This is a question I’ve been getting a lot lately, and it’s no surprise. Public Service Loan Forgiveness (PSLF) is one of the most beneficial federal student loan programs available to borrowers, providing a critical safety net to people who work in generally lower-paying government and non-profit jobs that also require a college degree (and often a graduate or professional degree, as well).
PSLF has been recently targeted by some politicians and segments of the media as a wasteful program that is being “abused.” In particular, the media has been focusing on doctors and lawyers, who often have the highest levels of student loan debt and may get substantial portions of it forgiven under the program. Of course, these stories often fail to note that PSLF may be one of the few reasons an attorney would choose to work as a public defender, assistant district attorney, or in legal services (high-need and high-stress occupations with starting salaries typically in the $40,000’s), or why a doctor would choose to work in a high-risk, public, rural, or correctional medical facility where the pay is often a fraction of private practice salaries. The articles also tend to downplay the fact that all borrowers on track for PSLF must make at least 120 monthly payments (10 years) before they can even apply for forgiveness, just like all of the teachers, nurses, police officers, firefighters, and career soldiers who may also benefit from PSLF’s safety net.
But no borrower is eligible for forgiveness under PSLF until 2017, and news has been swirling about proposals to modify or eliminate the program. Let’s take a look at what’s actually going on here, and what may be possible down the road.
Is Public Service Loan Forgiveness Being Capped?
In a recent budget plan, the Obama administration proposed capping the amount of student loans that can be forgiven under PSLF at a little over $57,000. This proposal was part of a larger reform package aimed at expanding the Pay As You Earn (PAYE) repayment program. The final regulations for that expanded program (now called “Revised Pay As You Earn,” or “REPAYE”) were issued just a few weeks ago, and the proposal to cap PSLF was dropped. So right now, there is no cap on PSLF in any form, for any program.
Is Public Service Loan Forgiveness Being Eliminated Altogether?
Several proposals originating in the Republican-controlled House of Representatives have called for the complete elimination of the PSLF program. This is not something to take lightly. However, in a divided government, it is common for one party to propose legislation that is more of a “wish list” than a realistic attempt to legislate, since any final legislative package necessarily will involve compromise. With the Obama administration still in the White House, any proposal to eliminate PSLF has little, if any, chance of actually passing. The final federal budget package that was ultimately passed by Congress and signed by the President in late 2015 did not contain any provision eliminating PSLF.
Okay – But Can The Public Service Loan Forgiveness Program Still Be Changed?
Technically, yes. The PSLF program is governed by federal statutes and regulations, and the federal government can pass new laws to amend existing programs. Given the current political environment, however, I think it is unlikely we will see any changes to PSLF prior to the next administration coming into office – and that doesn’t happen until January 2017.
If There Are Changes to the Public Service Loan Forgiveness, Would Current Borrowers Be Grandfathered In?
This is a very good question. I just don’t know – and there’s no way to predict what future reforms may look like, and who they would impact. However, there are a few things to note here:
- First, when the Obama administration proposed capping PSLF, they made clear that current borrowers could continue to access currently-available federal student loan programs; the proposed “cap” would have been limited to borrowers who chose to access the expanded PAYE program (again, just to be clear, this cap ultimately was not implemented).
- Second, after PSLF’s creation in 2007, the program has literally been written into Direct federal student loan promissory notes (the contracts setting forth the terms and conditions of Direct program loans). I’ve spoken to several legal experts who believe it might be a contractual violation for the federal government to eliminate a program that is expressly made available by contract. They could eliminate the clause from future contracts, which would affect future borrowers, but not for current borrowers.
- Third, some estimates show that up to 25% of federal student loan borrowers may ultimately be eligible for PSLF. Canceling the forgiveness benefit for so many people (including wide swaths of politically sensitive professions such as law enforcement, teachers, and the military) could lead to public outcry.
- Finally, there is plenty of precedent where the federal government has made certain entitlement programs more restrictive, but limited those restrictions to newer or younger entrants into the system (i.e., with reforms to Social Security and Medicare), effectively “grandfathering in” people who had been invested for awhile.
I certainly cannot predict the future or make any guarantees about any of this. However, I think these are reasons to be cautiously optimistic.
So What’s The Bottom Line?
The PSLF program can be capped, changed, or eliminated. That’s just the simple truth. But the analysis does not, and cannot, stop there.
As a practical matter, I need to be clear that there is no current law, and no serious proposal, to change PSLF right now. Also, if any changes are made in the future, I don’t think they will occur until there is a new administration and a new Congress – that’s 2017 at the earliest, which just so happens to be the year during which the first PSLF borrowers will be applying for loan forgiveness.
I do personally think there will be some sort of changes made to the PSLF program, but we cannot know at this time what those changes might be. Furthermore, for the reasons stated above, I think there are compelling reasons for any such changes to be phased in or limited to people who are not currently invested in the program – in other words, I think there are good legal and policy arguments for grandfathering in borrowers who are presently on track for PSLF. But, there’s no way to know for sure.
So much of this is ultimately going to depend on who wins the White House and what Congress looks like in 2017. So all we can really do right now is wait, watch, and hope for the best.