Public Service Loan Forgiveness changes have been in the news a lot lately, from President Donald Trump’s proposal to end the program for new borrowers to the mishandling of current loans by servicers.
The program seems like a no-brainer because our public servants deserve relief from their student loan debt. But have you ever considered where that money comes from?
The program is funded by your tax dollars. And the cost is enormous.
Recently, the Congressional Budget Office doubled its cost projection for the program — to nearly $24 billion over the next decade.
What is the Public Service Loan Forgiveness program?
Congress created the Public Service Loan Forgiveness (PSLF) program in 2007, and President Barack Obama’s administration expanded it in 2012. Its purpose is to offer low-paid public service workers some relief from their student loan debt.
Borrowers first sign up for an income-driven repayment (IDR) plan, which limits their monthly payments to a percentage of their income.
Then, after borrowers make payments for 10 years, their remaining federal student loans are forgiven.
Why PSLF costs so much
Public Service Loan Forgiveness sounds like a fabulous (and well-deserved) option for our public servants. So what’s the problem?
It could cost much more than originally anticipated. Here are two reasons why.
1. Massive number of eligible borrowers
The eligibility requirements for PSLF are purposely broad.
You can enroll in the program if you work for a government or nonprofit organization — which means an estimated 25 percent of the population is eligible, according to the Consumer Financial Protection Bureau.
2. No cap on forgiveness
As of right now, there’s no limit to the amount of loans that can be forgiven. So people can rack up six figures of undergraduate and graduate student loans — and then have them forgiven.
Case in point: An estimated 30 percent of PSLF-eligible borrowers have more than $100,000 of loans, according to the Brookings Institution.
The argument against PSLF
Jason Delisle is a resident fellow at conservative think tank American Enterprise Institute and an advocate for changes to the PSLF program.
In the above Brookings report, he argued that the program is being abused as a subsidy for graduate students. Using our Public Service Loan Forgiveness calculator, you can see what he means.
Let’s say you’re single, earn an income of $35,000 that grows by 3.5 percent each year, and have loans with an average weighted interest rate of 5.70%.
Here’s what would happen under PSLF if you had:
$50,000 of loans
- Total balance paid: $31,412
- Total forgiveness: $46,818
$100,000 of loans
- Total balance paid: $31,412
- Total forgiveness: $125,695
As you can see, the program sometimes makes the borrowed amount irrelevant — because the rest will be forgiven anyway.
Delisle offered an example of a man who accumulated $28,000 of loans as an undergraduate. He continued on to a master’s in social work and then a job in public service.
Assuming he earned the average income for a social worker (remember: his payments would be based on income), he’d pay off only $28,000 of his loans over 10 years. That means his entire graduate education would’ve cost him nothing.
“Thanks to PSLF, a student like the hypothetical one above who is faced with the choice of borrowing $10,000 to live frugally while enrolled in graduate school or $20,000 to support a more comfortable lifestyle is probably more inclined to choose the latter,” Delisle wrote.
In Delisle’s eyes, PSLF is too generous and — because income-driven repayment plans forgive loans after 20 or 25 years — redundant.
The argument for PSLF
On the other side of the fence are progressives and public servants.
“The stakes are high for students, particularly those who may face financial stress when they graduate,” wrote Mark Zuckerman, president of the Century Foundation. Because of rising student loan defaults and delinquencies, he said PSLF is “critical.”
He also argued that it benefits our country as a whole.
“By 2020, the nation will need a million new nurses, 435,000 school teachers, and an additional 161,000 social workers,” he wrote. “For new graduates carrying student loan debt, the promise [of] loan forgiveness and flexible repayment options can be an important factor in taking and staying in these important public interest jobs.”
Isaac Bower, director of law school engagement and advocacy at Equal Justice Works, agrees.
He wrote a response to Delisle’s piece in The Huffington Post and argued that only a small percentage of people who are eligible for PSLF actually have student loans and will stay in public service jobs for 10 years.
In fact, only 550,000 borrowers have completed annual forms that certify they’re eligible for PSLF.
Bower called Delisle’s article “misleading” and said PSLF is an “affordable and critical investment that directly benefits all our communities.”
Siding with Bowers and Zuckerman are the public servants counting on PSLF for debt relief:
After teaching for years in urban schools, I decided to go to graduate school to become an even better teacher counting on #PSLF. What now?
— Colin Davis (@BColinDavis) May 24, 2017
— ⒞⒪⒞⒪⒧⒪⒞⒪🙄 (@CocoLoco_RN) May 19, 2017
I’m a teacher, and eliminating the PSLF would ruin me. It’s the only conceivable way to pay off my loans without being financially crippled
— Matt (@Matt17311) May 19, 2017
I’m a teacher. Mr. Snarky is a chaplain at a nonprofit hospital. PSLF is our only hope for a financially stable future, a home, or kids. https://t.co/OSTIbygNx3
— SnarkyTeacher (@MsSnarkyTeaches) July 17, 2017
The lessons we all can learn from PSLF
What do you think? Is PSLF worth it?
Regardless of whether you support the program — and regardless of whether it’s discontinued under the current administration — you always can advocate for yourself.
If you haven’t yet enrolled in school, think carefully before taking on student debt. If you’re already struggling with loans, educate yourself by reading through our blog and learning about programs like IDR and PSLF.
And if you have strong feelings about student loan forgiveness programs, contact your representatives to make your voice heard.
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