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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