WASHINGTON – The promise of the Public Service Loan Forgiveness program was supposed to be simple.
If college graduates were willing to forgo the private sector’s lucrative pay and work instead as a teacher, police officeror government worker, any federal student debt they had after 10 yearsof payments would be forgiven.
The program has provedanything but forgiving. More than a decade after its inception in 2007, thousands uponthousands of borrowers have applied for forgiveness. The federal governmenthas rejected nearly all of them.
That's supposed to change, starting this fall.
Questions about loan relief?Who is eligible and how to apply under Biden’s newprogram
The Education Department on Wednesday announced asweeping overhaul to the loan forgiveness program that will immediately erase the debt of 22,000borrowers to the tune of $1.7 billion. The government estimated another 27,000 borrowers could see about$2.8 billion in debts forgiven if they prove they were employed in an eligible job.
The changes are designed to let borrowers correct errors and count payments they were trying to make toward the program. That should shorten the amount of timemore than 550,000 borrowers – those who have already consolidated their loans –are required to make payments to qualify for forgiveness, the government said.
The redesign of the Public Service Loan Forgiveness program is President JoeBiden's latest effort to address the nation’s growing$1.7 trillion in student loan debt and ease the burden of struggling borrowers.
Progressives have called on Biden to forgive up to $50,000 in loansper borrower, but the executive branch has instead rolled out targeted relief, such as for those who have been defrauded by their college or those who are permanently disabled. With the changes from the public service program, the federal government will haveforgiven roughly$11.5billion in student loan debt.
"Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness,"Education Secretary Miguel Cardona said. "The system has not delivered on that promise to date, but that is about to change for many borrowers who have served their communities and their country."
The changes come after a string of critical reports about Public Service Loan Forgiveness' inaccessibility.CBS' "60 Minutes"recently reported on military veterans who tried and failed to obtain forgiveness.
And the Student Borrower Protection Center, anadvocacy group, found that the loan servicerFedLoan had denied thousands ofborrowers forgiveness because ofminor errors or paperwork issues.
Seth Frotman, the group's executive director, is a frequent critic of the Education Department's handling of student loans, especially the Public Service Loan Forgiveness program. But he said he's encouraged by the changes the department put forward.
"This is a good day for teachers, nurses, servicemembersand millions of workers serving on the front lines of the pandemic," Frotman said. "For too long, those who give the most to our communities and our country have been given the runaround and forced to shoulder debts that should have been canceled."
And two of the nation's largest teachers unions, the American Federation of Teachers and the National Education Association, in separatestatementslauded the changes and said they would benefit educators and other employees in the public sector.Both had long pushed the Education Department to fix what they described as a broken program.
Stringent requirements hamper relief
The trouble with Public Service Loan Forgiveness stems from the requirements for relief.
Borrowers seeking forgiveness must work in a job the government deems public service, and they have to make 120 payments through the appropriateincome-based repayment plan. And only borrowers with loans made by the federal government, known as direct loans, qualify for relief.
Tens of thousandsof people thought they qualifiedbut messed up one of those criteria – by paying on the wrong type ofloan, by not enrolling in an income-based repayment planbefore making payments, or byworking in a job they later discovered didn't qualify for forgiveness– and found themselves out of luck.
Before the announcement, only 16,000 borrowers had seen their debt forgiven via the program, according to the Education Department.About 1.3 million people are trying to have their debts discharged through the program.
Changes to the loan forgiveness programwill take place in two parts. The agency will first loosen some of the rules that had prevented eligibleborrowers from discharging their loans,via a limited waiver.The government, for example, will allow payments onanyof a person'sloans to count toward the total number required for forgiveness.
The department said it would automatically credit borrowers who already have direct loans and have provedthey work in an eligible field. Others who haven't enrolled inthe program or have ineligible federal loans will have to apply for forgiveness, which may require them toconsolidate their loans. Borrowers will have until October 2022 to apply.
The Education Department also plans to review all Public Service Loan Forgiveness applications that had been denied and to give federal employees automaticcredit toward forgiveness.
Other changes will come about more slowly via regulations made by "rule-making," a lengthy and complicated bureaucratic back-and-forth between the government and other stakeholders.
Only some loans qualify for forgiveness
One of the most problematic pieces of Public Service Loan Forgiveness: Many borrowers had the wrong type of loan and didn't realize they weren't eligiblefor relief.
When the loan forgiveness program was first introduced, many of the loans offered from the federal government were Family Federal Education Loans, or loans made through private entities but insured by the federal government. The government stopped offering those loans in 2010, and now relies on direct loans – the kind eligible for forgiveness. The Education Department said about 60% of borrowers with anapproved employer hold FFELloans.
“To a layperson, it wouldn't be very obvious that you had the wrong loan type,” said Betsy Mayotte, president of the Institute of Student Loan Advisors.
And borrowers didn't have a choice which type of loan they received, she said.Mayotte’s nonprofit has helped thousands of borrowers with their student loan payments, and she helps moderatea subreddit focused on Public Service Loan Forgiveness. She said many of the issues she handles these days are tied to borrowers with ineligible loans.
Mayotte said the short-term waiver will help people, but she questioned whether borrowers who miss the waiver period mightbe in the same boat come Nov.1, 2022.
She said concerned borrowers may want to consider consolidating their loans into a single direct loan if they haven't done so already.
If borrowers are unsure about what type of loan they have, Mayotte said, they can request that information from their loan servicer or they can check on the federal government's website for financial aid.
