Education Department overhauls Public Service Loan Forgiveness, and other current student loan news for the week of Oct. 11, 2021

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The U.S. Department of Education revealed a major overhaul of Public Service Loan Forgiveness (PSLF), impacting half a million federal student loan borrowers. Additionally, the department announced that it will be establishing an Enforcement Office designed to better monitor and penalize institutions that engage in fraudulent federal student aid activity.

Here’s what you need to know about this week’s trends and how they could impact your student loans.

2 current trends within student loans for the week of Oct. 11, 2021

1. Major revisions to Public Service Loan Forgiveness will forgive more than $1.7 billion in student debt

The Education Department announced significant changes to Public Service Loan Forgiveness (PSLF) last week that are estimated to immediately forgive $1.74 billion in student loan debt for 22,000 borrowers. The department anticipates that 550,000 federal borrowers in total will automatically gain progress toward PSLF due to revisions that relax the strict eligibility, payment and application requirements.

PSLF is a federal program that gives public servants — like military members, government employees and qualifying teachers — full forgiveness of their federal student loan debt after 10 years of payments on an income-driven repayment plan. However, more than 10 years after the program’s inception, only 2 percent of applicants have been approved. Most denials are due a lack of qualifying payments, either because borrowers have been making payments on the wrong type of loan or because they’ve been making payments on the wrong type of repayment plan.

This overhaul of PSLF hopes to address some of those issues with the following revisions:

  • The definition of an “eligible loan” is expanded; borrowers who have consolidated FFEL or Perkins Loans will receive credit for payments they made prior to consolidating. Borrowers who have not yet consolidated may do so before Oct. 31, 2022, to see those payments counted.
  • Rules around eligible payment types are relaxed for payments made before Oct. 31, 2021, and the waiver will be extended to any borrower who applies for PSLF before Oct. 31, 2022. Late payments and payments not made in full will now be counted.
  • Military members and federal employees will now receive automatic credit toward PSLF. Additionally, military members will receive credit during months of active duty, even while their loans are on a deferment or forbearance.
  • The Department of Education is reviewing denied applications for errors and promises to improve communication with PSLF-eligible borrowers and simplify the application process moving forward.

How this affects student loans

Though some of these improvements to PSLF are limited to borrowers who apply before Oct. 31, 2022, long-term overhauls could be on the way. The department’s announcement last week included promises to improve servicer oversight — addressing concerns that PSLF has been mismanaged by servicers in the past — and better communicate with borrowers about their progress and eligibility.

PSLF is also being discussed during the negotiated rule-making process, where some of these temporary changes could be made permanent. Proposals include simplifying what counts as a qualifying payment and allowing some deferments and forbearances to count toward PSLF.

The current round of revisions will be rolled out over the next few months. Borrowers can get more information on the Federal Student Aid website by logging in with their FSA ID.

Key takeaway
An overhaul of PSLF will help more than 550,000 borrowers make progress toward loan forgiveness.

2. Education Department announces Office of Enforcement within Federal Student Aid

In an effort to strengthen oversight and accountability for schools that participate in federal student loans, grants and work-study, the Education Department announced the rollout of an Office of Enforcement within the Office of Federal Student Aid (FSA). Kristen Donoghue, who previously served as the enforcement director of the Consumer Financial Protection Bureau (CFPB), will lead the new office.

The Education Department’s press release outlines the office’s four divisions that will “proactively identify and address major problems across institutions that pose widespread risks to students and taxpayers”:

  1. Administrative Actions and Appeals Services Group: Administers fines, suspensions, revocations and more to postsecondary institutions that participate in federal student aid programs.
  2. Borrower Defense Group: Monitors and analyzes borrower defense to repayment claims.
  3. Investigations Group: Investigates indicators of misconduct by third-party servicers and postsecondary institutions and evaluates their compliance with federal laws, regulations and terms of program participation.
  4. Resolution and Referral Management Group: Receives feedback from students, school officials, FSA officials and more to track suspicious activity within institutions that participate in aid programs.

How this affects student loans

The Enforcement Office was established as a way to better protect borrowers from the misconduct of their schools and servicers. “Vigorously ensuring that schools are adhering to the federal student aid program rules and delivering quality education to students is critical in America’s ability to build back better,” says Undersecretary James Kvaal.

Borrowers may not see effects immediately, but it’s possible that the establishment of this office will make restitution easier for borrowers who are victims of fraud from their schools or student loan servicers.

Key takeaway
Federal Student Aid’s new Office of Enforcement will help better monitor and penalize fraudulent student aid activity.

Here’s how you can get prepared

Whether you’re new to student loans or well into repayment, it’s wise to stay informed about how your student loan rates could change. As 2021 continues, more opportunities for cheaper loans or loan forgiveness could open up; keep an eye on the Bankrate student loans news hub for the latest trends.

Learn more:

Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
Edited by
Student loans editor