A dysfunctional student loan program meant to provide forgiveness to people like teachers, nurses, service members and other Americans who work in public service will get a major overhaul, the Department of Education announced Wednesday.
The department said the fixes to the program will immediately impact as many as 550,000 qualifying student loan borrowers, with more than 22,000 people immediately eligible for forgiveness to the tune of $1.74 billion, officials said.
The Public Service Loan Forgiveness (PSLF) program was created in 2007 to give certain workers debt relief after they made on-time payments for ten years — or 120 months — under an approved repayment plan. About 1.3 million people are currently eligible based on their jobs, which includes both nonprofit and government work.
But the program’s stringent and confusing rules have left people frustrated, without guaranteed forgiveness and often denied, even if they’d made regular payments for years. Nearly 98% of recent applicants were rejected according to department data from Nov. 2020 to April 2021.
The overhaul announced Wednesday will temporarily loosen restrictions to allow every payment plan and loan type to qualify, implement fixes for additional payment months to count — such as when U.S. servicemembers are deployed and their loan payments paused — and boost Education Department outreach and communication with PSLF borrowers.
The changes would move tens of thousands of borrowers closer to forgiveness right away, officials said, as many had lost hope the program would work for them.
“I feel super lied to,” said Jackie Dombroff, a public defender in New York City, in a town hall with the Student Borrower Protection Center last month.
“I started taking out these loans when I was 17,” she said. “Now I'm 33, I’ve been married for a while, and I don't ever see a future where I can afford to have a child.”
Dombroff, like others, lost several months of payments when she consolidated her loans to be Direct Loans, the only federal type eligible under the PSLF program. People who took out a different kind of loan before and later consolidated them to qualify would often lose months of payments they made beforehand, and they wouldn’t count toward their 120-month goal.
And borrowers have been confused by a lack of instructions or notification about possible errors, especially from loan servicers, as outlined by a government report in 2018.
Reactions to the overhaul from advocacy groups were immediately positive.
"Today we breathe a collective sigh of relief as the Kafkaesque system that dashed the dreams of far too many finally starts to be dismantled," said American Federation of Teachers President Randi Weingarten in a statement.
Federal education officials have received more than 48,000 comments since they requested public information on the PSLF program earlier this year.
“The system is not working, and highest on my list of priorities is making sure we put the borrower at the center of our conversation,” Education Secretary Miguel Cardona told Spectrum News last week when asked about the PSLF program.
The department announced the following changes on Wednesday:
- Allow every payment made while working in a public service job to count toward a person’s ten-year repayment, regardless of loan type or payment plan, under a waiver that runs through Oct. 31, 2022
- The department will automatically adjust prior payments for people who consolidated their loans and have applied for PSLF, while others can get help online
- Temporarily allow all payments to count, even if they were off by a penny or late by a few days, technical requirements that can result in borrowers missing out
- Eliminate barriers for servicemembers, including by letting time on duty count toward their 120 months, even if their loan payments are paused
- Implement data matching with federal agencies to determine eligible borrowers
- Step up efforts to reach out to borrowers who are close to forgiveness
- Let borrowers go through a reconsideration process if denied and they believe it’s in error
- Allow the changes to benefit people who have since left public service without having their loans forgiven
Department officials also said that longer-term changes are on the way through the official rulemaking process, since the bulk of the plan announced Wednesday is not permanent.
They said it could include redefining “public service” jobs, such as to include nurses who work in a for-profit hospital.
“We see this as a series of crucial and time limited changes,” one administration official said of Wednesday’s announcement. “And then our goal is that, by next fall, we'll be wrapping up our negotiated rulemaking work to put in place a number of more permanent improvements.”
More than 200 organizations last month called for major changes to the PSLF program in a letter to Education Sec. Cardona.
The Student Borrower Protection Center also recently uncovered documents that show one loan servicer involved in the program denied thousands of teachers, “often due to paperwork hurdles and other trivial administrative errors.”
"This is a welcome step towards keeping the promise of PSLF and cancelling the student debt of every educator who has served their commitment to their communities," the National Education Association, the nation's largest labor union, wrote in a statement.
Dombroff, the public defender, said she saw colleagues who were denied forgiveness, and she’s anxious the same thing could happen to her, even though she “followed everything to a T.”
“I've taken on extra jobs that have nothing to do with having a law degree,” she said. “I do overnight nannying to save up money for the eventual time when I'm told that my loans are not going to be forgiven.”
Sec. Cardona and Under Secretary James Kvaal were scheduled to host a virtual roundtable with public service workers later Wednesday afternoon.