NPR Exclusive: Troubled Public Service Loan Forgiveness program will get overhaul

A troubled student debt relief program for teachers, police officers and other public service workers will soon get the makeover that borrowers have been demanding.

Next week, according to a source familiar with the plans but who is not authorized to discuss them publicly, the U.S. Department of Education will unveil a significant overhaul of the Public Service Loan Forgiveness (PSLF) program, which has been a magnet of confusion, mistakes and mismanagement since its inception in 2007.

The changes will come in two phases — a long-term renovation to make the program easier to navigate, achieved through the federal process known as rule-making, and a temporary move using the department's executive authority to retroactively relax the program's rules to immediately help thousands of affected borrowers.

Confusing requirements led to borrowers getting denied

Borrowers must meet a handful of often-confusing requirements to qualify for PSLF:

• The borrower must work in a public sector job. 
• The borrower must make 120 on-time student loan payments. 
• The borrower must participate in a qualified repayment plan. 
• The borrower's loans must be a specific type, known as federal Direct Loans. 

For borrowers hoping for an easy path to loan forgiveness, these requirements have acted like the creaking wooden planks of a rope bridge, and, as NPR has reported, each plank has sent a crowd of frustrated public servants plunging.

For example, what is public service? According to the program's Education Department website, public service includes anyone working for "a U.S. federal, state, local, or tribal government or not-for-profit organization."

But in a 2018 review, the U.S. Government Accountability Office found that when borrowers called the company managing PSLF to make sure their jobs qualified, they sometimes didn't get an answer — because the Education Department hadn't given the company a list of eligible employers.

More recently, the Student Borrower Protection Center, a nonprofit that has vocally pushed for PSLF reform, found evidence that thousands of borrowers who do work in qualified public service jobs were being blocked from pursuing loan forgiveness.

The repayment plan presents another obstacle, with many borrowers making on-time payments, believing (and often being told by their loan servicer) they were on the path to forgiveness, only to realize later that those payments hadn't counted toward PSLF, because they had been made under the wrong repayment plan. In 2018, Congress created an emergency expansion of PSLF to try to address this.

And then there are the loans themselves. When PSLF was created, the lion's share of federal student loans were known as Federal Family Education Loans (FFEL) — loans typically issued by banks but backed by the U.S. government. In 2010, FFEL was shuttered, and all new loans were made under the preexisting federal Direct Loan program. While Direct Loans qualify for the loan forgiveness program — FFEL loans do not.

Many borrowers with FFEL loans spent years in public service, only to realize later that their payments did not count toward PSLF. Their only path to qualify was to consolidate their debts into Direct Loans. But that consolidation comes at a cost. Imagine a nurse works for three years — and makes 36 loan payments — before she realizes her FFEL loans don't qualify. When she consolidates, her path to 120 payments doesn't begin at 37. It begins at zero.

In a June posting, the Education Department's Federal Student Aid office conceded that "over the years, PSLF has spawned much confusion and frustration. Millions of people are employed in public service, including teachers, firefighters, law enforcement, and some nonprofit workers, yet only about 5,500 borrowers have received PSLF discharges thus far, totaling $453 million."

Now, the department plans to use its executive authority to help thousands of qualified public servants get back on the path to loan forgiveness.

The immediate fixes for current borrowers

According to the source familiar with the Education Department's plans, the agency will offer a temporary opportunity for anyone working in public service to get prior loan payments counted toward PSLF — even if those payments were going toward disqualified FFEL loans.

And the department is not just expanding the rules around loan type. Borrowers will also receive credit for payments made in the wrong repayment plan, regardless of whether the payment was made on time.

To qualify for this do-over, borrowers will need to apply for PSLF before Oct. 31, 2022.

What's more, for borrowers who were told to consolidate older loans into Direct Loans but had previously certified their years of public service, the department plans to automatically adjust their payment counts, giving them credit for payments made before consolidation. In the case of that hypothetical nurse, this means her payment count wouldn't reset at zero; it would now include those 36 earlier payments.

According to a source familiar with the details, 60% of borrowers who are not yet eligible for PSLF because they haven't made enough qualified payments also have — or at one point had — ineligible loans. This move to give them credit for payments on those previously ineligible loans could fast-track some borrowers who had all but given up on loan forgiveness.

Even borrowers who did not certify those early years of public service will be able to do so retroactively and receive credit for those early FFEL payments.

For military service members, the department will also allow all months spent on active duty to count toward PSLF, even if their loan payments were paused.

Details of the department's plans, obtained by NPR, suggest that tens of thousands of borrowers could potentially see their loans canceled, while hundreds of thousands could at least see a drop in the number of payments they're required to make.

The department is expected provide more information next week to help borrowers navigate these changes.

Long-term fixes are also on the way

In addition to using its executive authority to help borrowers get credit for disqualified payments, the department also plans to use the rule-making process to overhaul PSLF for the long-term.

Potential changes include simplifying rules around qualifying payments and giving borrowers credit even if payments are late or made in installments.

The department also wants to give borrowers credit for PSLF even if, under certain circumstances, their payments have been paused, such as for active-duty service members and borrowers facing economic hardships.

Even the definition of public service is up for review. Under the current rules, many nurses and health care workers don't qualify for the program because they work in for-profit hospitals, for example.

In an acknowledgement that borrowers' denials under the PSLF program can be frustratingly opaque, the department also wants to create a formal reconsideration process so borrowers can clearly explain themselves and correct errors when necessary.

Borrowers have voiced their frustration with PSLF

The anticipated changes to PSLF come after a sustained, years-long push by borrower advocates. In September, more than 200 organizations — representing students, teachers, public health workers and military service members — sent a letter to U.S. Secretary of Education Miguel Cardona, urging him "to take administrative action to ensure that all public service workers who have completed a decade of service receive the debt relief they were promised ... This action should be immediate and need not wait for the Department of Education to write new rules."

The letter was led by the Student Borrower Protection Center and co-signed by the nation's two largest teachers unions.

The Biden administration had already made clear its desire to overhaul PSLF, which was intended, in spirit, to encourage borrowers to work in public service.

"We're going to fix Public Service Loan Forgiveness," Cardona told NPR two days before he received that aforementioned letter. "That system is broken. We're going to overhaul it and fix it and make it work for students."

In July, the department posted a public request for information about the program. In about two months, the request has generated more than 48,000 comments.

"I spent years in the wrong payment plan for nothing," wrote Scott Friedman of Los Angeles. "The whole thing is broken."

Friedman echoes many of the comments when he writes, "It should be simple — if you can show you worked in the public sector for 10 years that should be enough."

"This program has been plagued with misleading, false information from the start," reads a comment from Arizona firefighter Russell Smith. "Not one of us in Public Service 'expects' this, yet it was offered as a government program and our government should do everything in their power to make it right."

It now appears that's what the U.S. Department of Education intends to do.

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