Public Service Loan Forgiveness (PSLF) is a program that allows borrowers to have any remaining balance on their federal Direct student loans forgiven after 120 “qualifying payments” (typically under an income-driven repayment plan). Borrowers must work full-time for a public service employer to qualify. For hundreds of thousands (if not millions) of student loan borrowers, it is a critical program that allows people to work in traditionally low-paying sectors that often require advanced degrees.
The PSLF program has been in the news a lot lately, however, and not in a good way. There’s been talk about changing or eliminating the program. There’s been news about the U.S. Dept. of Education denying people access to the loan forgiveness benefit. And no one has been granted forgiveness yet under the program. There’s a lot of uncertainty, which is understandable given PSLF’s complexity and the constant stream of news stories.
So let’s take a moment and review where things are.
Applications for Student Loan Forgiveness
PSLF was implemented in October of 2007, and it is not retroactive to before that date. That means that the first wave of borrowers eligible for student loan forgiveness under the program cannot apply until October 2017. I’ve been doing student loan work for many years, and I’m used to that date feeling very far away… except as of right now (August 2017), it’s not. The Dept. of Ed just released the formal PSLF application, available here. But we’re still not sure what the Dept. of Education’s review process will look like, or how long it will take. So stay tuned. I anticipate it’s going to be a messy rollout.
U.S. Dept. of Education Can Rescind Forgiveness Decisions?
There is an ongoing lawsuit by the American Bar Association and a handful of other nonprofit organizations against the U.S. Dept. of Education for rescinding initial determinations of qualifying PSLF employment. By way of background, “qualifying employment” for PSLF includes government entities, 501(c)(3) nonprofit organizations, and non-501(c)(3) nonprofits that engage in certain activities. Whether a non-501(c)(3) nonprofit qualifies for PSLF is a case-by-case determination.
In the lawsuit brought by the American Bar Association, employees who work at non(501)(c)(3)’s were initially told by the U.S. Dept. of Education and FedLoan Servicing that their employment qualifies, but then were later told the opposite. So they sued. That lawsuit has not been resolved yet. Just this week, the Dept. of Education filed another legal brief in court, doubling down on its argument that it has the power to essentially change its mind with regard to these initial determinations of qualifying PSLF employment.
While the Department’s position is concerning for a number of reasons, it is important to keep in mind that this lawsuit only pertains to a very limited subset of student loan borrowers working for non-501(c)(3) nonprofit organizations where the Department of Education must make case-by-case determinations of eligibility. Employment for government entities and 501(c)(3)s are not at issue – at least, not yet.
Is Trump or Congress Repealing Public Service Loan Forgiveness?
Earlier in May, the Trump administration released a budget proposal that called for the “de-funding” of the PSLF program. This caused widespread panic amount student loan borrowers. De-funding an entitlement program while keeping it intact in law would be, in my opinion, legally problematic (to put it mildly). However, for borrowers currently on track for PSLF, this should not be a concern, as the proposal makes clear that the de-funding would only apply to borrowers taking out new loans starting in 2018 – effectively grandfathering in student loan borrowers who are currently on track for the PSLF program. This was confirmed in a U.S. Dept. of Education conference call with news reporters.
That said, it’s not even the Trump administration’s job to write the budget. It’s Congress’s. And Congress can accept, reject, or modify the proposals put forth by the White House. With healthcare reform seemingly off the table for the near future, Congress will be turning its attention to the debt ceiling, tax reform, and the budget. As of yet, nothing concrete has been released by Congress that would change the PSLF program. We should know more within a few months – in the meantime, stay vigilant.