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In 2007, the government promised teachers, social workers and firefighters that if they worked in public service and made payments on their student loans for 10 years they’d have the remaining balance cancelled.
New data from the Department of Education indicate that tens of thousands of public servants have been making payments on their debt that didn’t count towards their eligibility for forgiveness. In other words, they’ll be working in public service and making payments on their loans for more than 10 years before they receive relief.
The data are the latest indication of the challenges public servants have faced accessing the loan forgiveness they’re entitled to under the Public Service Loan Forgiveness program. The figures come as the Biden administration is facing pressure from advocates to review and reform PSLF, and immediately cancel the federal debt of borrowers who have been working as public servants and making payments on their loans for at least 10 years.
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Advocates and officials at the Consumer Financial Protection Bureau had warned for years ahead of when the first group of borrowers would be eligible for relief, that they’d face challenges accessing it.
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Following the release of the data Monday, Seth Frotman, the executive director of the Student Borrower Protection Center reiterated that request, saying the data “confirms that the Education Department’s continued ‘wait and see’ approach to PSLF has failed. Secretary Cardona must immediately cancel the debt of all public-service workers with a decade of service.”
Richard Cordray, the chief operating officer of Federal Student Aid, indicated in a release accompanying the data that the agency was looking at the information with an eye towards ensuring borrowers access the relief they’re entitled to. While the agency has made improvements to PSLF, the report underscores “the need for more work ahead to fulfill the original promise that Congress made to police officers, firefighters, teachers, and many others,” Cordray said in the release.
Advocates and officials at the Consumer Financial Protection Bureau had warned for years ahead of when the first group of borrowers would be eligible for relief, that they’d face challenges accessing it.
Are you a public servant working towards student loan relief? We want to hear from you. Email: jberman@marketwatch.com.
Denial rate of 99%
The first year that borrowers could apply to receive relief under the program, the Department received applications from roughly 28,000 borrowers and just 96 had their loans cancelled, a denial rate of roughly 99%. Later cohorts haven’t fared much better. Even quintessential public servants have struggled; as of January 2020, just 124 members of the military had their loans forgiven under the program, a government watchdog reported earlier this year.
The data released Monday indicates that 3,682 borrowers qualified for forgiveness based on applications reviewed by the agency between November and April. In addition, 99.7% of the 168,000 applications processed by the Department during this period are from borrowers working in a qualifying public service job and have the right type of loan to put them on track towards relief.
It’s difficult to make an exact comparison with previous years of the share of borrowers who applied for forgiveness believing they were eligible and were denied, because the Department streamlined the application process.
Previously, the agency required borrowers to complete an application form when they wanted to claim forgiveness. In November, the Department combined that application with the form borrowers fill out in the years leading up to when they plan to apply for relief. This employment certification form allows borrowers to get a sense of whether they’re on track for relief and how many payments they have left.
The idea behind combining the forms was to make PSLF easier for borrowers to navigate by streamlining the forms they were required to fill out through the process. Between November and April the Department received 391,000 of these forms, of which they’ve processed more than 168,000.
Cancelled loans
Monday’s report also provides more detail as to why borrowers aren’t receiving relief under the program. One aim of digging deeper into the data is to get a sense of the challenges borrowers are facing so the agency can assess its options for addressing them.
Though the promise of PSLF seems relatively straightforward — work in public service and repay your federal student loans for 10 years and have the remaining balance forgiven — borrowers have had trouble navigating the program’s requirements, which are actually complex.
In total, just 5,500 borrowers have had their loans cancelled under the program so far, according to the Department, despite millions of Americans working in public service. “Over the years, PSLF has spawned much confusion and frustration,” the government noted in its report.
In order to qualify for forgiveness, borrowers have to be working in an eligible job (government positions and many types of nonprofit work count); make 120 on-time monthly payments; be in the correct repayment plan (income-driven repayment plans are the only plans that both qualify and would provide borrowers with relief under PSLF); and have the right type of loan.
That last requirement still appears to be holding borrowers back from receiving relief, the data released Monday indicate. Only Direct Loans qualify for PSLF, but until 2010, the bulk of federal student-loan borrowers received Federal Family Education Loans, which aren’t eligible. Borrowers can consolidate their FFEL loans into Direct Loans, but any payments borrowers made on their FFEL loans don’t count towards the 120 needed to access forgiveness.
Roughly 82% of borrowers who are working in an eligible job and have the right type of loan to qualify for PSLF have been repaying their loans for less than the 120 months required to have their loans discharged, according to the data released Monday. Of that 82%, about half consolidated their loans and so didn’t get credit towards the 120 months for working in public service and paying down their loans prior to consolidation.
One potential reason for the challenge: Borrowers aren’t receiving enough or the right information from their servicer to know they need to consolidate, setting them back potentially for years in the process of qualifying for forgiveness. That’s a concern lawsuits, state law enforcement officials and borrower advocates have been highlighting for years.
Ninety-seven advocacy groups urged the Department in April to review the PSLF program to make changes going forward that will ensure borrowers receive the relief they’re entitled to and to provide forgiveness to borrowers already working in public service for 10 years.
The groups asked that action be taken before the coronavirus-era pause on student loan payments ends. Payments are scheduled to resume October 1 and the challenges public servants face accessing relief indicate to Frotman that the student loan system isn’t ready to be turned back on.
“It is clear that much like the larger student loan system, public service loan forgiveness is broken,” he said. “It’s unfathomable that we would throw tens of millions of people back into this broken system before really any substantive steps forward had been taken to fix it.”
