Do You Or Your Child Qualify for Public Service Loan Forgiveness?
The perennially hot topic of student loan debt is making headlines again. This time, it's because the Biden administration has made clear that it is moving forward with plans to reform the Public Service Loan Forgiveness program—and Secretary of Education Miguel Cardona has said that 30,000 borrowers will have as much as $2 billion in debt eliminated.
As part of this effort, borrowers who would otherwise not qualify for PSLF forgiveness may now be eligible for a limited period of time. This is due to a variety of temporary waivers to the rules surrounding the PSLF program, which have been critical to determining eligibility for forgiveness. As a result of the waiver, student loan forgiveness will be significantly easier to obtain for government and non-profit employees under the long-existing (but often dysfunctional) PSLF program.
That's pretty big news. Especially for those mired in said debt.
"For many borrowers, the changes have been life-changing. There have already been news reports and giddy social media posts about borrowers seeing their entire federal student loan debt being wiped away by these temporarily relaxed rules," Andrew Pentis, certified student loan counselor and education finance expert with Student Loan Hero, tells Parents. "For other borrowers whose debt might not disappear overnight, the relaxed rules will at least help them see the light at the end of the tunnel."
But sorting through whether you (or your children) qualify for debt elimination under the temporary waiver is really the million-dollar question. Here's what you need to know to get to the bottom of this pressing question.
What types of loans qualify for forgiveness under the PSLF waiver?
It's important to note that only federal student loans are eligible for the PSLF forgiveness program. In other words, Parent PLUS loans are not eligible. According to the Federal Student Aid website, "Periods of repayment on Parent PLUS loans are not eligible under the limited PSLF waiver."
Which student loans will qualify?
More than 600,000 student borrowers stand to benefit under the Biden Administration's waiver of PSLF requirements, which could translate into billions of dollars in student loan forgiveness.
"Borrowers with federal student loans, including loans in the Direct Loan, FFEL and Federal Perkins Loan programs, can qualify for the PSLF waiver," continues Kantrowitz.
If you have Federal Family Education Loan (FFEL) loans, federal Perkins loans, or other types of federal student loans that are not Direct Loans (in other words loans from older programs), such as Federally Insured Student Loans [FISL] or National Defense Student Loans [NDSL]—you must consolidate those loans into the Direct Loan program by October 31, 2022 in order to qualify for forgiveness.
To determine exactly what type of loans you have, log in to Aid Summary to obtain the details.
"You will need to consolidate them into a Federal Direct Consolidation loan by the deadline. And don't dawdle, as it can take 45 days or more for loans to be consolidated," advises Kantrowitz.
What exactly has changed to allow more people to qualify for forgiveness?
This is where we get into the weeds just a bit regarding the rules surrounding the PSLF program and eligibility for loan forgiveness both now and prior to the waiver. The main takeaway to remember however is that up until now, the PSLF program was not providing applicants with very much relief, even though the program was created to do so. It was a reality that needed to be remedied.
"Since PSLF launched in 2007, only 16,000 participants have received forgiveness—but that's not for borrowers' lack of trying. Only 2.1 percent of applicants have been approved in the program's lifetime, which critics say is the result of rampant mismanagement, unfair review practices, and an inadequate program design from the start," says Laurel Taylor, CEO, FutureFuel.io, a platform designed to address student debt, tells Parents. "But the waiver has the potential to reach hundreds of thousands more borrowers."
A large part of the problem up until now has been the complex and strict rules regarding who qualified for PSLF student loan forgiveness. For instance, prior to the newly announced waiver, in order to qualify for forgiveness, you must have had Direct loans, and always made on-time payments on your loans and must have made 120 qualifying payments. In addition, you must have been making loan payments under either a standard repayment plan or an income-driven repayment plan.
"The Department of Education's PSLF program has always had very particular requirements for public service employees to qualify for loan forgiveness. Applicants have always had to check off four boxes: work for a full-time qualifying employer, make 120 on-time and in-full payments, have Direct federal loans, and be enrolled in a qualifying income-driven repayment plan," debt attorney Leslie Tayne, of Tayne Law Group, tells Parents.
Here's how those rules have changed as part the temporary waiver:
- Applicants receive credit for periods of repayment made on more than just Direct loans to include FFEL, or Perkins loans
- Past payments under any type of repayment plan count for non-consolidation loans through Sept 30, 2021.
- Past payments made on loans before consolidation count, even if they were made on the wrong type of repayment plan.
- Late payments will no longer hold you back. Past payments that were made late or for less than the monthly amount due count for non-consolidation loans through Sept 30, 2021.
- Past payments made on loans before consolidation count, even if paid late, or for less than the amount due.
- The requirement that you be employed full-time for a qualifying employer in order to receive credit is being waived
"Under normal circumstances, borrowers are eligible to have any remaining balance on federal Direct Loans forgiven after they make 120 on-time payments while enrolled in a qualified repayment plan and employed full-time in the public sector or at a nonprofit," says Taylor. "But with the waiver, any ineligible payments you've already made will now count towards your 120-payment requirement."
Getting credit for previously ineligible or "lost" payments will move many borrowers closer to the finish line of eventually receiving PSLF relief. The Education Department estimates that the average borrower will receive credit for 23 payments toward the 120-payment requirement as a result of these new rules. That means the average borrower could expect to shave more than two years off that dreaded 10-year wait for forgiveness, says Pentis.
Some notable and important caveats here. You continue to need qualifying employment for a by government, 501(c)(3) not-for-profit, or other not-for-profit organization that provides a qualifying service.
What's more, periods of deferment or forbearance, and periods of default, continue to not qualify toward tabulation of the total amount of time you have been working on repaying your loans.
What should you do right now?
In order to qualify for the PSLF Waiver, you must submit a PSLF form using the PSLF Help Tool. Either the Employment Certification Form (ECF) or an application for Public Service Loan Forgiveness (PSLF) will be sufficient for your application, says Kantrowitz.
"Both are submitted using the PSLF Help Tool," Kantrowitz explains. "You should do this even if you previously submitted an ECF or forgiveness application and were denied."
And here's another key point: You must submit your application by October 31, 2022. Meaning, there's no time like the present to get started.
However, those with Direct loans who had already submitted applications for forgiveness but have not yet received a decision will not need to take any action, says Taylor.
"Borrowers who only have Direct Loans, have already submitted a PSLF application, and have already verified their employer's eligibility are in the clear," she says. "The Department of Education intends to automatically credit these borrowers for previously disqualified payments."