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. 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.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|