Student loan forgiveness: New proposal aims to make applying for forgiveness easier

Democrats signed a letter in early May proposing reforms to Public Service Loan Forgiveness (PSLF).

Public Service Loan Forgiveness is a forgiveness program that forgives federal student loan debt for borrowers who have worked in eligible public service jobs for a specified period of time. Once the borrower makes 120 eligible payments on time, the remaining loan balance will be repaid.

Dozens of U.S. members of Congress and senators have signed a letter urging Education Secretary Miguel Cardona to instruct the Department of Education to reform the PSLF. Led by Democratic Senators Tim Kaine, Kirsten Gillibrand and Rep. John P. Sarbanes, the letter calls for four key reforms to the PSLF and eligibility requirements:

The proposal calls for an overhaul of a program that has come under extensive scrutiny in recent years. If implemented, millions of borrowers would qualify for and benefit from PSLF. It's the latest proposal from many Washington lawmakers to forgive student loans.

4 Proposed Changes to Government Loan Forgiveness Here are the proposed changes to the program and what they might mean for the future of PSLF.

1. Make all federal student loans eligible Effective immediately, all federal student loans are eligible for PSLF. However, those without direct loans face additional hurdles before qualifying. Those with a Federal Family Education Loan (FFEL) must convert their loan to a Federal Direct Consolidation Loan to meet the requirements.

Many miss out on forgiveness because they don't solidify their credits early in their careers, when they are most effective, the letter said. To make the process easier and more efficient, Democrats are proposing that all state student loans -- including FFEL -- be automatically eligible without consolidation.

2. Make all amortization schedules eligible Only those participating in the Income-Based Refund Scheme (IDR) or Standard Refund are eligible for PSLF. An income-linked repayment plan is a federal repayment option that makes monthly payments based on your income and family size.

A major drawback of PSLF eligibility is the repayment requirement. "At least 1.4 million borrowers were unknowingly participating in substandard repayment plans after prior steps were taken to get PSLF back on track," the proposal reads.

Congress introduced the Temporary Expanded Public Service Loan Forgiveness Program (TEPSLF) in 2018 to address this problem. TEPSLF allows borrowers to make repayments under a phased or extended repayment plan, provided that repayments over the past 12 months are at least equal to repayments under an income-based repayment plan. However, it is recommended that all repayment schemes be eligible for PSLF, not just IDR.

3. Forgive without limiting Forgiveness is only available to those who have worked in the qualified civil service for at least 10 years. To be fully forgiven by PSLF, the borrower must still be working in the public sector at the time of forgiveness.

The proposal claims that many otherwise eligible people no longer submit the required documents because they believe they are no longer eligible. It is also claimed that due to COVID-19, many positions in the field are no longer available and many employees are furloughed or out of positions entirely, making them ineligible.

Lawmakers are asking the US Department of Education to change this rule to allow borrowers who have completed 10 years of qualifying repayments to receive full forgiveness under the PSLF, regardless of their occupation at the time of forgiveness.

4. Automatic Borrower Screening To highlight one of the program's major complications, those taking PSLF must submit information about their employer to the Department of Education.

To streamline the application process, the proposal would place that responsibility on the Department of Education, rather than individual borrowers.

"The department can easily determine PSLF eligibility for millions of employees."

How is this data collected securely? The proposal outlines one possible solution: "The department should establish secure data-sharing agreements with the Departments of Defense and Human Resources to automatically identify outstanding student debt for government employees."

Will this PSLF reform proposal be adopted? There is no certainty yet about the chances of these proposals becoming law. However, President Joe Biden has in the past advocated revising the existing forgiveness program. He has directed the Department of Education to revise the Borrower Repayment Program and Total and Permanent Disability (TPD) Discharge Program. While the President is currently exploring constitutional options for canceling student loan debt, the PSLF's amendment may have a better chance of passing at this time than the President's $10,000 cancellation proposal. The letter cites the same exemptions in the Heroes Act of 2003 that were used to implement payment suspensions and interest waivers. However, the waiver is limited to ensuring that recipients of federal grants "will not be economically disadvantaged in connection with such grants because of their status as affected persons." The first and second proposals do not meet this requirement. A third proposal meets this requirement. The fourth proposal does not require a waiver from the US Department of Education to implement.

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