs were available to students. However, as of 2010, only students with Federal Direct Loans qualified for the PSLF program[1]. Borrowers with other federally subsidized loans had to have consolidated their debt into a Direct Consolidation Loan to become eligible for loan forgiveness, and payments on loans other than Federal Direct Loans no longer qualified for forgiveness.

Changes such as this to the student loan system have caused confusion for employees across the public sector. At the same time, misinformation and mismanagement of the PSLF program by its administrator, FedLoan, have compounded the confusion for borrowers.

October 2017 began the first year in which borrowers could submit applications for debt cancellation to the Department of Education. According to the National Council of Nonprofits, “Of the borrowers who have submitted and had employment certification forms approved so far, nearly two out of five (38 percent) work at 501(c)(3) nonprofit organizations.”

Often, borrowers who believed that they were making qualifying payments for the PSLF program may not have been. The following is a list of common reasons why borrowers may not have qualified for student loan forgiveness. For a comprehensive list, please consult the Federal Student Aid website.

  • Switching employers – if a borrower changed employment from the public to the private sector, loan payments may no longer qualify
  • Ineligible payment programs – only payments made on an income-driven payment plan qualify towards the 120 required by the PSLF program.
  • Consolidated loans – borrowers may lose credit for “qualifying PSLF payments made on Direct Loans before they were consolidated,” explains the Department of Education’s website.
  • Paperwork errors – “Around 8,000 of the rejected applications, representing 28% of the total, were denied due to missing or incomplete information,’” explains Forbes.

The Administration’s Stance on the PSLF Program

In February 2018, President Donald Trump released a proposal for a 2019 budget that “eliminates the Public Service Loan Forgiveness program, establishes reforms to guarantee that all borrowers … pay an equitable share of their income, and eliminates subsidized loans.” In addition, Secretary of the Department of Education, Betsy Devos, put forward 2018 and 2019 budget proposals with language ending the PSLF program.

However, the program continues to receive funding. On September 28, 2018 the President signed the Department of Defense and Labor, Health and Human Services, and Education Appropriations Act, 2019 into law funding the Department of Education through September 20, 2019. The law includes appropriated funding for TEPSLF.

Where Borrowers Stand Today

Borrowers who were denied debt cancellation in 2018 may apply for the Temporary Expanded Public Service Loan Forgiveness program, or TEPSLF. This $350 million fund was created by lawmakers in March 2018 to help borrowers whose “applications [had been] denied only because some or all of [their] payments were not made under a qualifying repayment plan.” TEPSLF is a temporary, first-come, first-serve program. The Department of Education and its loan servicer, FedLoan, began reviewing eligible applications on August 28, 2018. For further information regarding TEPSLF, refer to the Financial Student Aid website

Legislation Regarding the PSLF Program

Bill

Date Introduced

Sponsor

Summary

Latest Action

H.R.1625 - Consolidated Appropriations Act, 2018

03/20/2017

Rep. Royce, Edward R. [R-CA-39]

“The law provides additional conditions under which borrowers may become eligible for loan forgiveness if some or all of their payments made on William D. Ford Federal Direct Loan (Direct Loan) Program loans were made on a nonqualifying repayment plan for the PSLF Program.” – Department of Education

Became Public Law No: 115-1410

3/23/2018

H.R.3026 - Strengthening Loan Forgiveness for Public Servants Act

06/22/2017

Rep. Swalwell, Eric [D-CA-15]

This bill amends title IV (Student Assistance) of the Higher Education Act of 1965 to direct the Department of Education (ED) to cancel 15%, 15%, 20%, 20%, and 30% of the amount a borrower owes after 2, 4, 6, 8, and 10 years of public service employment, respectively, on a William D. Ford Federal Direct Loan made after this bill's enactment.

Introduced in the House

S.1412 - Strengthening Loan Forgiveness for Public Servants Act

06/22/2017

Sen. Blumenthal, Richard [D-CT]

Same as H.R. 3026

Introduced in the Senate

H.R.4399 - PSLF Technical Corrections Act

11/15/2017

Rep. Boyle, Brendan F. [D-PA-13]

To expand the monthly payments that may be eligible for public service loan forgiveness.

Introduced in the House

H.R.4859 - Public Service Loan Forgiveness Inclusion Act of 2018

01/19/2018

Rep. Foster, Bill [D-IL-11]

To amend the Higher Education Act of 1965 to allow certain payments made by public service employees to qualify for public service repayment, and for other purposes.

Introduced in the House

S.3124 - Help Encourage a Lifetime of Public Service Act

6/25/2018

Sen. Heitkamp, Heidi [D-ND]

To amend the Higher Education Act of 1965 to provide for no accrual of interest on Federal Direct Loans for individuals employed in public service.

Introduced in the Senate

 

 

[1] “According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF are not considered income for tax purposes.” – Federal Student Aid website