Thousands of teachers, social workers, public defenders and other public servants who’d counted on having their federal student loan debt forgiven only to be tripped up by the fine print will soon get another chance to apply.
- Congress has set aside $350 million to provide Public Service Loan Forgiveness to borrowers who have been paying back their student loans for 10 years, but were enrolled in the wrong repayment plan.
- The new pool of money will be be distributed on a first-come, first-served basis, but the Department of Education has not begun accepting applications.
- While 802,040 federal student loan borrowers have been granted preliminary certification that they are on track to qualify for Public Service Loan Forgiveness, millions of other borrowers may be in the wrong repayment plan.
Created in 2007, the Public Service Loan Forgiveness program was intended to provide relief to borrowers who pursue careers in government or at qualifying non-profits. After making 120 monthly payments on their students loans while working for an eligible employer, borrowers can have the remainder of their federal student loan debt forgiven.
But the program’s requirements are complex, and loan servicers who collect payments on the government’s behalf have failed to provide “consistent and clear guidance” to borrowers. Many who could have qualified for forgiveness found out too late that they were enrolled in the wrong repayment plan.
That’s according to four Senate Democrats, who want to hear from Secretary of Education Betsy DeVos on how she plans to administer $350 million in relief earmarked for borrowers whose jobs would have qualified them for Public Service Loan Forgiveness, but who failed to enroll in an income-driven repayment plan (more on that below).
The new pool of money earmarked for borrowers who were tripped up by the program’s requirements was included in the $1.3 trillion omnibus spending bill signed into law on March 23 by President Donald Trump, and will be distributed on a first-come, first-served basis. If each public servant who was enrolled in the wrong repayment plan qualifies for $13,000 in loan forgiveness, the additional money appropriated by Congress could help more than 26,000 borrowers.
“Congress established the (Public Service Loan Forgiveness) program in 2007 to encourage graduates to pursue public service careers that often pay less than jobs in the private sector,” said Democrats Sheldon Whitehouse, Tammy Duckworth, Tim Kaine and Margaret Wood Hassan in their letter to DeVos. “Given the importance of this new funding to our constituents and all (federal student loan) borrowers, we request that you brief our staff on your progress implementing these provisions within 30 days.”
As of today, the Department of Education still hasn’t set up a process to receive applications for Public Service Loan Forgiveness from borrowers who were in the wrong repayment plan.
The section of the Department of Education’s website dedicated to providing information about the Public Service Loan Forgiveness program displays an “alert” informing borrowers that the department “is assessing the newly enacted law and will explain the new forgiveness conditions … as more details are available.”
In the mean time, borrowers who hope to qualify for Public Service Loan Forgiveness are advised to “complete and submit the Employment Certification form as soon as possible. Too many borrowers wait to submit this important form until they have been in repayment for several years, at which point they learn that they have not been making qualifying payments. In order to ensure you’re on track to receive forgiveness, you should continue to submit this form both annually and every time you switch employers.”
Submitting an Employment Certification form does not guarantee that borrowers will be granted forgiveness, but can tip them off if their employer, loans or repayment plan aren’t eligible. The omnibus spending bill also provides $2.3 million in funding for the Department of Education to conduct outreach to borrowers who could be granted Public Service Loan Forgiveness if they were in a qualifying repayment plan.
As of of Dec. 31, 2017, 802,040 federal student loan borrowers have been granted preliminary certification that their employer, loans, and loan repayment plan qualify them for Public Service Loan Forgiveness. That’s a 45 percent increase from the end of 2016.
Choosing the right repayment plan
Public Service Loan Forgiveness is “one of the most complex programs ever concocted by Congress,” former Consumer Financial Protection Bureau student loan ombudsman Rohit Chopra told The New York Times’ “Your Money” columnist Ron Lieber in April.
With few exceptions, only borrowers making payments in income-driven repayment plans will qualify for Public Service Loan Forgiveness. Borrowers who enroll in an income-driven repayment plan typically pay no more than 10 or 15 percent of their discretionary monthly income. Borrowers who enroll in the standard 10-year repayment plan are still eligible, but most will pay off their loans before they qualify for Public Service Loan Forgiveness.
Before income-driven repayment plans were expanded to accommodate more borrowers, many graduates with large student loan balances chose to stretch out their payments longer than 10 years in a graduated or extended repayment plan. Like income-driven repayment, these plans helped make the borrowers’ monthly payments more manageable.
But even though monthly payments in a graduated or extended repayment can equal or exceed payments borrowers would make in an income-driven repayment program, they typically don’t count toward the 120 qualifying payments needed to qualify for Public Service Loan Forgiveness. Many borrowers didn’t realize this was a problem until they filed their Employment Certification form.
Although the number of approved Employment Certification forms is fast approaching 1 million, that’s believed to be a small fraction of the borrowers who might someday qualify.
According to a recent GAO report, an estimated 30 percent of borrowers who earned their degrees could be eligible for Public Service Loan Forgiveness. The latest numbers from the Department of Education reveal that more than 10 million borrowers are currently paying back $490 billion in federal student loans in income-driven, graduated or extended repayment plans.
That suggests that most borrowers who could qualify for Public Service Loan Forgiveness haven’t yet filed an Employment Certification form.
The Trump administration has proposed closing the door to Public Service Loan Forgiveness to future borrowers, a move it estimates would save taxpayers $45.9 billion over the next decade. It also wants to limit loan forgiveness that’s currently provided to any borrower who hasn’t paid off their federal student loan debt after 20 or 25 years in an income-driven repayment program, with $128.4 billion in projected savings through 2028.
Millions could be in wrong repayment plan
As of Dec. 31, 2018, 42.8 million borrowers owed $1.37 trillion in student loan debt to the government.
Not all of those loans were in repayment — about $160 billion was owed by borrowers who were still in school or had recently graduated and hadn’t started repaying their loans. Another 6.9 million borrowers had defaulted on $125 billion in loans.
Looking only at the $865 billion in loans that were in repayment, deferment, and forbearance, 8 million borrowers were repaying $396.8 billion in income-driven repayment plans. Another $93.4 billion in loans were being repaid by 2.1 million borrowers who were in graduated or extended repayment programs with more than 10 years of payments remaining.
According to a November, 2016 GAO report, about 21 percent of non-college graduates, 29 percent of college graduates, and 31 percent of borrowers with graduate degrees could be eligible for Public Service Loan Forgiveness.
That means between 5.2 million and 7.7 million of the 24.9 million borrowers already paying back $865 billion in federal student loans could qualify for Public Service Loan Forgiveness.
Assuming that each of the 802,040 borrowers who have been granted preliminary certification for Public Service Loan Forgiveness are enrolled in an income-driven repayment plan means that another 7.2 million borrowers who are enrolled in income-driven repayment may be eligible, but have not submitted Employment Certification form.
If 31 percent of the remaining borrowers enrolled in income-driven plans are eligible for Public Service Loan Forgiveness (the high end of the Department of Education’s estimate for all borrowers), that means 2.23 million additional borrowers in income-driven repayment could qualify.
So of the 5.2 million to 7.7 million borrowers paying back federal direct student loans who could be eligible for Public Service Loan Forgiveness, only about 3 million are currently enrolled in income-driven repayment plans.
The stakes are high — for borrowers, and taxpayers
According to the 2016 GAO report, the median loan balance of borrowers granted preliminary certification for Public Service Loan Service in 2015 was $60,000.
A teacher who takes out $60,000 in loans at 6.8 percent interest and starts their career with an adjusted gross income of $40,000 will pay back $46,684 if they enroll in an income-driven repayment program and qualify for Public Service Loan Forgiveness. After 10 years of payments, their remaining balance of $13,316 will be forgiven.
Outcomes for borrower with median $60,000 in debt
Source: “Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates,” U.S. Government Accountability Office, November, 2016.
But because they’ll keep paying interest for years to come if they don’t qualify for Public Service Loan Forgiveness, the stakes are much higher than the amount of loan forgiveness. The same teacher who enrolls in an income-driven repayment plan but does not qualify for Public Service Loan Forgiveness will pay back $116,329 in principal and interest — nearly $70,000 more than a teacher who is granted forgiveness.
The stakes are high not only for borrowers, but taxpayers as well. When the GAO looked at the $352 billion in federal direct loans enrolled in income-driven repayment plans at the time, it concluded that the government was on track to write off $108 billion in loan principal.
Borrowers who enroll in an income-driven repayment plan but don’t qualify for Public Service Loan Forgiveness can still have any unpaid debt forgiven after making 20 or 25 years of payments, depending on the plan. But unlike loan forgiveness granted to public servants, the debt that’s forgiven can be taxed as income.