Education Department overhauls Public Service Loan Forgiveness program, forgiving $1.7 billion in student loan debt

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The Biden administration announced significant changes to the highly criticized Public Service Loan Forgiveness (PSLF) program Wednesday morning, including less stringent eligibility requirements and automated enrollment. The U.S. Department of Education estimates that these changes will immediately forgive $1.74 billion in federal student loan debt for 22,000 borrowers. In total, 550,000 are expected to see their progress toward PSLF grow automatically as a result of this announcement.

Key takeaways

  • About 22,000 borrowers will automatically have their federal student loans forgiven, even if their loans were previously ineligible.
  • Requirements for eligible loan types and repayment plans are temporarily relaxed through Oct. 31, 2022.
  • Military members and federal employees will start receiving automatic credit.
  • The Department of Education is reviewing denied PSLF applications and improving servicer oversight.

Education Department to ‘restore the promise’ of Public Service Loan Forgiveness

Public Service Loan Forgiveness was signed into law in 2007 as a way to alleviate the debt of teachers, nurses and other public servants, but even after 15 years, the program has not delivered on its promise for most borrowers. Under PSLF, borrowers working for public service employers can see their remaining federal student loan debt wiped away after 10 years of payments; however, labyrinthine eligibility requirements have meant that only 2 percent of applicants are approved.

Borrowers, government officials and advocacy organizations have repeatedly called for revisions to the program. The Department of Education has indicated that these changes are a result of public hearings with stakeholders that began earlier in the year, during which the department discussed the program’s current flaws and accepted public comments. Over 48,000 comments were submitted.

“These changes are important steps toward a better and stronger PSLF program,” states the Education Department’s press release, “one that will move away from the current situation in which too few borrowers receive forgiveness, and too many do not receive credit for years of payments they made because of complicated eligibility rules, servicing errors or other technicalities.”

Revisions to the program involve simplifying eligibility requirements

This wave of PSLF revisions focuses primarily on relaxing the strict eligibility, payment and application requirements that have kept thousands of public servants from receiving the forgiveness they were promised.

The following changes as outlined by the Education Department will also be paired with “an expanded communications campaign to make sure affected borrowers learn about these opportunities and encourage them to apply.”

Expanded eligible loan types

A temporary PSLF waiver will allow borrowers to get credit for previously ineligible loans or repayment plans. Previously, only payments made on Direct Loans counted toward PSLF requirements. Now, the Department of Education will adjust payment counts and automatically apply the waiver for borrowers who made payments on Federal Family Education Loan (FFEL) Program loans or Perkins Loans that have since been consolidated. Borrowers who have not consolidated those loans may do so before Oct. 31, 2022, to take advantage of the waiver.

The department estimates that “the limited waiver alone will help over 550,000 borrowers who had previously consolidated their loans see their progress toward PSLF grow automatically, with the average borrower receiving 23 additional payments.” About 22,000 borrowers will have their federal student loans discharged immediately, totaling $1.74 billion in forgiveness.

Relaxed payment eligibility requirements

A primary concern of the program has been the payment eligibility requirements. Payments have been rendered ineligible due to technical errors made by the borrower, like the repayment plan they’re enrolled in, the timing of the payment or the payment amount. Previously, late payments or payments not paid in full did not count toward PSLF.

The new temporary requirements will retroactively relax PSLF payment requirements made on or before Oct. 31, 2021, for qualifying borrowers affected by these specific technicalities. Borrowers who apply for PSLF by Oct. 31, 2022, will benefit from this temporary measure as well.

Automated eligibility for military members and federal employees

Starting in 2022, the Department of Education will automatically enroll qualifying service members in PSLF through an administrative data-matching program between the Department of Education and other applicable federal service agencies.

“Military service members and other federal employees devote themselves to serving the United States, and we should make it as easy as possible for them to get PSLF,” the press release states.

In addition, the department is working on a new process in which months spent on active-duty service will count toward PSLF, even if the loans aren’t in active repayment — meaning members of the military will be able to receive credit toward PSLF even while in periods of deferment or forbearance.

Identification of processing errors

The servicer that manages PSLF, the Pennsylvania Higher Education Assistance Agency (PHEAA), has taken heat for alleged mismanagement of the PSLF application and payment eligibility process. The servicer announced earlier this year that it won’t be renewing its contract with the Education Department, meaning borrowers will be transferred to a new servicer over the next year.

In light of these issues, the Education Department will conduct an internal data review of denied PSLF applications to investigate any discrepancies. There will also be an external data review of PSLF processing methods in an effort to address errors.

Long-term improvements

In addition to the temporary improvements outlined in Wednesday’s press release, the department is working on long-term changes to PSLF, including the application process.

“We can and should make it easier for borrowers to apply for PSLF,” states the press release. “In the coming year, [Federal Student Aid] will make several improvements that will create a smoother application process.” These improvements include improving digital databases and automating employment certification.

Through the negotiated rule-making process, which began this week, the department is also discussing changes that would permanently ease the rules governing qualifying payments.

How borrowers can prepare

Changes to PSLF will be implemented over the next several months. Borrowers can log in using their FSA ID on the Federal Student Aid website to receive detailed and timely information about the PSLF changes.

If you have Direct Loans and you’ve already applied for PSLF, no action is needed on your part. If you haven’t applied for PSLF yet or if you have FFEL or Perkins Loans, you can consolidate your loans and apply before Oct. 31, 2022, to receive these temporary benefits. For more information, use the PSLF Help Tool.

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