Congress surprised and pleased many in March when it set aside $350 million for the Department of Education to help borrowers gain student loan forgiveness under the Public Service Loan Forgiveness Program (PSLF). Donald Trump and Education Secretary Betsy DeVos wanted to do away with the PSLF program altogether. But in its $1.3 trillion spending bill passed in March to fund the government through September, Congress not only ignored many of the Trump administration’s education budget proposals, but also allocated $350 million for borrowers who were in a qualified public service job but were barred from PSLF debt forgiveness, because their repayment plan did not qualify.
Background on the Public Service Loan Forgiveness Program
The PSLF was born in 2007. Its purpose was to entice graduates to take qualified public service jobs that served the community and to enable forgiveness of all student loan debt for those borrowers after 120 payments over 10 years into an income-driven repayment plan. The government offers several repayment plans for federal student loans. To normally be eligible for forgiveness under PSLF, you must be on an income-driven repayment plan. However, student loan borrowers have complained that the PSLF program is incredibly complex to navigate, and some say their loan servicers assured them that they were on track for forgiveness in 10 years, only to find out after years of making payments that their payment program made them ineligible for PSLF forgiveness. Last year, the Consumer Financial Protection Bureau even published a report outlining how student loan servicing practices sometimes put unknowing borrowers into repayment plans that made them ineligible for forgiveness. One fix was to change repayment plans, but that often meant losing years of making on-time payments, because the borrower had to start the 120 required payments from scratch. The $350 million is earmarked for those who meet all qualifications but were paying into a graduated or extended repayment plan, which are not normally eligible.
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Limitations of the New Program
- The biggest issue with the program is that $350 million is not at all likely to cover the need. To give some perspective, Senate Democrats tried to get $4 billion to fix the program, so that should give you some idea of the limitations of the $350 million allocations. Therefore, the money will be distributed on a first come/first served basis. The legislation states that the Department of Education must create an application process within 60 days of becoming law. That means you should be able to apply in May.
- The new legislation only cures issues around repayment plans. If you have a type of loan that does not qualify, there is no relief.
- This is a one-time only expansion of the federal Public Service Loan Forgiveness program. If you miss it, you have probably missed it for good.
- If you have not been making high enough monthly payments, you will not qualify. Your most recent monthly payment and the monthly payment from one year before will be compared to what you would have paid under a normally eligible payment plan. If those payments are lower than payments under the normally eligible plan, you are out of luck and will get no forgiveness.
Other Requirements for PSLF Remain Unchanged
The changes regarding PSLF eligibility do not impact other requirements. In order to be eligible for PSLF, borrowers have to work for an organization that qualifies under the program such as a government organization (not a for-profit government contractor), a Section 501(c)(3) charity or a not-for-profit that qualifies due to services it provides even if it is not tax exempt. Working full-time as a volunteer for Americorps or Peace Corps is also acceptable. You must have a federal Direct Loan that is not in default and have made 120 payments over 10 years before you can apply for forgiveness. Direct Consolidation Loans are eligible and available for those who would like to consolidate loans that do not qualify.
Apply as Soon as Possible
In order to ensure you are on track and paying into a qualified repayment plan and have a qualified employer, you should submit an Employment Certification form annually and also if you change jobs. Of course, that form was not available until 2012, so for five years there was quite a lot of guesswork. Since the program was just launched in 2007, people who signed up in the early years are just now reaching the 10-year point when they may be eligible for forgiveness. Some will find they are not qualified, because they had the wrong kind of repayment plan. This may result in many people applying for their piece of the $350 million relief. In other words, if you wait too long to apply, you may miss out even if you are otherwise eligible for the relief. There is only so much money in the pot, and it’s not enough to go around