When the first batch of Public Service Loan Forgiveness applications arrived, over 99% of borrowers were rejected.
At the time, the hope was that the initial confusion would subside, and the acceptance rate would jump.
Instead, numerous borrowers who thought they had earned PSLF received rejections. Many followed the explicit instructions of their loan servicers for years and were still denied.
What Went Wrong with PSLF?
When the 99% rejection rate became public, the list of borrower issues was quite lengthy.
Some of the problems were relatively minor. Some borrowers hadn’t yet made the required 120 payments. Others submitted the wrong form or had incomplete applications.
However, many borrowers faced far more severe issues. Some had federal loans that were not eligible for PSLF. Others signed up for an ineligible repayment plan. Borrowers with loan eligibility problems or repayment plan issues were often told they had to start from scratch.
This represented a colossal failure on the part of the Department of Education for two reasons.
First, the repayment plan and loan type issues are both easily remedied. Most borrowers with ineligible loans simply needed to consolidate their debt at the beginning of repayment. Likewise, enrollment in an eligible income-driven repayment plan is fairly simple and often would have saved borrowers money each month. These easy fixes never happened for borrowers because the federal loan servicers dropped the ball. They failed to adequately advise borrowers on PSLF rules, and in many cases, they told borrowers they were on their way to PSLF when in reality, they were not.
The second failure on the part of the Department of Education was creating unnecessarily complicated rules for borrowers. Complex rules breed confusion. By creating unnecessary red tape, the government dangled the carrot of loan forgiveness to convince people to work in public service but used complex rules to deny the forgiveness earned.
Temporary Expanded Public Service Loan Forgiveness – The First Fix Attempt
To help borrowers who were on the wrong repayment plan, Congress passed legislation that created Temporary Expanded Public Service Loan Forgiveness or TEPSLF.
The goal of the legislation was to help borrowers who were otherwise eligible for PSLF but made payments under the wrong repayment plan. Congress allocated $700 million to help these borrowers.
Unfortuantely, TEPSLF applicants faced high rejection rates as well. Of the initial 54,000 requests, only 661 were approved.
Once again, an unnecessarily complicated system was to blame. Over 38,000 of the initial applications were denied because borrowers were first required to apply for PSLF — even if they knew they knew a denial was a certainty due to being on an ineligible repayment plan.
Still, TEPSLF was a step forward that helped many eligible borrowers qualify for the loan forgiveness that they earned.
The Big Fix – The Limited Waiver on Public Service Loan Forgiveness
It’s hard to overstate the significance of the Limited Waiver on Public Service Loan Forgiveness.
Imagine that you are a borrower with over $100,000 in federal student loans. You see PSLF as the best option to repay your debt, so you take a job with the government. You call your loan servicer to ensure you are not making a mistake. Your servicer assures you that you are on your way to debt freedom. After ten years of hard work and timely payments, you learn your application is denied. Worse yet, you learn that your loans are not eligible because you didn’t take 15 minutes to fill out a form to consolidate your federal loans. Worst of all, because you didn’t consolidate, you will have to start from scratch. It will be another ten years before forgiveness is even a possibility.
The limited waiver fixed this frequent problem faced by many borrowers.
Borrowers now have until October 31, 2022, to consolidate and have their previous payments counted towards PSLF.
The limited waiver also corrected issues for borrowers who were on the wrong repayment plan at times. Without submitting a new application, many borrowers learned that their PSLF counts have been updated. Some people even had their loans discharged. Some even got refunds for extra payments they were unfairly forced to make. This process is still happening and slow-moving at times, but it is a significant step forward.
For many borrowers, the limited waiver announcement was life-changing.
A Small but Significant Under the Radar Fix
The Department of Education also made a slight change to the PSLF process that will also help many borrowers.
Initially, one of the more confusing aspects of PSLF was identifying the proper form to complete. One form was for borrowers who believed they had completed the 120 required payments. There was another form for borrowers who wanted to certify payments but didn’t believe they had completed the full 120.
The Department of Education created a third form for borrowers who wanted to apply for TEPSLF.
The most confusing aspect of these three forms was the fact that they looked nearly identical. Yet, using the wrong form meant a denial.
Wisely, the Department of Education combined the forms. Now borrowers have one simplified PSLF form to use.
Extra Guidance from the Department of Education: For borrowers confused by the PSLF form, the Department also created the PSLF Help Tool, which provides guided assistance for borrowers pursuing PSLF.
Has Biden Fixed Public Service Loan Forgiveness?
As excited as I am about the limited waiver and improvements made, I think some work remains.
Parent PLUS loans are at the top of the list. These loans can become eligible for PSLF, but the process is unnecessarily complicated.
Additionally, PSLF is still an all-or-nothing program. Awarding partial forgiveness for public servants would help avoid devastating outcomes after ten years of work and help encourage more people to work in public service. Candidate Joe Biden proposed awarding $10,000 in loan forgiveness for each year of public service work for up to five years. President Biden hasn’t taken any steps to implement this change.
Given the lousy track record of loan servicers and the Department of Education in administering PSLF, it is probably too soon to declare things fixed. Hopefully, all deserving borrowers will get the help they need from the limited waiver. For now, it is worth watching closely.
While there are still a few outstanding issues with PSLF, I think it is fair to say that things are significantly improved.
The Next Big Issue
Fixing problems with PSLF was a pressing issue because many borrowers had earned forgiveness but were denied due to flaws in the program.
The next big problem to fix is likely Income-Driven Repayment. At present, borrowers can choose Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), or IBR for New Borrowers. The process has already started to create Expanded Income-Contingent Repayment, but the initial information looks bleak.
Like PSLF, many borrowers are confused about IDR payment options and how to earn forgiveness. As a result of this confusion, many borrowers who should be debt-free still carry student loans. Here again, poor servicing is an issue.
Simplifying IDR is a considerable undertaking, but the failure to do so hurts borrowers. The Department of Education needs to prioritize this issue next.