Here is a piece of good news. Last Wednesday, the Biden Administration announced that it will repair the long-mismanaged public service student loan forgiveness program, which has denied promised relief to thousands of people who should have qualified.
The Washington Post‘s Danielle Douglas-Gabriel explains that the reprieve is a temporary one-year waiver, with applications due by October 31, 2022. The reform will address years of mismanagement: “(T)he move will bring more than 550,000 people closer to debt cancellation, including 22,000 who will be immediately eligible.”
Calling the program “a notorious quagmire,” the NY Times Stacy Cowley and Erica Green report: “The Biden administration is overhauling a student loan forgiveness program for public service employees… introducing a sweeping set of fixes… that Education Department officials said would help more than half a million people get closer to the relief they had been denied for years… The beneficiaries will include ‘teachers, nurses, (military) service members, and millions of workers serving on the front lines of the pandemic,’ said Seth Frotman, a former student loan ombudsman for the Consumer Financial Protection Bureau who now runs the nonprofit Student Borrower Protection Center.”
The program was created as an incentive to make public service work more enticing, despite salaries likely to be low relative to the private sector. Douglas-Gabriel explains how the program was designed: “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.”
But there have been problems for years. Thousands of people reported that they got bad advice from the loan servicing companies which serve as contractors for the U.S. Department of Education to manage the program and collect the payments. Some people thought they were in the correct loan plan which would qualify for public service loan forgiveness, even though they had been guided by their loan servicer to another program. Cowley and Green report that the public service loan forgiveness program rules say that to qualify a person must have a loan made directly by the federal government: “But before 2010, most borrowers had government-backed bank loans known as Federal Family Education Loans. Hundreds of thousands of borrowers in public service jobs made payments on those loans for years without realizing—because loan servicers often failed to tell them—that those payments would not count toward the 120 monthly payments they needed to rack up to have their loans forgiven. The Education Department had long resisted giving borrowers credit for those payments, insisting it lacked the authority to do so.”
Borrowers who now qualify for loan forgiveness under the Department of Education’s new plan fall into four categories: those whose loans came from the Federal Family Education Loan Program; those who previously consolidated Federal Family Education Loans and Direct Loans from the Department of Education; those who made 120 payments in the wrong payment plan; and active duty members of the military who have deferred loans while they are serving.
Douglas-Gabriel points out that while “military service members and federal employees will receive automatic credit without an application through data matches beginning next year,” the process of applying to have loans forgiven will be complicated for most borrowers, who must submit an application and verify their public service employment before October 31, 2022. Borrowers whose loans came from the Federal Family Education Loan Program will have to “consolidate into the Direct Loan program.”
Douglas-Gabriel adds: “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.”
In late September, POLITICO‘s Michael Stratford reported on newly released data documenting that, “More than 4,500 educators at 2,700 schools… have been denied as they seek to certify that their employment counts for the program…. The schools where borrowers were denied are located in all 50 states and the District of Columbia.”
Last week, when he announced the Education Department’s overhaul of this program, Education Secretary Miguel Cardona declared: “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.”