Biden to transform civil service loan forgiveness with huge changes: key details

The Biden administration this week announced sweeping new changes to turn the struggling Public Service Loan Forgiveness Program (PSLF). The actions will allow borrowers to obtain payments factored into the cancellation of the student loan that would otherwise have been rejected due to strict PSLF eligibility criteria.

“Borrowers who dedicate a decade of their life to public service should be able to count on the promise of forgiveness of public service loans. The system has failed to deliver on that promise to date, but that is about to change for many borrowers who have served their communities and their country, ”US Secretary of Education Miguel Cardona said in Wednesday. a statement. “Teachers, nurses, first responders, the military and so many public service workers support us, especially amid the challenges of the pandemic. Today, the Biden administration shows that we support them too. “

Lawyers praised the administration’s decision. “Countless officials across the country believed in the promise of a loan discharge when they made their decision to work in the public sector,” Student Advocacy Chairman Aaron Ament said in a statement. . “Unfortunately, the failures of the ministry and its agents have made it nearly impossible for officials to obtain relief. Today’s announcement is a step in the right direction in addressing the student loan crisis facing our country.

Here are details on the new changes to the PSLF program.

Public Service Loan Discount (PSLF) Changes: How the Program Previously Worked

The Public Service Loan Forgiveness (PSLF) wipes out federal student loan debt for borrowers who hold positions in government and nonprofit organizations. But, due to the opaque requirements established by my Congress, the program is not that simple.

Although the PSLF is often described as a 10-year program, the forgiveness of public service loans technically requires 120 “qualifying payments” before a borrower can obtain forgiveness of their federal student loans. And an eligible payment has very specific eligibility criteria:

  • Payments must be made on Federal direct student loans. Not all federal student loans are “direct” loans. In particular, loans from the Family Federal Education Loan (FFEL) program issued before 2011 are not eligible for the PSLF. FFEL loans can enjoy the benefits of the PSLF if they are first consolidated into a federal direct loan, but payments made before the direct loan consolidation would not count. Direct loan consolidation also effectively restarts the repayment clock for direct loans and FFEL loans.
  • Payments must be made under some type of repayment plan depending on your income such as IBR, PAYE or REPAYE. Payments made under the standard 10-year plan may also count, although this will pay off the underlying federal loan in full within 10 years. Other federal student loan repayment plans, such as phased and extended repayment plans and standard or fixed repayment plans with terms greater than 10 years, are not eligible. Payments must also be made on time, within 15 days of the payment due date. Periods of adjournment and abstention do not count.
  • The borrower must work as a full-time employee of a national government or public entity, or a 501 (c) (3) non-profit organization. Other nonprofits that are not 501 (c) (3) registered may be eligible in certain limited circumstances, although the Department of Education will make decisions on a case-by-case basis.

Low approval rates for Public Service Loan Discount (PSLF)

The civil service loan forgiveness program has long suffered from appalling approval rates. When student loan borrowers first became eligible to request a loan forgiveness through the PSLF in 2017, the initial approval rate was only 1%. More recent statistics suggest that the program has improved only slightly to achieve a success rate of around 2%.

The program’s failures are in large part due to the complex requirements established by Congress, coupled with poor administration of the program by student loan officers and lax oversight by the Department of Education. A report released earlier this year by the Federal Bureau of Consumer Financial Protection (CFPB) found that “student loan services gave borrowers incorrect information” about the PSLF requirements, resulting in ” missteps that could cost consumers thousands of dollars ”.

Changes made by the Biden administration to Public Service Loan Discount (PSLF)

In its announcement this morning, the Biden administration said it would use executive action to pass sweeping reforms to the PSLF program:

  • Payments made on federal direct loans and on FFEL loans will be counted for the PSLF.
  • Payments made under any repayment plan may be considered in the PSLF, including non-income repayment plans.
  • Payments made before direct loan consolidation can be counted in the PSLF.
  • Military adjournments will count towards the PSLF, even if no payment has been made.
  • The Ministry will conduct a comprehensive assessment review and verification rejected PSLF payments and adjust the borrower’s PSLF payment count accordingly.

Combined, these actions will allow thousands of borrowers to accelerate their progress toward loan cancellation through the PSLF, and many may be able to achieve full loan cancellation immediately. The ministry estimates that more than 22,000 borrowers will benefit from an immediate forgiveness of their student loan following the changes, and that an additional 550,000 borrowers will benefit on average from two more years of progress towards forgiving their loans.

However, there are limits. In most cases, borrowers will need to apply affirmatively for the PSLF, and they may also need to consolidate their loans to get payments on FFEL loans to qualify. And there is a deadline – the relief is offered temporarily until October 31, 2022. The ministry said it will release more information and instructions for borrowers in the coming weeks.

Longer term Changes to the Public Service Loan Discount (PSLF)

While the sweeping relief announced by the Biden administration is only temporary, the administration is moving down a parallel path to permanently enshrine many of these changes into law through new federal regulations. This week, the administration began holding hearings on drafting the negotiated rules, the first step in a long process of rewriting federal regulations governing major federal student loan programs, including forgiveness of student loans. public service.

Further reading

Biden urged to fix civil service loan forgiveness by automatically forgiving civil servants’ debt

What Navient and FedLoan borrowers should know as major changes in student loan service loom

These student loans are excluded from Biden’s forgiveness and loan relief programs – here’s why

Biden administration describes potentially sweeping changes to student loan forgiveness and repayment programs

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