Public Service Loan Forgiveness PSLF Program documents.
The Public Service Loan Forgiveness (PSLF) program has drawn the ire of lawmakers and the public for rejecting 99% of borrowers’ applications for student loan relief. Contrary to some perceptions, that’s not because the Department of Education is capriciously denying borrowers relief to which they are legally entitled; most PSLF applications were rejected because borrowers have not met program requirements.
To receive PSLF, a student borrower must make ten years’ worth of payments on a federal Direct Loan, while enrolled in a qualifying repayment plan, while working for a “public service” employer (the government and most nonprofits). According to a presentation given by the Office of Federal Student Aid, the “ten years” stipulation is the main stumbling block. Among Direct Loan borrowers who were rejected for PSLF, 80% started repaying their student loans less than ten years ago.
Only a tiny number of borrowers are even close to making the required number of monthly payments to receive PSLF (120 payments). Contrast this with the count of PSLF applications that have been rejected: over 100,000 as of June 2019. The vast majority of those denied have not reached the required number of payments, and most are likely still several years away.
Source: FedLoan Servicing via Department of Education
Indeed, federal data show that 55% of borrowers denied for PSLF had not yet made the ten years of qualifying payments—but they are welcome to re-apply for forgiveness once they reach the 120-payment threshold. Another 24% were rejected because they had not fully completed the application for loan forgiveness (though if other statistics are any guide, many of these have not crossed the 120-payment threshold either).
Source: Federal Student Aid Data Center
Fifteen percent were rejected because their student loans are not eligible for forgiveness. Only “Direct Loans” – those made directly by the government – are eligible for PSLF. When Congress created PSLF in 2007, most federal student loans were made under a now-defunct guaranteed-loan program, which is not eligible for PSLF. Borrowers can consolidate their guaranteed loans under the Direct Loan program, but payments made before consolidation will not count toward the 120-payment threshold.
Congress abolished guaranteed loans in 2010, meaning that all federal loans made afterwards were Direct Loans, which qualify for PSLF. It is likely that approval rates for PSLF applications will tick up significantly in 2021 and years after, as the cohorts of 100%-Direct Loan borrowers reach ten years of qualifying payments and become eligible for forgiveness. Though a negligible number of borrowers have reached the 120-payment mark, tens of thousands are well on their way.
That is sure to re-energize discussions about the cost of the program, which the Congressional Budget Office pegs at $18 billion for loans made over the next decade. Costs could go even higher if the promise of PSLF encourages students to borrow more, since additional dollars will simply be forgiven by the federal government. Given the administrative headaches PSLF has presented, one wonders whether those dollars could be more efficiently spent on other programs.
If you’re working towards PSLF, you can find more information about the program, and how to check the number of qualifying payments you’ve made, here.
