One of the most popular student loan forgiveness programs is under attack by house Rep. Virginia Foxx (R N.C.) and Rep. Brett Guthrie (R KY). The two have introduced the Promoting Real Opportunity, Success and Prosperity through Education Reform (PROSPER) Act. The PROSPER Act would immediately put an end to the public service loan forgiveness program which borrowers have finally started to benefit from starting in October of 2017.
What is Public Service Loan Forgiveness (PSLF)?
PSLF is a program that was created by George W. Bush in 2007, which allows for complete loan forgiveness for people who work in the public sector, or for certain non-profit organizations. The program requires ten years of qualifying payments with complete student loan forgiveness at the end of the ten year period. Since the program began in October of 2007, borrowers started receiving their forgiveness only a few short months ago.
Qualifying Jobs for PSLF
|Federal, State, Local Government||Yes|
|Non-Profit in Public Services||In Some Cases|
PROSPER Would Eliminate PSLF
PROSPER would eliminate the PSLF program for new borrowers starting in 2018. According to the Department of Education, there were 25,683 applicants for PSLF in 2012, and 669,426 applicants through 2017. It’s been estimated that over 33 million Americans would be eligible for PSLF, but most are not even aware of the program. The PSLF program is currently one of the strongest student loan forgiveness programs, that really helps promote public sector jobs, as well as offering a reasonable way out for borrowers. Borrowers needed to work in the public sector for ten years and make qualifying payments on their student loans during this time to qualify for loan forgiveness. The removal of this program is a big step backward into helping solve the student debt crisis in this country.
PROSPER Changes Income Driven Repayments
Not only does PROSPER try to put an end to PSLF, but it also removes other beneficial student loan programs. Currently, there are six student loan repayment plans, of which four are income driven. PROSPER would move to consolidate them into only two repayment plans.
- Ten Year Standard Repayment
- This would put all student loans, regardless of the balance, into a standard ten-year repayment plan which could result in a very high payment.
- Income-Based Repayment
- This is an existing payment plan that bases the payment on 15% of your discretionary income. This would mean a very high payment for borrowers with high income. It would also mean an increased payment for low-income borrowers who can currently take advantage of the PAYE or REPAYE payment plan, of which both offer a payment of 10% of your discretionary income.
This change to the repayment plans really does not help anyone except for the private lenders. Any normal loan would have a repayment term depending on the size of the loan, but PROSPER doesn’t work this way. PROSPER forces you into one of two repayment plans with close to no flexibility for the borrower.
PROSPER Helps For-Profit Colleges
Two changes would greatly benefit for-profit colleges if PROSPER becomes law. Currently, there are two strong regulations aimed to protect student loan borrowers which will be done away with is PROSPER passes.
Changes to the 90/10 rules for-profit colleges
Currently, a for-profit college cannot receive more than 90% of its revenues from Title IV funds. Title IV funds are essentially federal student loans. The idea is to disallow for-profit colleges from being propped up by federal taxpayer dollars. The 90/10 rule is an attempt to make for-profit schools competitive and offer educations that make a student want to attend their school despite being able to borrow less money than if attending a non-profit school. If the education is good, and the possibility of a job is high post graduating, people will make the decision to attend the school.
PROSPER would remove the 90/10 rule for for-profit colleges and effectively completely put the burden on the taxpayer, and allow the for-profit school to compete against non-profit schools despite possibly not having a solid track record for its graduates.
Removal of Gainful Employment Rule For For-Profit Colleges
Currently, for-profit colleges have to meet certain debt-to-income ratio for their graduates to maintain access to federal student loan lending. This motivates the for-profit colleges to make sure that their graduates not only graduate with a low student loan balance but have high-income post-graduation. For-profit colleges can easily go out of business if they do not maintain their ratio, as most of their student require federal aid to attend the school.
PROSPER would remove the gainful employment regulation for for-profit college and not hold them to any standards to allow their student to be eligible for federal student aid.
While it doesn’t seem likely that this bill will be passed into law, its something to keep an eye out on. This bill would significantly reduce borrowers interests through loan forgiveness, flexible repayment plans, and regulations on for-profit colleges aimed at protecting the student loan borrowers that attend those schools.
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.