Forgiveness of student loans: new proposal aims to facilitate qualification
In early May, Democrats signed a letter outlining proposals to reform Public Service Loan Forgiveness (PSLF).
The Public Service Loan Forgiveness is a federal student loan debt relief program for borrowers working in qualified public service employment for a required period of time. Once the borrower makes 120 eligible on-time payments, the loan balance is discharged.
Dozens of US Congressmen and Senators signed a letter urging Education Secretary Miguel Cardona to lead the department to reform the PSLF. Led by Democratic Senators Tim Kaine, Kirsten Gillibrand and Representative John P. Sarbanes, the letter calls for four major PSLF reforms and eligibility requirements:
- Make all federal student loans eligible.
- Make all repayment plans eligible.
- Release restrictions upon forgiveness.
- Automatically qualify borrowers.
The letter says that due to previous implementation failures, many eligible borrowers have not been able to access forgiveness through the program, failing frontline workers in the United States and those working in the mortgage industry. utilities during the COVID-19 crisis.
This proposal calls for a radical change of a program under thorough examination over the past two years. If implemented, millions of borrowers could qualify and get relief through the PSLF. This is the latest student loan forgiveness proposal presented by many lawmakers in Washington.
4 proposed changes to the delivery of public service loans
Here are the proposed changes to the program and what they could mean for the future of the PSLF.
1. Make all federal student loans eligible
Currently, all federal student loans are eligible for the PSLF. However, those who do not have direct loans have additional hurdles to overcome before becoming eligible. Those with Federal Family Education Loans (FFELs) must convert their loans into a Federal Direct Consolidation Loan in order to meet the requirements.
Many have missed out on the opportunity to forgive because they didn’t consolidate their loans early in their careers, which is the most effective time to do so, the letter said. To make this process easier and more efficient, Democrats propose that all federal student loans – including the FFEL – be eligible automatically without consolidation.
2. Make all reimbursement plans eligible
Only people enrolled in Income Based Repayment Plans (IDR) or Standard Repayment may be eligible for the PSLF. Income-driven repayment plans are a federal repayment option that bases your monthly payment on income and family size. A major lack of eligibility for the PSLF concerns the reimbursement conditions. “At least 1.4 million borrowers are unknowingly on ineligible repayment plans after taking steps to get back on track for the PSLF,” the proposal reads.
Congress rolled out the Temporary Expanded Public Service Loan Forgiveness Program (TEPSLF) in 2018 to try to address this issue. TEPSLF allowed borrowers to make payments under phased or extended repayment plans, provided the last 12 months of payments were at least as much as payments under an income-based repayment plan. However, it is proposed that all reimbursement plans be eligible for PSLF, not just IDR.
3. Relinquish restrictions upon forgiveness
Only those who hold a job in the public service for at least 10 years can receive the pardon. To receive a full forgiveness with the PSLF, borrowers must still be working in the public sector at the time of forgiveness.
The proposal claims that many people who would otherwise be eligible stop submitting the required documents because they believe they are no longer eligible. He also claims that due to COVID-19 many jobs in this field are no longer available and many employees have been put on leave or have lost their jobs altogether, rendering them ineligible.
Lawmakers are calling on the US Department of Education to change this rule by allowing borrowers who have completed their 10 years of qualifying payments to receive a full PSLF rebate, regardless of profession at the time of forgiveness.
4. Automatically qualify borrowers
Highlighting one of the major complications of the program, people who enroll in the PSLF must submit information about their employer to the Ministry of Education. In an effort to streamline the application process, the proposal calls for this responsibility to lie with the Department of Education rather than with each individual borrower.
“There are millions of employees for whom the Department could easily determine qualification for the PSLF.”
How would this data be collected safely? The proposal presents a potential solution: “The Ministry should enter into secure data sharing agreements with the Ministry of Defense and the Office of Personnel Management to automatically identify officials who have unpaid student debt at the federal level.”
Will this PSLF reform proposal be approved?
Nothing can yet be determined on the probability of these propositions becoming laws. However, President Joe Biden has always been in favor of revising pre-existing forgiveness programs. He has already guided the Ministry of Education to revise the borrower’s defense repayment program and the total and permanent disability (TPD) exit program.
As the president is currently exploring his constitutional ability to write off student loan debt, the PSLF amendments – for now – may be more likely to pass than the president’s $ 10,000 cancellation proposal.
The letter cites the same Heroes Act 2003 waiver authorization that was used to implement the suspension of payment and waiver of interest. However, this override power is limited to ensuring that recipients of federal student aid “are not placed in a worse financial position in relation to this financial aid because of their affected status.” The first and second proposals do not meet this requirement. The third proposition satisfies this requirement. The fourth proposal does not require a waiver authorization for the US Department of Education to implement it.