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The U.S. Department of Education announced a host of changes Wednesday to the Public Service Loan Forgiveness program, which guarantees debt forgiveness to qualifying public sector employees.
The U.S. Department of Education on Wednesday announced sweeping changes to a student loan forgiveness program, an overhaul officials said could mean financial relief for more than half a million borrowers working for government entities or nonprofits.
The Public Service Loan Forgiveness program, established in 2007, promised to forgive student loans for qualifying public sector workers who made their federal student loan payments on time for 10 consecutive years.
But the program was plagued with problems from its inception, drawing criticism from advocates who said the system was difficult to navigate and often left qualified borrowers ineligible for debt forgiveness after a decade of regular payments. More than 98% of people who applied for loan forgiveness under the program were rejected, according to federal data, including thousands of teachers. Many of them were turned away for small mistakes, like checking the wrong box on an application or failing to date a signature.
“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness,” U.S. Secretary of Education Miguel Cardona said in a statement Wednesday. “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.”
Among the changes is a new waiver that allows all payments by student loan holders to count toward forgiveness, “regardless of loan program or payment plan.” That provision is a significant shift from the program’s original criteria, which offered debt relief only to borrowers whose loans were made directly by the federal government.
All federal student loans have been owned by the U.S. Department of Education since 2010. But before then, borrowers typically had government-guaranteed loans from private banks. Those loans weren’t eligible for forgiveness under the federal program, but borrowers often didn’t know that until they tried to have their debt cancelled after a decade of regular payments.
“People I know in the government and public sectors really started to get nervous when that started happening,” said Ashley Qualls, a management analyst with the Mecklenburg County Department of Public Health in North Carolina. “They’d make their payments and then get 10 years down the road and all of a sudden you don’t have the forgiveness you thought you would.”
The waiver will retroactively count those payments, a change that’s likely to affect upwards of 550,000 borrowers, including 22,000 who will become “immediately eligible for $1.74 billion in forgiveness without the need for further action on their part,” the federal education department said.
Another 27,000 people may be eligible for up to $2.82 billion in relief by verifying additional periods of employment. The average borrower is likely to receive roughly two additional years of “progress toward forgiveness” under the waiver program alone, the department said. Most will have to apply for the benefits, with applications due by the end of next October.
Other changes include allowing active-duty service members to count loan deferments and forbearances toward the forgiveness program and automatically providing credit for eligible service members and federal employees. The department will also review applications that were denied previously, with an appeals process for borrowers who were rejected from the program.
The changes come after years of advocacy from employee unions and membership organizations, including more than 200 groups that asked Cardona last month to grant comprehensive and retroactive debt relief for public employees. Their letter, dated Sept. 22, came after the Biden administration launched a probe to investigate the loan forgiveness program, an inquiry that collected personal stories from more than 48,000 borrowers.
One submission came from a person with more than 20 years of experience teaching in three public school systems, who consolidated loans only to find out later that the payments would not count toward debt forgiveness.
“The lender...failed to disclose that information prior to my loan consolidation,” it read. “This whole ordeal has been an absolute nightmare.”
Another submission detailed the decades-long public service careers of a couple who opted not to pursue higher-paying jobs at private companies in part because they believed their loans would be forgiven. Their lender assured them they were on track to have their debt wiped away, only to be told after 10 years that they “were ineligible for forgiveness because they were not direct loans.”
“In the current state, this program offers no incentive to remain in low-paying, public-service jobs,” it said. “As our children approach college age, we are left asking whether we should encourage them to avoid public service entirely? Either way, we anticipate paying our student loans while they are in college. This shouldn’t happen to families who simply believed in a flawed program.”
Welcome News for Borrowers
Seth Frotman, head of the nonprofit Student Borrower Protection Center, which previously launched investigations into the program, said the changes were welcome news for thousands of public employees who thought they were already on track to have their loans forgiven.
“This is a good day for teachers, nurses, servicemembers, and millions of workers serving on the front lines of the pandemic,” he said in a statement. “For too long, those who give the most to our communities and our country have been given the runaround and forced to shoulder debts that should have been canceled. The Biden administration is taking a critical step towards alleviating that burden for our public service workers.”
Qualls, who expects to qualify for forgiveness on loans she obtained to get her master’s degree in public administration, said her payment plans likely won’t change as a result of the program’s overhaul. But the restructuring could benefit the public sector as a whole, she said, by allowing relatively low-paid employees to recoup the cost of their educations.
“I think we do miss out on a lot of good candidates because of that cost,” she said. “You do worry how you’re going to pay for it, and you just kind of hope that you can.”
Kate Elizabeth Queram is a senior reporter for Route Fifty and is based in Washington, D.C.