Fixing Public Service Loan Forgiveness

With student-loan repayment set to resume in May, attention in Washington, DC, has turned to reform of the US Department of Education’s troubled student-loan programs. Federal student-loan debt will soon hit a balance of $1.8 trillion, largely because of the failure of income-driven repayment plans to offer real relief to struggling borrowers. To that end, the department has unveiled reforms to Public Service Loan Forgiveness (PSLF), which cancels the balance of a public servant’s debt after a decade of payment.

Since PSLF was created in 2007, borrowers have encountered problem after problem in achieving debt cancellation. Many borrowers with “guaranteed” or Family Federal Education Loans faced problems getting payments properly counted or were unaware of the need to transfer their direct loans for management by a certain servicer in order to have their PSLF paperwork processed. Clunky federal regulations tied to annual employer certification and the final application process exacerbated the problems of mismanagement by some loan servicers. Because of these issues, nearly 98 percent of applicants are denied forgiveness.

The Department of Education convened a rulemaking committee this past fall to work on new PSLF regulations, among them a proposal to aid faculty members on contingent appointments who are teaching at public colleges and universities. To be eligible for PSLF, a public servant must work at least thirty hours a week; the proposal would create a formula to recognize faculty members who are paid by the course. If approved, so-called part-time faculty members teaching at least nine credit hours would become eligible for PSLF. The AAUP will continue working behind the scenes to ensure that more faculty members are able to get access to PSLF, and we will provide notice when the department issues a final rule for public comment in the spring.

Additionally, the department announced a special waiver period through October 2022 to resolve widespread servicer errors in counting payments, particularly for consolidated loans. Any federal student-loan borrower otherwise eligible for PSLF but in the wrong kind of repayment plan can benefit from this special waiver period. Borrowers who have made ten years of payments in the wrong plan may file an application for forgiveness; borrowers under a decade of service may transfer their loan to the correct repayment plan and have their payments retroactively counted toward forgiveness.

More information is available at https://www.aaup.org/news/us-department-education-overhauls-public-service-loan-forgiveness.