“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness. The system has not delivered on that promise to date, but that is about to change for many borrowers who have served their communities and their country,” Education Secretary Miguel Cardona said Wednesday.
Created by Congress in 2007, the loan forgiveness program has been derided by participants, lawmakers and consumer groups for being exceedingly complex and poorly managed.
To qualify, borrowers must make 120 on-time monthly payments for 10 years to have the remaining balance canceled. They must work for the government or certain nonprofit organizations. They must have loans made directly by the federal government. And they must be enrolled in specific repayment plans, primarily those that cap monthly loan payments to a percentage of their income.
People have complained of receiving bad advice from loan servicing companies hired by the department, leading them to believe they were making qualifying payments when they were not.
Poor guidance can add years to the process and be devastating for those who plan their lives and careers around the promise of tax-free debt cancellation, consumer advocates say. They say that many awaiting forgiveness have been paying their debt for more than a decade but are being held back by technicalities.
To address some of those technicalities, the Education Department is counting payments made under the following scenarios:
- People who made payments on loans originated through the now-defunct Federal Family Education Loan Program (FFELP).
- People who consolidated their FFELP loans into the Direct Loan program. Typically, only payments made after the consolidation would qualify for forgiveness, but now those made previously also will qualify.
- People who have made 120 payments on a Direct Loan, but in the wrong repayment plan.
- Active-duty members of the military whose loans are deferred or in forbearance while they’re serving.
To benefit, borrowers must submit an application used to verify their employment by Oct. 31, 2022. Those with FFELP loans will have to consolidate into the Direct Loan program and submit the application. Military service members and federal employees will receive automatic credit toward forgiveness without an application through data matches beginning next year.
People who made 10 years’ worth of payments while working in the public sector but have since retired are also eligible for relief. The waiver applies only to debt taken out by students, not their parents.
The Education Department also will review the applications of borrowers who have been rejected by the forgiveness program, looking for errors and giving people an opportunity to have the determination reconsidered. Although tens of thousands of people have applied for forgiveness to date, just over 16,000 have been successful.
The federal agency said it will be directly contacting borrowers. It encourages people to sign up for a Federal Student Aid ID and update their contact information.
“It is a huge step in the right direction that now we have countless public servants that entered teaching or the military … with the promise of loan discharges are now going to see their loans discharged,” said Aaron Ament, president of the National Student Legal Defense Network. “There are a lot of questions that remain as they are transitioning an entire program to a new servicer as to how to operationalize these reforms, but also long-term reforms.”
Wednesday’s announcement arrives amid two crucial moments for the future of the Public Service Loan Forgiveness program. This week, the Education Department has convened a rulemaking committee to consider regulatory changes to the program, many of which are featured in the temporary waiver. The agency said proposed changes are informed by the more than 48,000 comments it received on improving the program.
Education Department officials say the temporary waiver will serve as a bridge to help public servants as the rulemaking process plays out.
The department also is working to transfer the administration of the Public Service Loan Forgiveness program from the Pennsylvania Higher Education Assistance, a state financial aid agency that manages student loans and grants for the federal agency. PHEAA, which also operates as FedLoan Servicing, said in July it will not seek or accept another extension of its contract once it’s up in December.
Education Department officials would not disclose whether the agency has selected anyone to manage the program yet, but said that plans to conduct a review of accounts should allow for a smoother transition. Granting forgiveness to scores of public servants through the temporary initiative could make the transfer process easier as fewer loans will require servicing.
The Education Department and PHEAA have been criticized for the management of the loan forgiveness program. A 2017 Consumer Financial Protection Bureau investigation accused PHEAA of miscounting borrowers’ qualified payments and giving them a hard time as they fought to have the errors corrected.
Two years later, the American Federation of Teachers, one of the country’s biggest teachers unions, sued Education Secretary Betsy DeVos alleging she and the department ignored borrower complaints about loan servicers providing inaccurate information and making administrative mistakes. The lawsuit is ongoing, but AFT President Randi Weingarten praised the Biden administration’s sweeping changes.
“This is really good,” Weingarten said of the waiver. “We have repeatedly highlighted the Kafka-esque, absurd administrative hops the Department of Education and servicers made people go through to access Public Service Loan Forgiveness. What the department is doing is cleaning up the mess created by DeVos and the servicers.”