Student Loan Forgiveness: What’s Getting Fixed?

A limited waiver announced by the U.S. Department of Education is expected to immediately wipe the slate clean for 22,000 student borrowers seeking Public Service Loan Forgiveness and speed the process for at least 500,000 more.

It’s not the broad student loan forgiveness borrowers may be dreaming of. Instead, it’s the latest example of the Biden administration’s strategy of tackling student loan debt through existing programs.

“The Biden administration has committed to an overhaul of the student loans system and how it functions — whether the programs are easy access and whether people can get forgiveness — and I think this is an important step forward on that path,” says Sarah Sattelmeyer, project director of education, opportunity and mobility in the higher education initiative at New America, a public policy think tank.

Neither President Joe Biden nor Congress has committed to forgiving loans en masse despite calls to do so from prominent Democrats, state officials and consumer rights advocacy groups.

But since the start of Biden’s term, the Department of Education estimates that more than $11.5 billion in loans have been canceled for over 580,000 borrowers through updates to existing forgiveness programs.

The department is clearing backlogs of applications from borrowers who were defrauded by their schools, faced school closures before attaining a degree and have permanent disabilities — now, that list also includes those seeking forgiveness in exchange for public service.

Here are the improvements that have been made so far.

The Department of Education issued new guidance in October to ease the burdensome application process for Public Service Loan Forgiveness, or PSLF. It’s a program to discharge debt for borrowers who work for public service employers, like the government or public schools and hospitals.

Forgiveness through PSLF has been notoriously difficult to attain because of complex rules about the type of loans and repayment plans allowed. Plenty of technicalities have disqualified payments from counting toward the 120 needed for discharge. And then there’s the paperwork: 10 years’ worth of employment certification.

As a result of the red tape, only about 1% of the nearly 400,000 borrowers who have applied have ever had loans forgiven through PSLF, according to federal student aid data.

When the PSLF program was created, total student debt was around $550 billion, says Seth Frotman, executive director of the Student Borrower Protection Center. “We were worried about the impact student debt was having on the viability of those entering and staying in public service fields,” Frotman says. “It’s even more important that this program works in light of where we find ourselves today — facing a $1.7 trillion student debt crisis.”

The department has pursued quick fixes before, like combining employment eligibility forms with the application and temporarily expanding eligibility for select borrowers. But the Department of Education acknowledged in a June 2021 memo that those efforts haven’t been enough to curb “confusion and frustration.”

“There are a lot of people who were paying on their federal loans, working in a qualifying job, believing they were working toward forgiveness only to find out, when they eventually submitted an application, that they had the wrong type of loan, like a FFEL loan, or they were not in the right type of repayment plan,” says Bradley Custer, senior policy analyst for higher education at the Center for American Progress, a public policy think tank.

Under the new PSLF limited waiver, borrowers who worked full time for a qualifying public service employer can get prior loan payments counted toward PSLF, even if payments were:

• Made on disqualified Family Federal Education Loan program loans (that is, commercially held) or Perkins loans, so long as they consolidate into a direct loan.

• Previously consolidated, which reset payments that counted toward PSLF to zero.

• Made in the wrong repayment plan, like a standard, graduated or extended plan.

• Made late.

• On pause while the borrower was on active duty in the military.

Parent PLUS borrowers were left out of this limited waiver; those borrowers can still apply, but old application rules remain. Student loan experts are unsure why parent PLUS borrowers were excluded.

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says the waiver solves “operational issues we’ve seen up to now that have plagued the PSLF program,” but still encourages borrowers to be aware of all the details of PSLF rules for the best chance of getting their loans discharged.

Borrowers who are eligible for relief under the new limited waiver must submit a PSLF form by Oct. 31, 2022, to qualify. Beginning immediately, borrowers can consolidate their student loans via the federal student aid site and submit the PSLF form to certify employment and apply for PSLF.

Federal student loan payments are paused through Jan. 31, 2022. During this forbearance, which began March 2020, each month of nonpayment counts toward forgiveness.

Borrowers should also remember this: You never have to pay anyone to apply for PSLF, consolidate your debt or access the benefits of the PSLF waiver. Any company promising to do the work for you is a scam.

The Department of Education under Secretary Miguel Cardona has updated other existing discharge programs, including:

• Borrower Defense to Repayment: Over $1.5 billion in claims among nearly 92,000 borrowers who were deceived or misled by their schools has been approved.

• Closed School Discharge: $1.1 billion was made automatically available to 115,000 borrowers who attended the shuttered ITT Technical Institute. Borrowers who attended a school that shut down between Nov. 1, 2013, and July 1, 2020, can expect an automatic loan discharge as long as they didn’t enroll in another school within three years of the closure.

• Total and Permanent Disability Discharge: A total of $7.1 billion among 364,000 borrowers who qualify as disabled has been discharged. To identify future eligible borrowers, data will be shared with the Department of Education from the departments of Social Security and Veterans Affairs. Earnings documentation requests are also suspended.

More changes are expected to be made to PSLF by the end of 2022, according to the Department of Education.

Following in the footsteps of fellow federal loan servicers Navient and GSMR, FedLoan, the private servicer managing all loans for borrowers on track for PSLF, is ending its contract after Dec. 31, 2021. That means borrowers seeking PSLF will have a new servicer. Before losing access to your FedLoan account, download all payment records to ensure nothing gets lost in the transition.

Loan servicer MOHELA is taking on the FedLoan portfolio, according to the department, but it’s still unclear which servicer will be managing PSLF in the future.