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 SoFi.
2 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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% 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 April 17, 2019, 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 04/17/2019. 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 email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
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3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed 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.
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.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
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 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.53% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|