PSLF program’s revamp could give public servants a new chance at student-debt relief

Many public servants will now have more time to take advantage of changes to Public Service Loan Forgiveness — likely providing them with faster access to debt relief under the program, officials announced Tuesday. 

The temporary PSLF waiver the Biden Administration launched last year is still set to expire on October 31. But public servants who aren’t able to get their paperwork in order by the deadline will still be able to access many of the features of the waiver for the next several months, officials said. 

The announcement comes amid calls from advocates and Democratic lawmakers to extend the waiver, and at a time when borrowers have faced challenges getting information on their progress towards forgiveness from the student loan servicer responsible for managing the program. It also comes as the Biden Administration is facing legal challenges over its broader student debt cancellation program, which an appeals court temporarily stalled last week. 

‘A sigh of relief’ for public servants

Public servants “should be breathing a sigh of relief,” thanks to the announcement, said Mike Pierce, the executive director of the Student Borrower Protection Center, an advocacy group. 

“It’s been a very hectic run-up to the deadline here and this means that the stakes are lower now because there is an opportunity for folks to be able to get their debts canceled,” even if they don’t apply by October 31, he said. Just 15% of the nation’s estimated 9 million public servants have filed paperwork indicating they’re taking advantage of the program, according to an analysis by SBPC cited in a letter from more than 100 Democratic lawmakers urging the Department of Education to extend the PSLF waiver deadline. 

Though borrowers have another chance to get a more streamlined path towards relief, “it’s complicated,” Pierce said. Indeed, Senator Bob Menendez, a Democrat of New Jersey, praised the Biden Administration’s action but reiterated his call to extend the PSLF waiver deadline “to avoid any undue confusion or burden for our public servants.” 

Temporary PSLF waiver came after years of complaints from borrowers

The Biden Administration announced the temporary PSLF waiver last year after years of complaints from borrowers and advocates that borrowers were struggling to get the relief they were entitled to. Under the Public Service Loan Forgiveness program, federal student loan borrowers who work for the government or certain nonprofits for at least 10 years and make student loan payments during that time are eligible to have the remainder of their debt canceled. 

But as Secretary of Education Miguel Cardona put it in a conference call with reporters Tuesday, “the idea was simple, qualifying for forgiveness was not.” In the first few years that borrowers were eligible to receive relief under the program, roughly 99% of applications were rejected. 

Public servants need 120 qualifying monthly payments in order to be eligible for debt cancellation under PSLF. But they were often tripped up by technicalities. The waiver aimed to address some of the biggest issues borrowers faced. Payments borrowers made on Federal Family Education Loans, or FFEL loans — the type of federal student loan most borrowers had before 2010 — didn’t count towards the 120. If borrowers consolidated into the Direct Loan program in order to access PSLF, any payments made before the consolidation didn’t count towards relief. 

In addition, payments that were slightly too large or too small, came in late, or were made in certain repayment programs didn’t count as qualifying payments. Under the waiver, these payments and payments made on FFEL loans count, but borrowers have to take action before October 31. 

To access these benefits, borrowers with Direct Loans have to apply for PSLF before the deadline. Borrowers with FFEL loans have to start the process of consolidating their loans into Direct Loans and apply for PSLF by October 31, to be eligible for the waiver. 

(Here’s a step-by-step guide to taking advantage of the PSLF waiver, which expires on October 31.)

Most borrowers will have a second chance at accessing these benefits for the next several months

Now, thanks to Tuesday’s announcement, most PSLF borrowers will have the next several months to take these steps and still have payments on FFEL loans, payments that were made under all repayment plans as well as late and partial payments count towards the 120 needed for relief. The adjustment to borrowers’ payment counts will be made in July 2023, Department officials said, but they advised borrowers with FFEL loans to apply to consolidate their debt into Direct Loans by May 1, 2023 in order to ensure they’ll be able to qualify for the relief. 

In addition, borrowers who were in forbearance — a status where payments are paused, but interest continues to build — for at least 12 consecutive months or 36 months total will have those months counted towards the 120 needed for relief. Adjusting payment counts for months in forbearance isn’t part of the PSLF waiver. That means some borrowers could receive a payment count adjustment in the fall or winter tied to the waiver and another adjustment after July tied to the action announced Tuesday, Pierce said. 

After July some of these opportunities for account adjustments will disappear, but the Biden Administration is making permanent changes to PSLF that, going forward, could help borrowers have more payments count towards relief. For example, late payments or those made in a lump sum will be qualifying payments. In addition, borrowers who consolidate their FFEL loans into the Direct Loan program will have a weighted average of their payments count towards the 120. Previously any payment made before consolidation didn’t count towards relief. 

Borrowers no longer working in public service should apply by October 31

Though borrowers now have months to take advantage of many of the features of the PSLF waiver, it is still officially ending on October 31 because it was tied to the circumstances the country was facing last year, a Department official told reporters. There are some borrowers who will not be eligible to have their payment counts adjusted in July and need to apply for the PSLF waiver by October 31 to get streamlined access to relief. 

The most prominent of this group is borrowers who are no longer working in public service. Under the waiver, borrowers who have retired or left public service for another reason, but worked for the government or certain nonprofits for at least 10 years and made student loan payments during that time, can still have payments counted and have their debt canceled under the PSLF waiver. But they won’t be eligible for the July adjustment. 

“That’s who we’re the most worried about today,” Pierce said. His organization and other advocates are “trying to make sure we reach every single one of those people,” before the October 31 deadline. 

Pierce is also advising borrowers who will be eligible for the July payment adjustment to start filling out paperwork to take advantage of these programs now. 

“If you don’t get this stuff in by the deadline, by Halloween, you’re going to end up in the back of the line and you’re going to be sitting in limbo until July,” he said.  

‘A high-stakes decision’

Still, for one subset of borrowers, the question of whether to consolidate their debt to get access to these PSLF benefits isn’t straightforward, Pierce said. Borrowers with commercially-held FFEL loans or those that are still owned by private lenders, but backed by the government, will lose out on the $10,000 or $20,000 in debt cancellation under the Biden Administration’s broader debt relief plan if they consolidate those loans into the Direct Loan program. 

“You have a high-stakes decision,” Pierce said.

That’s because at the end of September, the Department of Education announced that borrowers with commercially-held FFEL loans would no longer be eligible for the broad-based relief program if they consolidated into the Direct Loan program. The change came amid a lawsuit over the debt relief from six Republican-led states, who argued that the initative would financially harm state-related entities that own some of these commercially-held FFEL loans because it encouraged borrowers to consolidate. An appellate court temporarily paused the debt relief program as it considers arguments in that case. 

The Higher Education Loan Authority of the State of Missouri, or MOHELA, is one of the state-related entities cited in the suit. They’re also the organization the Department of Education contracts with to administer the PSLF program. Over the past several weeks, borrowers and advocates have complained of waiting on hold with MOHELA for several hours to get basic information about their loans, including how many qualifying payments they have and whether their paperwork was received, as the October 31 deadline approaches. 

The company didn’t immediately respond to a request for comment.

Part of the “intense public pressure,” on the Biden Administration to extend the PSLF waiver stemmed from challenges borrowers were facing dealing with MOHELA, Pierce said. Borrowers and advocates have also raised concerns over the past several years that servicers have thrown up obstacles to public servants’ ability to access the PSLF program. 

“Borrowers absorb that, not just as a show of whether or not they can get help when they need it,” Pierce said, but it also undermines “any confidence that the administration has built in the Public Service Loan Forgiveness program.”

“The public trust in this program that has produced failure after failure is only as good as borrowers’ most recent interaction with the student loan system,” he said.  

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