Student loan forgiveness: Public Service Loan Forgiveness Program

When it comes to student loan forgiveness, public service is a viable option – or is it?

As everyone who’s ever even contemplated higher education knows, taking out student loans is a costly, if necessary, way to finance it. According to the Brookings Institute, nearly $1.4 trillion in loans are currently outstanding from some 500,000 borrowers, making student debt the second-largest source of household debt after housing.

That’s why so many students have seized a shiny opportunity offered for student loan forgiveness: Public Service Loan Forgiveness (PSLF) Program, launched in 2007.

The program “forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer,” according to the U.S. Department of Education. 

And “public service” is broadly defined under the program, which states that the following employers – not the job itself – convey eligibility:

• Government organizations at any level (federal, state, local, or tribal)
   
• Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
   
• Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if their primary purpose is to provide certain types of qualifying public services
   
• AmeriCorps or Peace Corps full-time volunteer positions

No wonder millions of students jumped on board. Unfortunately, there’s a hitch – or rather, several of them. If you’re considering taking advantage of student loan forgiveness, public service and the PSLF program aren’t all they’re cracked up to be. 
 

Student loan forgiveness: Public service program

In the first place, because the program only started in 2007, and applicants must make 10 years of payments, the first loan forgiveness payout date didn’t come until October 2017, and it’s unclear even now if anyone has officially received forgiveness.

With this new reality, however politicians have begun to panic: The Congressional Budget Office estimated in 2017 that the PSLF program will still cost nearly $24 billion for the next 10 years, and that number doesn’t include the thousands of new borrowers coming on board continually.

Concern about the federal budget, of course, has led to massive uncertainty about the program. The 2018 budget replaces the PSLF program with a new one, and, while it doesn’t specify the fate of borrowers already in the program, it’s likely that they’ll be grandfathered in.

A new bill is under consideration by Republicans in Congress that new borrowers should be following closely: the PROSPER Act, which stands for Promoting Real Opportunity, Success and Prosperity through Education Reform. PROSPER would replace all existing loan programs, and the fate of the PSLF program is in doubt.

Here’s how things stand at the moment:

• One loan, one grant: PROSPER calls for streamlining federal student aid into a single funding tool. The bill proposes eliminating Stafford and PLUS loans for first-time borrowers as of July 1, 2019, and replacing these options with a new Federal ONE Loan. Borrowers who had borrowed direct loans prior to 2019 could still take them out until Oct. 1, 2024, at which point direct loans would be phased out entirely in favor of ONE Loans.
   
• New borrowing limits: The ONE Loan, despite its name, would have options for undergraduate and graduate students and parents and would have different borrowing limits for each type of borrower
   
• No subsidized loans or origination fees: Right now, students who demonstrate financial need are eligible for subsidized Stafford loans, meaning the loan doesn’t accrue interest while the student is in school. Under PROSPER, all loans in the ONE program would be unsubsidized. All loan origination fees would be eliminated.
   
• Only two repayment options: ONE loans would come with only two repayment plans, down from the nine that exist today. The new plans would be a standard, 10-year loan repayment plan of 120 equal payments and a single income-based repayment program.
   
• No PSLF for new borrowers: This aspect of the bill has generated the most headlines. The bill does not address PSLF directly, but since it eliminates all repayment terms except the two previously mentioned, PSLF presumably goes away. However, under the bill, ONE loans would not be eligible for PSLF but direct loans would be through the life of the loans.

This is only the beginning of Congress’ discussion on what should be included in the Higher Education Act reauthorization, which will continue in The Senate Committee on Health, Education, Labor and Pensions. 
 

Student loan forgiveness: Public service … and confusion

One of the biggest problems with PSLF is that no one seems to know how it works. Because the student loan industry is in the hands of a plethora of different private companies, no one ever gets the same answer twice – or even a correct answer, ever.

Stories abound in which borrowers thought they were following the program correctly, only to find out later that something had gone wrong.

One JustAnswer customer explained to a Legal Expert that she and her husband were denied for eligibility for years. Their loan servicer did tell them, however, that if they consolidated their loans they would be eligible for loan forgiveness for teachers.

But the next time they checked in, a different person told them that consolidation would prevent their eligibility – and that it was too late to stop the consolidation process. And yet the loans were still being billed separately, not as one.

Infolawyer, a legal Expert on JustAnswer who is a specialist in consumer protection law, advised,

“You can negotiate to have the loan deemed eligible by noting the separateness and providing documents in support of same including statements, invoices, and payments. You may also have a lawyer negotiate for you. Finally, you can file a lawsuit to have a declaratory judgment issued to this effect, which also can be used for leverage in negotiations.”

Suing a loan servicer for apparent incompetence is a drastic and expensive measure to have to take. Yet incompetence is hardly the worst of the world of student loan forgiveness. Public service can actually earn you the attention of scammers who proliferate in the world of student loans – precisely because handling everything yourself is so confusing with the PSLF program. 

Another JA customer, a teacher in an inner-city school, had been paying down a $52,000 loan for 15 years. Frustrated with the slow progress of paying down the loan, she was happy to let someone else handle things when she was contacted by a private company through her school e-mail address.

This company apparently turned out to be engaged in student loan fraud. Despite taking money from the teacher to pay for their services – and telling her to ignore overdue notices from the previous lender – nothing was ever done help her become eligible for the PSLF program, and she’s since discovered that not only is she not eligible, but she’s now in major arrears on the loan.

Sadly, the Legal Expert had to admit that suggested that bankruptcy might be the customer’s only option.

Yet another customer wanted to know more about “loan processing agencies” that claim to help consumers negotiate student loan debt. Legal Expert Olivia Kent explained that the customer doesn’t have to pay for such services, and advised that for someone in financial difficulty, it might not make sense to spend more money on student loans.

“If you really don’t feel that you’re equipped to negotiate on your own behalf, then I would consider such a company. But it’s very, very hard to know which ones are reputable,” Kent said.

Clearly, when it comes to student loan forgiveness, public service is not the surefire route to a debt-free education that millions of borrowers once believed.

Not only that, but you can’t rely on your for-profit loan servicer to answer your questions. For now, your best bet to find out where you stand is to rely on the federal agencies that oversee the current program.

If you have questions, you can check out the Department of Education’s question and answer page here, or call FedLoan Servicing at 1-855-265-4038. If you’re not even sure who your loan servicer is, visit My Federal Student Aid here.

Above all, it’s critical to stay on top of every step of your student loan process – and ahead of the scammers.

What’s your student loan forgiveness story? Whether it’s a dream situation or a nightmare, please share with us in the discussion comments below.