Changes to the student loan exemption: what you need to know
A student debt cancellation program with notoriously complex eligibility rules is being revamped by the Biden administration, with the goal of extending debt relief to thousands of public servants.
The Education Department said on Wednesday it will lift some rules for the remission of civil service loans as it works on permanent improvements through a rulemaking process. The action will immediately make 22,000 workers eligible for an estimated $ 1.7 billion loan cancellation, and it will bring more than 500,000 people closer to debt relief.
Here are some questions and answers about the program and its redesign:
WHAT IS THE PSLF?
Public Service Loan Forgiveness, known as PSLF, is a program created by Congress in 2007 to encourage more college graduates to pursue careers in the public service. He promised that if employees in governments or nonprofit groups made 10 years of monthly payments on their federal student loans, the rest would be waived.
It is open to a variety of workers at any level of government or any non-profit organization, from teachers and postal workers to police officers and members of the military.
But there are additional eligibility rules that were not always obvious to borrowers.
WHO IS ELIGIBLE AND WHO IS NOT?
Under the original rules, borrowers with certain types of loans were ineligible, including those in a now defunct program that provided federally guaranteed student loans through banks. These loans, known as Federal Family Education Loans, were the most common type when the program was created, and more than 10 million Americans still pay them back.
Some reimbursement plans offered by the federal government were also ineligible, and any payments made while billing was suspended by forbearance or deferral did not count towards the required 120 monthly payments. Payments that are late or not paid in full have not been recognized.
If the borrowers met all the conditions and made 120 payments certified by an eligible employer, then they could apply for the cancellation of the remainder of their debt.
WHERE IS THE PROBLEM?
When borrowers started submitting applications in 2017, it became evident that there was widespread confusion. The vast majority of applications were turned down, often because the applicants did not have the right type of loan or repayment plan.
Some borrowers said the rules were never clarified, while others said they were misled by loan officers who work on behalf of the federal government.
Despite past attempts to fix the program, the problems persisted. To date, only 5,500 borrowers have had loans cleared through the program, totaling $ 453 million in relief.
WHAT IS CHANGING?
For a limited time, the Education Ministry said payments that were previously ineligible can now count towards the required 120. Borrowers can get credit for these payments if they request a loan forgiveness before October 31, 2022, and while they were working. in eligible jobs at the time the payments were made.
But there are two big caveats.
Borrowers receiving FFEL loans – those issued by banks – must consolidate their student debt into new loans under the existing federal lending system. This can be done until October 2022. And although all loans taken out directly by students can now be counted, those taken out by parents through the Parent PLUS program remain ineligible.
Along with expanding payment eligibility, the Department of Education is making other changes to address past issues.
Starting next year, federal workers and the military will no longer need to have their jobs certified to prove they worked in the public service while making their payments. Instead, the department will automatically keep track of their payments using existing federal data.
The ministry will also create a process to review requests for errors and to allow borrowers to appeal decisions.
WHY IS IT TEMPORARY?
To get around program rules, the Education Ministry invokes the HEROES Act of 2003, a federal law that allows the agency to override certain rules in the event of a national emergency. The department ties its action to the pandemic, which has been declared a national emergency, but the department said it would lose that flexibility after October 2022.
Democrats applauded the move, while Republicans said the Biden administration was overstepping its authority. Republicans agree the program needs to be improved, but say it should be done by Congress, not the executive branch.
Groups representing student borrowers say the changes are long overdue. Seth Frotman, executive director of the Student Borrower Protection Center, said the update was good news for millions of workers.
“For too long, those who give the most to our communities and our country have been sidelined and forced to take on debts that should have been canceled,” he said in a statement. “The Biden administration is taking a critical step in easing this burden on our public service employees.”
The Biden administration is committed to making permanent improvements to the PSLF through a federal rule-making process. Hearings for this process began this week, with the potential to make big changes to student aid programs.
The education ministry said it was exploring a variety of changes, including possible partnerships with employers, to make it easier for officials to apply for a loan forgiveness.
However, changes are unlikely to happen quickly – the rule-making process can be slow and it can take years to put changes into effect.
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