If a Democrat wins the White House in 2020, a revamp of the beleaguered student-loan forgiveness for public servants could be on the table.
Many of the leading candidates are backing a plan that would expand the loan and repayment types eligible for the Public Service Loan Forgiveness program (PSLF) and allow borrowers to have part of their loan balance forgiven after five years, instead of waiting for 10 years to qualify for a full loan discharge.
Those proposals are part of a bill set to be introduced Thursday by presidential candidate Sen. Kirsten Gillibrand, a New York Democrat and Sen. Tim Kaine, a Virginia Democrat who ran for vice president in 2016. The bill’s list of co-sponsors is basically a who’s who of candidates vying for the Democratic nomination. It includes Democratic Senators: Elizabeth Warren of Massachusetts, Amy Klobuchar of Minnesota, Kamala Harris of California, Cory Booker of New Jersey as well as Sen. Bernie Sanders, a Vermont Independent.
Given that 44 million Americans are directly impacted by the nation’s $1.5 trillion student-loan problem, it’s perhaps no surprise that prominent politicians are looking for ways to address it.
The Public Service Loan Forgiveness program, which allows borrowers who work in government and some nonprofits to have certain types of federal loans forgiven, has been a particular focus for policymakers on both sides of the aisle and Thursday’s bill is the latest development indicating their vastly different approaches to the program.
The bill from top Democrats is named at addressing the challenges public servants have faced accessing the program. Confusion over its requirements as well as a lack of clarity from the Department of Education and the company it hires to manage the student loan program is to blame, borrower advocates say. Of the roughly 28,000 borrowers who applied for loan forgiveness when it first became available, just 96 had their loans discharged.
Gillibrand described PSLF as a “bureaucratic nightmare” in a statement announcing the bill and criticized the Department of Education for its handling of the program.
“As a result, millions of teachers, social workers, members of the military, nurses, public defenders, and countless others have been denied the support they have earned through their hard work and service to our communities,” Gillibrand said.
Republicans have vowed to get rid of the public-service loan forgiveness program
Prominent Republicans, on the other hand, are interested in curtailing the program. The Trump administration pitched getting rid of PSLF in its most recent budget proposal.
Rep. Virginia Foxx, a Republican from North Carolina, the ranking member on the House’s Education and Labor committee, called the program “one of their socialist planks,” in an interview with Politico published earlier this week.
All of the tension surrounding PSLF indicates it’s unlikely a major revamp of the program would make it through Congress. But Gillibrand and Kaine’s bill provides a window into the kinds of fixes prominent Democrats — and presidential contenders — think are necessary.
That includes a change borrower advocates have long called for — allowing all types of federal student loans to be eligible for forgiveness.
Confusion surrounding the type of federal loans eligible for forgiveness abounds and reports from borrowers as well as lawsuits indicate that in some cases, student-loan servicers — the companies hired by the federal government to work with borrowers and collect their payments — aren’t doing enough to clear up the confusion.
Asked how often she hears from borrowers with the wrong type of federal loan trying to access forgiveness, Betsy Mayotte, the president and founder of the Institute of Student Loan Advisors, said “All the time. I’d say weekly, I’d almost say daily, but weekly for sure.”
Right now, borrowers must have a Direct Loan in order to qualify for PSLF, but the bulk of federal student loans issued before 2010 were a different type — Federal Family Education Loans.
Known as FFEL, these loans don’t qualify for forgiveness. Borrowers can consolidate their FFEL loans into Direct Loans to make them eligible for PSLF, but any of the payments they made on their FFEL loans before they consolidated them don’t count towards forgiveness. Borrowers need to make a total of 120 monthly payments before their loans are discharged under PSLF.
Democrats propose major changes to the loan-forgiveness program
Under Gillibrand and Kaine’s proposal, borrowers would still need to consolidate their FFEL loans into Direct Loans in order to qualify for forgiveness, but any payments they made before the consolidation would count towards the 120 required for discharge.
“This is huge,” Mayotte said of the bill’s proposal to make FFEL loans eligible for forgiveness. “If I had to pick one thing that would pass in this bill that would be the piece that I would want to pass.”
In addition to the loans piece, the bill would make all repayment plans eligible for PSLF. Right now, borrowers must be using an income-driven repayment plan — which ties the monthly payment amount to a borrower’s income — to both be eligible for and receive a benefit from PSLF. The bill would make other repayment plans, including extended, which extends the payment term of the loan, making monthly payments smaller and graduated, in which monthly payments increase every two years.
Congress has already recognized the confusion borrowers face sorting through which repayment programs are eligible for PSLF. In 2018, they created a temporary fund for borrowers who were otherwise eligible for PSLF, but using the wrong repayment plan, could tap for forgiveness. What’s more, the majority of borrowers applied for forgiveness under that fund so far have been rejected.
If that provision passed, borrowers would certainly benefit, Mayotte said, both because it’s easier to stay on extended and graduated repayment plans — they don’t require borrowers to re-certify their income annually, like income-driven repayment plans — and because borrowers could plan better for the future. Since those plans don’t fluctuate with income borrowers will know at the beginning of their repayment term how much they need to set aside for student-loan repayment and can organize their finances around saving for a house, car or other major purchase more easily.
Still, Mayotte said she worries that, if passed, that change could draw the ire of the program’s critics because it would more easily allow a borrower with a high income to make student-loan payments that are low relative to their income and have the remainder of their debt forgiven.
“The program is really beneficial and I want it to stay around for as long as we need it,” Mayotte said, and she worries the optics of a high-income borrower making relatively low payments could put it at risk.
Senators also propose allowing borrowers to have half of their debt forgiven after five years of payments and public service. Right now, borrowers must work in public service for at least 10 years and make at least 10 years-worth of payments to have all of their debt discharged.
Rep. Eric Swalwell, a California Democrat who entered the presidential race earlier this week in the increasingly crowded Democratic field, introduced a bill in 2016 with a similar proposal that would allow public servants to have their loans forgiven in chunks, with the percentage of the loan discharged increasing with every two years of service, instead of requiring borrowers wait the full 10 years.
Proponents of forgiveness in increments note that it provides some certainty to borrowers counting on PSLF. Though borrowers are currently able to track their progress towards forgiveness throughout their tenure, they can’t apply to have their loans discharged until they’ve worked in public service for at least 10 years, which has the potential to lead to some nasty surprises after a decade of work and payments.
In addition, providing partial forgiveness for stints in public service would still incentivize borrowers to take well-meaning, but low-paying jobs. Still, Mayotte wonders if a shorter service period is in line with the program’s mission.
When PSLF was first proposed in 2007, “the intent of the program was to encourage people to enter and stay in qualifying public-service jobs,” she said. “I’m not sure if allowing forgiveness after five years instead of 10 fulfills the second intent of the program.”
In addition to these major changes, the senators are also proposing smaller tweaks to the program, including creating a fully electronic application process and requiring the Department of Education to give borrowers more information up front about whether they qualify for the program, how many of their payments count towards forgiveness and why, and what they can do to dispute the payment count.
If passed, the bill would also make it easier for borrowers who put extra money towards their loans to qualify for forgiveness. For a payment to qualify towards the 120 needed for a borrower to have their loans discharged, it needs to be made on time. If a borrower puts more than their required monthly payment towards their loan typically the due date for their following payment is more than a month later than when they overpaid.
This is known as paid-ahead status. Any payments a borrower makes while they’re paid-ahead don’t qualify for PSLF. If passed, the bill would be able to apply any payments made ahead of time towards forgiveness.
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