Permanent Fixes for a ‘Broken System’

A year after announcing a temporary overhaul of the Public Service Loan Forgiveness program, the Biden administration is ready to make several of those changes permanent in an attempt to fix what officials call “a broken system” that shortchanged the country’s public servants.

“We’re taking bold steps that will automatically move more hardworking public service workers closer to forgiveness and making permanent changes to reduce the red tape that riddled the PSLF program,” Education Secretary Miguel Cardona said during a press briefing Tuesday. “The Biden-Harris team is as committed as ever to upholding the promise of PSLF and ensuring borrowers who devote their careers to teaching our children, strengthening our communities and serving our nation get the relief they’ve earned.”

Under the Public Service Loan Forgiveness program, individuals working at a nonprofit or in a government job are supposed to be eligible for debt relief after making payments for 10 years. But that program has not lived up to its promise, multiple investigations have found over the years. In fact, fewer than 7,000 borrowers qualified for relief under the program, which had a 98 percent rejection rate.

“People found it nearly impossible to get public service loan forgiveness,” said James Kvaal, education under secretary. “Borrowers who made years of student loan payments would later learn they were on the wrong repayment plan. Others made progress towards forgiveness only to find out that they’d have to start over from scratch after consolidating their loans. These are idealistic people who want to [give] back to their country who made career decisions based on a promise of loan forgiveness, and they were shortchanged.”

The final regulations for the program, which will go into effect in July 2023, will allow borrowers to count late or partial payments and to count certain periods of forbearance or payment suspension toward PSLF, according to a department fact sheet. Additionally, those who have loans that don’t qualify for the program but consolidate into a direct loan managed by the federal government will receive credit for payments made before consolidation. Previously, those individuals would lose all progress made toward forgiveness. The department also is planning to simplify and standardize the criteria to qualify for the program. Working 30 hours a week will be considered full-time, while adjunct faculty will receive a credit of 3.35 hours of work for every credit hour taught.

The department is planning to issue a separate final rule about how an eligible employer is defined, including whether for-profit employers count.

The administration’s announcement comes less than a week before the end of the PSLF waiver that’s been in a place for the last year and has made it easier for eligible borrowers to apply for relief and receive credit for past payments. Cardona said that 236,000 borrowers have received relief in the last year, with forgiven loans totaling $14 billion. Dozens of lawmakers, state officials and advocacy groups have called on the administration to extend the waiver until the new regulations go into effect next July.

Although the administration is not opting to extend the waiver, eligible borrowers can apply by May 1 for a payment correction in July that will be similar to the waiver and part of changes to income-driven repayment. However, those individuals no longer working in a qualifying public sector job should apply for relief under the waiver. Otherwise, they won’t be eligible.

The adjustment, announced in April, will also apply to borrowers in income-driven repayment plans, which is required for PSLF, and award borrowers credit for any month in which they were in repayment status, regardless of loan type or whether payments were late or partial. The account adjustment will also provide credit in several other instances, and at least 40,000 people could see all their debts forgiven.

In income-driven repayment plans, borrowers are supposed to receive debt relief after making payments for 20 to 25 years, but because of “historical failures” in the federal student loan program, that hasn’t always happened, department officials said earlier this year. The one-time account adjustment is aimed at correcting those errors.

“Today’s announcement means millions of public service workers will now have a second chance at loan forgiveness,” U.S. senator Bob Menendez of New Jersey said in a statement. “It’s now time for President Biden and Secretary Cardona to take an additional step and extend the filing deadline for the temporary waiver until the rule making is processed to avoid any undue confusion or burden for our public servants.”

Advocates and lawmakers applauded the department’s announcement, while cautioning that the changes don’t go far enough to protect vulnerable borrowers, including those who hold Parent PLUS loans.

“What today’s announcement does is it takes important steps to kind of cement some of the biggest wins of the PSLF waiver, and to continue doing the work necessary to restore the promise of PSLF,” said Ben Kaufman, director of research and investigations at the Student Borrower Protection Center. “But it also is going to end up creating some big cracks through which a lot of the most vulnerable people are going to fall.”

Kaufman said the new regulations don’t give borrowers credit toward PSLF for time spent in default, bankruptcy or “certain other hardship forbearances.” They also don’t create a clear pathway for relief for people with joint spousal consolidation loans. The department fact sheet noted that it will provide more information for that group about how the process will work.

Kaufman said the waiver has been transformational for PSLF, with thousands more receiving relief and engaging with the program. The Student Borrower Protection Center has found that as many as nine million public service workers could be eligible for PSLF, but only about 15 percent of that population are in the pipeline to receive relief.

“You’ve seen many of the people who were most unfairly blocked from accessing PSLF finally have a pathway to cut through the red tape and jump over administrative hurdles and to get what they’ve always deserved, which was loan relief,” he said. “But there’s a lot more work to be done.”