What you should know about changes in public service loan remission
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Hundreds of thousands of student loan borrowers received a surprise gift from the federal government last week when the U.S. Department of Education announced temporary changes to the Public Service Loan Program (PSLF), including expanding the types of eligible loans.
The Department of Education estimates that the changes could now make an additional 550,000 borrowers – including teachers, nurses, service workers and others – eligible for forgiveness.
It is part of a larger effort by the Biden government to provide some student loans. The government has already canceled more than 450,000 debts, including some disabled borrowers and others defrauded by for-profit colleges.
Here’s what you should know about the latest changes.
The PSLF program is designed to cancel the remaining debts of nonprofit and government employees who make 120 monthly on-time payments on certain types of federal student loans.
To qualify, borrowers need to check four boxes:
- You must work full-time for a qualified employer
- You must make 120 monthly, on-time payments for the full invoice amount
- You must have direct loans (or consolidate to direct loans)
- They need to repay their debts in an income-oriented amortization plan
However, due to complex rules and administrative sloppiness, borrowers have been known to actually qualify for forgiveness. The Ministry of Education latest data reveals that only about 5% of student loan borrowers who applied for relief received it.
The Ministry of Education is making several major changes.
One of the biggest is that the department is now offer a waiver count retrospectively FFEL, or Federal Family Education Loans, for the 120 payments required for forgiveness as long as the loan is consolidated into the direct loan program.
This could help hundreds of thousands of officials who have made payments on this type of loan for years without knowing they are not eligible for forgiveness, says Betsy Mayotte, president of the Institute of Student Loan Advisors, a nonprofit.
In addition, the Department of Education will now count any previous payment as qualifying for the 120 required, “regardless of the type of loan, repayment schedule, or payment in full or on time,” as long as the borrower has a direct loan. So partial payments, payments under an extended amortization schedule, and late payments all count towards the 120. However, there is one type of loan that is still ineligible: Parents PLUS Loans.
“What you paid or when you paid does not matter in this waiver,” says Mayotte. “You only look at months in which your loans were in the repayment status.”
Federal employees and conscripts will also have their employment certified automatically instead of having to do this themselves. Military service members who put their loans on hold while on duty will count towards the required 120 payments during those months.
The department will also consider any applications previously denied forgiveness of errors and offer an appeal process for those who believe they should have qualified.
Borrowers can use this loophole for the next year until October 31, 2022, the current end date for the national Covid-19 emergency. The Department of Education can make the changes under the HEROES Act, a 2003 law that allows certain rules to be waived in times of national emergency.
After that, “the old PSLF rules will apply again,” says Mayotte. “I wouldn’t expect a reprieve for that.”
Borrowers will receive a letter from the Ministry of Education with an update on the changes. However, it will likely take until February or March for FedLoans to update each borrower’s records to reflect how far along they are in the forgiveness process, Mayotte says.
To qualify for the waiver, borrowers on FFEL program loans, Federal Perkins loans, or other non-direct state student loans must consolidate their loans into the direct loan program by October 31, 2022. borrower can do this here. In addition, they must provide evidence of eligible employment. Then borrowers can submit a PSLF application.
Mayotte says that under normal PSLF rules, Consolidation will restart a borrower’s monthly payments. This will be suspended during the exemption period. For more information on consolidation, see StudentAid.gov or Mayotte’s FAQ here.
Borrowers also typically need to work for a qualified employer when applying for a waiver in order to obtain one, but that requirement is also waived. Borrowers who have made 120 payments to a qualified employer but have since found a new job may still be eligible for forgiveness.