A federal loan forgiveness program notorious for its ineffectiveness will undergo major reforms over the next year, the Department of Education announced on Wednesday. The overhaul aims to fulfill a “largely unfulfilled” promise to erase student debt from teachers, the military and others working in the public sector.
Most changes are temporary. But the department estimates that as a result of the reforms, 22,000 borrowers will see $1.74 billion in loans repaid immediately, and more than half a million borrowers will see their progress toward loan forgiveness increase automatically.
Only 2% of requests processed have met loan forgiveness requirements under the Public Service Loan Forgiveness Program (PSLF), which aims to provide student borrowers with a discharge from their loans in exchange for a decade of work with a government or a non-profit employer.
“The idea is simple, but in practice the program is more like American Gladiators‘ obstacle course, and very few people have made it through,” Education Undersecretary James Kvaal said during a panel discussion on Wednesday.
The department received more than 48,000 public comments in recent months from borrowers describing confusing requirements, a lack of accurate program information, miscounted and uncounted payments, and bureaucratic paperwork as barriers to obtaining forgiveness.
“When I arrived as education secretary in March, I had a conversation with students who were trying to go through this process, and it didn’t work for them. And at the end of the call, I was frustrated,” Education Secretary Miguel Cardona said during the roundtable. “The hoops they had to jump through and the workaround – it was almost like the process was designed to frustrate them and just say, ‘I’m done’. We need to fix that.
Feedback the department has received from borrowers has helped inform the action it plans to take, chief among which is its offer of a limited PSLF waiver to count all loan payments a borrower has made while worked for an employer eligible for the PSLF, regardless of the type of loan or repayment plan. Generally, only direct loan payments are eligible for PSLF, so any payments made by borrowers on Federal Home Education Loans or Federal Perkins Loans were not considered in the 120 payments required for surrender.
Borrowers who have already consolidated their FFEL or Perkins loans into direct loans and who have certified their employment for PSLF will automatically have their payment account adjusted, which will be reflected in their accounts in the coming months. Those who still have FFEL or Perkins loans will need to submit an Application for Consolidation in the Direct Lending Program and a PSLF form by the end of the waiver on October 31, 2022, for their previously ineligible payments to be considered.
The waiver will also allow payments made before Oct. 31 that weren’t counted due to technical requirements — some borrowers have missed PSLF credit because their payments were a penny off or a few days late, according to the department – to be considered in the PSLF. Those who have not yet applied for the PSLF but have done so when the exemption ends will also be able to take advantage of the temporary payment simplification.
The department’s actions to improve the PSLF have been applauded by advocacy organizations and politicians who have criticized the program’s failures, including the American Council on Education, Student Borrower Protection Center, Student Debt Crisis Center, and National Education Association.
“For too long, those who give the most to our communities and our country have been embarrassed and forced to take on debts that should have been forgiven,” said Seth Frotman, executive director of the Student Borrower Protection Center. “The Biden administration is taking a crucial step toward easing this burden for our public service workers.”
National Education Association President Becky Pringle said the reforms would not have been possible without the activism of NEA members, who sent letters and public comments to the department regarding the PSLF program.
“This is a welcome step towards delivering on the PSLF’s promise and canceling the student debt of every educator who has served their commitment to their community,” Pringle said.
Senator Elizabeth Warren, a Democrat from Massachusetts who has expressed dissatisfaction with the PSLF program and the administration of student loans overall, noted she is pleased that Cardona is “undertaking this major overhaul” of the program “to deliver on our promises to borrowers.”
“Teachers, firefighters and other public servants deserve relief from the burden of student debt,” Warren said.
Lawmakers across the aisle were not so supportive of administrative reforms. The top Republican on the House Education and Labor Committee, Representative Virginia Foxx of North Carolina, criticized her fellow Democrats for failing to address the root causes of the student debt crisis. Foxx and fellow committee member Rep. Greg Murphy, a Republican from North Carolina, sent a letter in Cardona on Tuesday, urging him to pursue PSLF reforms through congressional action rather than the executive.
“Every year Americans take on more and more student debt, and every year taxpayers pay more and more of it,” Foxx said after the announcement. “Today’s announcement makes it clear that Democrats are happy to allow the Biden administration to be judge, jury and executioner if it pleases their progressive base.”
In addition to offering the limited PSLF waiver, the ministry outlined five other steps it will take to improve the PSLF program.
This includes allowing military service members to count their months spent on active duty toward loan forgiveness, even if their loans were deferred or forborne. This is intended to help resolve an issue highlighted on Sunday on CBS 60 minutes, where service members can suspend their student loan payments while on active duty, but this time is not eligible for PSLF. an april Government Accountability Office report found that of the nearly 180,000 active duty military personnel with student loans, only 124 had their loans canceled by the PSLF.
“Student loans should never be a deterrent to entering public service, including the military,” said Sen. Maggie Hassan, a New Hampshire Democrat who co-sponsored a bill to make change for service members. “This is a common sense solution that will support public servants and ensure they are able to give back without worrying about student debt.
Service members and other federal employees will begin receiving automatic PSLF credits next year through data matching between the department and other federal agencies. Data matching will also identify borrowers who may be eligible for PSLF but cannot receive credit automatically because they do not have direct loans.
In addition, the department will conduct a review of all applications that have been denied for the PSLF, as well as a review of processing practices by the Pennsylvania Higher Education Assistance Agency, the agent responsible for administering the PSLF program. PHEAA was accused of “unfair and deceptive acts”, making processing errors and providing incorrect information that prevented borrowers from crediting payments to PSLF, although PHEAA denies the allegations.
Following the completion of an internal review of denied application data and an independent external review of PSLF processing, borrowers will be able to use a temporary reconsideration process to have their application reconsidered if they believe there has been errors in its processing. An ongoing process is being considered as part of the regulatory process.
The department plans to simplify the PSLF application process by improving the Office of Federal Student Aid’s database of eligible employers and creating an option to digitally sign applications. It will also explore ways to automate PSLF certification for state, local and tribal government employees and allow employers to sign employment certification forms on behalf of their employees.
Starting this fall, the ministry will reach out to borrowers to better educate them about the PSLF and notify those who are about to receive loan forgiveness.
“We think this is a really important set of steps we’re taking today, but we know it’s not the end of the road,” Kvaal said. “It’s a complicated problem, and there’s still work to be done. But we believe this is a very meaningful and important step in delivering on our promise to public servants.
Long-term and permanent changes to the PSLF program are being pursued through the negotiated rulemaking process, the first session of which began this week. The ministry is proposing regulations that would streamline the application process and better define who is eligible for the program and how PSLF requirements can be met.