Reform of Public Service Loan Forgiveness: What the New Changes Mean
Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
Public servants with federal student loan debt just got some good news.
The Department of Education announced major changes to the Public Service Loan Forgiveness (PSLF) Program that will make it easier to qualify for loan forgiveness in what has been a notoriously ineffective program.
The changes will immediately erase more than $1.7 billion in student loan debt for 22,000 borrowers, according to the department. An additional 27,000 borrowers could see their $2.8 billion in debt disappear if they can prove that they were working in public service when they made payments that had been declared ineligible.
The key to unlocking loan forgiveness for more than half a million borrowers comes in the form of a waiver, in effect through October 2022.
A More Forgiving Program
Under the new rules, any federal student loan payment that was made will count toward PSLF, regardless of loan type, repayment plan, or whether the payment was on time or in full, as long as the borrower was working full time for a qualifying employer.
The PSLF waiver will apply to borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those with other types of federal student loans who submit a consolidation application through Oct. 31, 2022.
Here is more detail.
More Loan Types Qualify
Congress created the PSLF Program in 2007 to entice more people into public service jobs. Borrowers who had federal Direct Loans, worked full time for a qualifying employer, and made 120 on-time loan payments were eligible for forgiveness of any remaining balance.
Back then, most people had government-backed bank loans known as Federal Family Education Loans (FFEL). But by 2010 the Education Department made all federal student loans directly.
Hundreds of thousands of borrowers who thought they were eligible for public service loan forgiveness didn’t realize that the payments they were making on their FFEL loans didn’t count toward loan forgiveness.
The changes now allow borrowers to consolidate FFEL program loans and Perkins Loans into Direct Loans that will qualify for forgiveness after 10 years of payments with a qualifying employer. What’s more, the government will now retroactively count payments made before loan consolidation toward the 120-month payment requirement for forgiveness.
Any Payments Made Will Count
The new rules allow payments made while working in a public service job through alternative payment plans, such as the extended repayment plan, to be counted toward forgiveness.
It also gives dispensation for late payments and makes it much easier for veterans and military members to get credit for payments while on duty.
One area that is not covered? The new rules apply only to loans taken out for yourself. That means parent PLUS loans do not qualify for credit for past payments.
Steps to Take on the PSLF Path
Encouraging as the announcement is, few borrowers and student loan experts expect the changes to take place without, at best, some hiccups. And the announcement comes not long before the Covid-inspired federal student loan payment pause ends after Aug. 31, 2022.
That may cause further confusion. Another wrinkle: FedLoan Servicing, the sole loan servicer for the PSLF program, is calling it quits. Borrower accounts are being transferred to MOHELA and to other servicers.
That’s why it’s important for borrowers to pay close attention to how changes are implemented in the next months and make sure they complete any necessary forms or applications and meet all deadlines.
This borrower to-do list, culled from the Education Department’s fact sheet , can help.
1. Determine if Your Loans Are Eligible
If you’re not sure what type of federal student loans you have or had, you can get a full list when you log into your account on StudentAid.gov. If you don’t have an account, you can start one now.
You’ll see each loan you borrowed even if you’ve paid it off or consolidated it into a new loan. For loans that qualify for the new forgiveness rules, you want to look for items in the list that start with “Direct,” “Perkins” and “FFEL.”
2. Ensure That Your Employer Falls Under the Public Service Category
Only borrowers who work for a municipal, state, federal, or tribal government or a nonprofit organization may take advantage of PSLF, both in the past and now.
If you’re not sure your current or former employer is eligible, check the Department of Education’s website for tools that may help.
3. Consolidate Your PSLF-Eligible Loans
Consolidate means that you will turn your FFEL or Perkins Loans into a Direct Consolidation Loan.
To do this you want to apply for the PSLF Program , even if you have done so before. Once you do, previous payments, as long as you meet employer eligibility requirements, should be counted toward your 120-month finish line.
Important: You need to send this by the Oct. 31, 2022, deadline. Do it earlier and you may find debt relief faster.
If you have already consolidated other debt, you should get notification that you are a go. (See the next step.) But a lot depends on if you filed employer certification confirming that you worked for a qualifying employer at the time. You’ll need to check on that, and, if there’s any question, it might make sense to go ahead and file a new consolidation application .
4. Keep Track of All Communications
If your loans qualify and you have already filed your employer status, the Education Department probably will take steps to forgive your loan balances or count past payments toward forgiveness automatically.
But it’s up to you to make sure that is happening.
In case you need to follow up to make sure that is happening:
• Copy and save all correspondence from the Department of Education regarding your loans.
• Always copy and save any forms or applications you send.
• Keep an eye out in your email for all department correspondence.
• Check spam. You don’t want to miss any notifications on your loan status.
Consolidating vs. Refinancing
For public service workers, consolidating any federal student loans other than Direct Loans is the route to take to try to gain loan forgiveness. With consolidation, multiple federal education loans are combined into one federal loan with a weighted average interest rate.
With refinancing, a private lender replaces one or more student loans with one new private loan that has a new interest rate and terms. The goal is to reduce the interest rates you’re paying.
Refinancing your federally held student loans would mean giving up federal benefits like PSLF and income-driven repayment plans. But refinancing may make sense if you have private student loans or if you don’t qualify for PSLF and have high rates or high loan balances.
An overhaul of the Public Service Loan Forgiveness Program holds promise for half a million borrowers. Potential hurdles will likely make themselves clear in the coming weeks and months.
If refinancing one or more of your student loans makes sense for you, look into what SoFi offers.
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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