Is Public Service Loan Forgiveness Going to Disappear?

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Public service loan forgiveness (PSLF) has been in the news quite a bit recently. This program, which was designed to offer relief to student loan borrowers working in public service, has been identified by both the Obama administration and the current Republican-led House of Representatives as a place for the Department of Education to save some money. The proposals range from capping the amount that can be forgiven to eliminating the program entirely.

While it’s impossible to know how the government might change PSLF, there is some reassuring news for borrowers hoping to see their loans forgiven through the program. Here’s what you need to know about public service loan forgiveness and the proposals that have been made to change it.

What is public service loan forgiveness?

In order to understand how PSLF might change, it’s important to understand how it is currently set up. The program was created under the College Cost Reduction and Access Act of 2007. In order to be eligible for loan forgiveness, federal student loan borrowers must be employed full-time by federal, state, local, or tribal government, a 501(c)(3) non-profit organization or other public service non-profit that meets IRS requirements, or with AmeriCorps or the Peace Corps.

PSLF is available for borrowers with the following types of student loans:

  • Federal Direct Subsidized Stafford/Direct Loans
  • Federal Direct Unsubsidized Stafford/Direct Loans
  • Federal Direct Consolidation Loans

Eligible borrowers must be enrolled in a qualifying repayment plan and must have made 120 monthly payments in order to have their remaining loan forgiven. The qualifying payments are:

  • Standard repayment
  • Revised Pay As You Earn (REPAYE)
  • Pay As You Earn (PAYE)
  • Income-Based Repayment
  • Income-Contingent Repayment
  • Any other payment plan with monthly payments that equal or exceed standard repayment monthly payments

Of the 120 payments that an eligible borrower must make in order to qualify for forgiveness, only payments made after October 1, 2007 count toward the necessary payments. That means no borrowers have yet had their loans forgiven under PSLF, and the first loans will not be forgiven under this program until October of 2017.

Understanding Obama’s proposed forgiveness cap

In his 2015 budget proposal, President Obama suggested that the amount forgiven through PSLF be capped at $57,500. That dollar amount is equal to the “aggregate loan limit for independent undergraduate students.” In other words, Obama proposed that the forgiveness amount be capped at the highest amount of money undergraduates can borrow through federal loans.

Unfortunately, this forgiveness cap could be a serious problem for some public service professionals who need advanced education in order to do their jobs. For instance, according to the legal blog Above the Law, “average law graduate debt is somewhere in the ballpark of $140,616.” That is debt that a budding lawyer will likely accrue whether she goes into lucrative corporate law or works as a public defender, where her starting salary will typically be in the $40,000s.

Though the Obama administration made the case for capping the amount that can be forgiven, the PSLF cap was dropped in order to get the proposed budget passed. That means that there is currently no cap on the program.

Proposals to eliminate PSLF

The Republican-led House of Representatives has made several federal budget proposals, which include the complete elimination of the PSLF program. So far, the proposals to eliminate PSLF have not been successful, and will likely not be passed while the executive and legislative branches of government are controlled by different parties.

This means that even if there is another push to eliminate PSLF in the next budget proposal, it is unlikely to be successful under the Obama administration. Current student loan borrowers who are on track to see their loans forgiven in 2017 will most likely see their forgiveness go without a hitch.

Current vs. future borrowers

Though there are no current plans on the books to make changes to PSLF, current and future borrowers may still worry about their ability to access student loan forgiveness—with good reason. PSLF is a government program set in place via federal statutes and government regulations, which means it can be changed or eliminated with the stroke of a pen.

However, there is reason to believe that current borrowers will be “grandfathered in” with the rules in place at the time they took their loans. For instance, Obama’s forgiveness cap proposal specified that the limit would only apply to new borrowers after the cap was put in place—current borrowers would not have their forgiveness amount capped. Though this proposal was not instituted, the way it was worded is reassuring and suggests that similar proposals will offer the same grandfathering.

It’s also important to note that the PSLF program has been written into the Federal Direct student loan promissory notes since 2007. Promissory notes put forth the terms and conditions of the loans, similar to a contract. If the government eliminates the program spelled out in existing promissory notes, it could be viewed as a contractual violation. This means that current borrowers can rest assured that any changes to PSLF will most likely affect only future borrowers.

What to do if you intend to rely on PSLF

Current borrowers may be breathing a sigh of relief, but that’s not true for future borrowers. If you hope to go into a career in public service that you can only afford if you qualify for PSLF, you may be watching the current political climate with even more trepidation than usual. What will happen next with this program depends a great deal on who wins the White House and what Congress will look like in 2017.

In the meantime, it’s prudent for all future borrowers to find ways to cut college costs and reduce the amount you need to borrow. Unlike the future of PSLF, those are issues that each college student can decide for him or herself.

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. 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.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.