Last week, Congress passed – and the President signed – a major spending package that touches nearly every element of society. Buried deep within the 2,200 pages of legislation are some interesting provisions regarding the Public Service Loan Forgiveness (PSLF) program, which allows borrowers to get any remaining balance on their federal student loans forgiven after 10 years of “qualifying payments.”
First, a recap of the PSLF program. It’s not so much about “10 years” of qualifying payments as it is 120 individually qualifying monthly payments (which, if made consecutively, add up to 10 years). A “qualifying payment” is one that is (1) made on Direct federal student loans, (2) under a qualifying repayment plan – which is either the 10-year Standard plan or an income-driven repayment plan, while (3) working full-time for a qualifying public service employer.
That second prong – being in repayment under a qualifying repayment plan – has caused a lot of problems for borrowers, since Extended and Graduated repayment plans generally do not “count” towards PSLF. There are many borrowers who thought they were making progress towards PSLF, only to find out they were in the wrong repayment plan. The Dept. of Education has said that even in cases where borrowers were paying more per month under a different plan than they would have under an income-driven plan, their payments don’t count. Truly frustrating.
This might have changed, however, with the recent spending bill. The bill creates a $350 million discretionary fund for the PSLF program, specifically established for borrowers who should have been on track for PSLF but were in either the Graduated or the Extended repayment plans, or a Standard plan for a Direct consolidation loan with payments lower than they would have been under the 10-year term. There are, however, some caveats:
- This only comes into play when borrowers actually apply for the PSLF cancellation benefit – which can only happen after the borrower has made the 120th payment.
- This benefit will only be provided on a “first-come, first serve” basis and only to the extent that there is money available in the discretionary fund. That means that this benefit is not guaranteed – borrowers who are nearing the end of their 120 payments will have a far greater chance of getting approved for this exception as compared to people who have only been in repayment for a couple of years.
- A borrower who applies for PSLF must have been making monthly payments that are not less than what the payments would be under an income-driven plan during the year preceding the application for PSLF cancellation.
- There is a cap on the total loan amount that can be forgiven under PSLF when borrowers are seeking to exercise this exception: that cap is $500,000. (There is still no cap on the loan amount forgiven under PSLF for borrowers who made all 120 qualifying payments under a qualifying repayment plan.)
This is potentially very good news for millions of borrowers who have been out of luck because of a technicality. Of course, we’ll have to see how this actually gets implemented. The bill requires the Dept. of Education to provide notice to borrowers about this benefit, but I’m not so optimistic that clear notice will be provided to people (has clear notice about anything student-loan-related ever been provided to borrowers?). It’s also unclear how FedLoan Servicing – the agency tasked with handling the PSLF program – will factor in these recent changes. FedLoan Servicing can’t seem to provide accurate counts of qualifying PSLF payments for borrowers, even when all criteria are clearly being met; this just adds a new complication.
So stay tuned; let’s see how this goes.
