In October, the Biden administration announced significant new changes to Public Service Loan Forgiveness (PSLF), a federal student loan forgiveness program.
Since its inception, the PSLF program has had complicated eligibility requirements and dismal approval rates. The new changes are intended to address the program’s shortcomings and dramatically expand eligibility to reach more borrowers. But for weeks after its initial announcement, the Department of Education left many details regarding how the program’s expansion would actually be implemented unaddressed. This week, the Department released critical new guidance.
Biden’s Changes To Public Service Loan Forgiveness (PSLF): How It Works
The Department of Education is calling the new program expansion the “Limited PSLF Waiver” program. The waiver program will temporarily relax several rules governing the PSLF program. For most of the next year, the Department will count past payments on non-Direct federal student loans, such as FFEL loans and Perkins loans (which are not eligible for PSLF under the original program rules), towards the 120 “qualifying” payments that a borrower must make to get student loan forgiveness. The waiver will also allow payments made under any repayment plan to count as well; previously, only payments made under income-driven repayment plans and a 10-year Standard plan could qualify.
For some borrowers, relief under the Limited PSLF Waiver program will be automatic. Direct loan borrowers who have already certified their employment, for example, may see their PSLF payment counts automatically adjusted by the Department to reflect the changes under the new waiver program. Thousands of borrowers have already had their federal student loans forgiven through this process.
For other borrowers, action may be required by October 31, 2022. Borrowers who have not yet certified their public service employment will need to do so by submitting the appropriate PSLF Employment Certification form. And FFEL loan and Perkins loan borrowers may need to consolidate their loans through the federal Direct consolidation program, before going through the employment certification process. Until now, the Department has been vague about some key elements of eligibility and procedure for these borrowers.
Student Loan Forgiveness Amidst Loan Servicing Changes
One of the Department of Education’s federal student loan servicers, FedLoan Servicing, has been the primary contractor handling the PSLF program. But earlier this year, FedLoan announced that it would be withdrawing from the Department’s federal student loan system, raising questions about which agency would be handling the Limited PSLF Waiver and associated Direct loan consolidations and employment certifications.
Earlier this month, though, FedLoan and the Department of Education announced an agreement to extend FedLoan’s contract by another year. And this week, the Department clarified that, “FedLoan Servicing will continue to service PSLF borrowers until all borrowers are transferred to their new loan servicer. FSA will ensure that all FedLoan Servicing borrowers, including PSLF borrowers, experience a smooth transition.” So borrowers who need to consolidate their FFEL or Perkins loans, or submit employment certifications, can continue to go through FedLoan Servicing.
Student Loan Forgiveness For Direct Consolidation Loans With Complicated Repayment Histories
When borrowers consolidate multiple FFEL loans into a single Direct consolidation loan, those FFEL loans may have had different repayment histories or different periods of repayment. Now that the prior payments on FFEL loans can be counted towards loan forgiveness under the Limited PSLF Waiver, the Department of Education had not clarified how it would treat Direct consolidation loans where the underlying loans have been in repayment for varying lengths of time.
This week, the Department issued clarifying guidance. According to the Department, “As long as your repayment history overlaps for each loan, the consolidation loan will be credited with the largest number of payments of the loans that were consolidated. For example, if you had 50 qualifying payments on one Subsidized Stafford Loan and 100 qualifying payments on another Subsidized Stafford Loan and you consolidate those loans, you will receive 100 qualifying payments on the new Direct Consolidation Loan.”
Student Loan Forgiveness For Parent PLUS Borrowers
The Department initially had indicated that Parent PLUS loans were completely excluded from the Limited PSLF Waiver program, even if a borrower consolidated those loans by October 31, 2022. But officials did not address whether Parent PLUS loans that were already consolidated could benefit from the waiver. Direct consolidation loans that contain Parent PLUS loans can qualify for PSLF under the original rules of the program, as long as they are repaid under the Income-Contingent Repayment plan.
This week, the Department provided additional information indicating that consolidated Parent PLUS loans can potentially qualify for the Limited PSLF Waiver program under certain conditions. According to the Department, “If you consolidate (or previously consolidated) a Parent PLUS loan, the consolidation loan may be eligible for credit towards PSLF.” The Department provided an example of a borrower who consolidated two loans — a federal Parent PLUS loan and a federal Stafford loan — years ago. In this example, the Department says that, “While the repayment status history on the FFEL Parent PLUS Loan will not be considered, the repayment status on the FFEL Subsidized Stafford Loan will be considered, and the entire Direct Consolidation Loan… would receive credit” for the overlapping repayment period under the waiver program.
Notably, however, the Department did not directly address whether payments made on the Direct Consolidation loan itself can benefit from the Limited PSLF Waiver program if it only contains federal Parent PLUS loans.
How Student Loan Payments Will Be Counted For the Limited PSLF Waiver
This week, the Department also clarified how it will go about counting “payments” for purposes of the Limited PSLF Waiver. Rather than going back and using a loan servicer’s actual payment history for a borrower, the Department confirmed that it will simply use a borrower’s repayment status as reported to Federal Student Aid.
“You may receive credits for any month after Oct. 2007 that you had qualifying employment and were in an ‘In Repayment’ status,” says the Department. “Past periods of repayment will now count regardless of whether you made a payment, made that payment on time, for the full amount due, on a qualifying repayment plan.”
Next Steps For Borrowers Seeking Student Loan Forgiveness Under the Limited PSLF Waiver
Federal Student Aid Chief Operating Officer Richard Cordray sought to reassure borrowers in a letter released earlier this month that administration officials are committed to making the Limited PSLF Waiver work. “Please understand that complex changes of this magnitude are hard to process and execute,” he wrote. “They require large-scale data and processing work, which takes time… We are working as quickly as possible to update your account and give you clear and accurate information. This may take several months.”
In the meantime, borrowers can learn more about the program here.
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